F. National Economy and Patrimony

EN BANC
WILSON P. GAMBOA, G.R. No. 176579
Petitioner,
Present:
- versus -
CORONA, C.J.,
FINANCE SECRETARY CARPIO,

MARGARITO B. TEVES, FINANCE
UNDERSECRETARY JOHN P. VELASCO, JR.,
SEVILLA, AND COMMISSIONER
RICARDO ABCEDE OF THE LEONARDO-DE CASTRO,
PRESIDENTIAL COMMISSION ON
BRION,
GOOD GOVERNMENT (PCGG) IN
THEIR CAPACITIES AS CHAIR AND PERALTA,
MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, BERSAMIN,
CHAIRMAN ANTHONI SALIM OF DEL CASTILLO,

FIRST PACIFIC CO., LTD. IN HIS
CAPACITY AS DIRECTOR OF ABAD,
METRO PACIFIC ASSET HOLDINGS
INC., CHAIRMAN MANUEL V. VILLARAMA, JR.,
PANGILINAN OF PHILIPPINE
PEREZ,
LONG DISTANCE TELEPHONE
COMPANY (PLDT) IN HIS
MENDOZA, and
CAPACITY AS MANAGING
DIRECTOR OF FIRST PACIFIC CO., SERENO, JJ.
LTD., PRESIDENT NAPOLEON L.
NAZARENO OF PHILIPPINE LONG
Political Law Review. F. National Econ and Patrimony Page 1 of 278
DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE
SECURITIES EXCHANGE
COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE
STOCK EXCHANGE,
Respondents.
PABLITO V. SANIDAD and Promulgated:
ARNO V. SANIDAD,
Petitioners-in-Intervention. June 28, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and

declaration of nullity of the sale of shares of stock of Philippine
Telecommunications Investment Corporation (PTIC) by the government
of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc.
(MPAH), an affiliate of First Pacific Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of

Philippine Long Distance Telephone Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436

which granted PLDT a franchise and the right to engage in
telecommunications business. In 1969, General Telephone and
Electronics Corporation (GTE), an American company and a major PLDT
stockholder, sold 26 percent of the outstanding common shares of PLDT
to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several
persons, including Roland Gapud and Jose Campos, Jr. Subsequently,

PHI became the owner of 111,415 shares of stock of PTIC by virtue of
three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of
stock of PTIC held by PHI were sequestered by the Presidential
Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of
PTIC, were later declared by this Court to be owned by the Republic of
the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment

firm, acquired the remaining 54 percent of the outstanding capital stock
of PTIC. On 20 November 2006, the Inter-Agency Privatization Council
(IPC) of the Philippine Government announced that it would sell the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, through a public bidding to be conducted on 4 December 2006.
Subsequently, the public bidding was reset to 8 December 2006, and
only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won with a bid of P25.6
billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first
refusal as a PTIC stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First Pacific failed to do so
by the 1 February 2007 deadline set by IPC and instead, yielded its right
to PTIC itself which was then given by IPC until 2 March 2007 to buy the
PTIC shares. On 14 February 2007, First Pacific, through its subsidiary,
MPAH, entered into a Conditional Sale and Purchase Agreement of the
111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of
PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government
of 46.125 percent of PTIC shares is actually an indirect sale of 12 million
shares or about 6.3 percent of the outstanding common shares of
PLDT. With the sale, First Pacifics common shareholdings in PLDT increased
from 30.7 percent to 37 percent, thereby increasing the common
shareholdings of foreigners in PLDT to about 81.47 percent. This violates
Section 11, Article XII of the 1987 Philippine Constitution which limits
foreign ownership of the capital of a public utility to not more than 40
percent.3
On the other hand, public respondents Finance

Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG
Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in

the business of investment holdings. PTIC held 26,034,263 PLDT common
shares, or 13.847 percent of the total PLDT outstanding common shares.
PHI, on the other hand, was incorporated in 1977, and became the
owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital
stock of PTIC by virtue of three Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares
held by PHI were sequestered by the PCGG, and subsequently declared
by this Court as part of the ill-gotten wealth of former President Ferdinand
Marcos. The sequestered PTIC shares were reconveyed to the Republic of
the Philippines in accordance with this Courts decision4 which became
final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which
represent 6.4 percent of the outstanding common shares of stock of
PLDT, and designated the Inter-Agency Privatization Council (IPC),
composed of the Department of Finance and the PCGG, as the

disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-
bid conference was held, and the original deadline for bidding
scheduled on 4 December 2006 was reset to 8 December 2006. The
extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP

emerged as the highest bidder with a bid of P25,217,556,000. The
government notified First Pacific, the majority owner of PTIC shares, of the
bidding results and gave First Pacific until 1 February 2007 to exercise its
right of first refusal in accordance with PTICs Articles of Incorporation. First
Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on

Good Government conducted a public hearing on the particulars of the
then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the
public hearing. The HR Committee Report No. 2270 concluded that: (a)
the auction of the governments 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and (b) First
Pacifics intended acquisition of the governments 111,415 PTIC shares
resulting in First Pacifics 100% ownership of PTIC will not violate the 40
percent constitutional limit on foreign ownership of a public utility since
PTIC holds only 13.847 percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the
111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC
conducted a public bidding for the sale of 111,415 PTIC shares or 46
percent of the outstanding capital stock of PTIC (the remaining 54

percent of PTIC shares was already owned by First Pacific and its
affiliates); (b) Parallax offered the highest bid amounting
to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC
and its shareholders granted in PTICs Articles of Incorporation, MPAH, a
First Pacific affiliate, exercised its right of first refusal by matching the
highest bid offered for PTIC shares on 13 February 2007; and (d) on 28
February 2007, the sale was consummated when MPAH paid
IPC P25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares. Respondent Pangilinan denies the other allegations
of facts of petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition,

injunction, declaratory relief, and declaration of nullity of sale of the
111,415 PTIC shares. Petitioner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacifics common
shareholdings in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common shareholdings in PLDT,
would result to a total foreign common shareholdings in PLDT of 51.56
percent which is over the 40 percent constitutional limit.6 Petitioner
asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go
up from 30.7 percent to 37.0 percent of its common or voting-
stockholdings, x x x. Hence, the consummation of the sale will put
the two largest foreign investors in PLDT First Pacific and Japans
NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common
equity. x x x With the completion of the sale, data culled from the
official website of the New York Stock Exchange (www.nyse.com)
showed that those foreign entities, which own at least five percent

of common equity, will collectively own 81.47 percent of PLDTs
common equity. x x x
x x x as the annual disclosure reports, also referred to as
Form 20-K reports x x x which PLDT submitted to the New
York Stock Exchange for the period 2003-2005, revealed
that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership
as early as 2003. x x x7
Petitioner raises the following issues: (1) whether the consummation of the
then impending sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of a public utility; (2) whether
public respondents committed grave abuse of discretion in allowing the
sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of
common shares to foreigners in excess of 40 percent of the entire
subscribed common capital stock violates the constitutional limit on
foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a

Motion for Leave to Intervene and Admit Attached Petition-in-
Intervention. In the Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention.
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking,

among others, to enjoin and/or nullify the sale by respondents of the
111,415 PTIC shares to First Pacific or assignee. Petitioners-in-intervention
claim that, as PLDT subscribers, they have a stake in the outcome of the
controversy x x x where the Philippine Government is completing the sale
of government owned assets in [PLDT], unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution.
The Issue
This Court is not a trier of facts. Factual questions such as those raised by
petitioner,9 which indisputably demand a thorough examination of the
evidence of the parties, are generally beyond this Courts jurisdiction.
Adhering to this well-settled principle, the Court shall confine the
resolution of the instant controversy solely on the threshold and purely
legal issue of whether the term capital in Section 11, Article XII of the
Constitution refers to the total common shares only or to the total
outstanding capital stock (combined total of common and non-voting
preferred shares) of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the

remedies petitioner seeks, only the petition for prohibition is within the
original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The
actions for declaratory relief,10 injunction, and annulment of sale are not
embraced within the original jurisdiction of the Supreme Court. On this
ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for
prohibition,11 the Court shall nevertheless refrain from discussing the
grounds in support of the petition for prohibition since on 28 February
2007, the questioned sale was consummated when MPAH paid
IPC P25,217,556,000 and the government delivered the certificates for the
111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of
the term capital in Section 11, Article XII of the Constitution has far-
reaching implications to the national economy, the Court treats the
petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the

petition for declaratory relief as one for mandamus considering the grave
injustice that would result in the interpretation of a banking law. In that
case, which involved the crime of rape committed by a foreign tourist
against a Filipino minor and the execution of the final judgment in the
civil case for damages on the tourists dollar deposit with a local bank, the
Court declared Section 113 of Central Bank Circular No. 960, exempting
foreign currency deposits from attachment, garnishment or any other
order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that injustice would result
especially to a citizen aggrieved by a foreign guest like accused
x x x that would negate Article 10 of the Civil Code which provides that in
case of doubt in the interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to prevail. The Court
therefore required respondents Central Bank of the Philippines, the local
bank, and the accused to comply with the writ of execution issued in the

civil case for damages and to release the dollar deposit of the accused
to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court

similarly brushed aside the procedural infirmity of the petition for
declaratory relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government unlawfully excluded
petitioners, who were government employees, from the enjoyment of
rights to which they were entitled under the law. Specifically, the question
was: Are the branches, agencies, subdivisions, and instrumentalities of the
Government, including government owned or controlled corporations
included among the four employers under Presidential Decree No. 851
which are required to pay their employees x x x a thirteenth (13th) month
pay x x x ? The Constitutional principle involved therein affected all
government employees, clearly justifying a relaxation of the technical
rules of procedure, and certainly requiring the interpretation of the
assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory
relief as one for mandamus if the issue involved has far-reaching
implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition

for declaratory relief. However, exceptions to this rule have been
recognized. Thus, where the petition has far-reaching implications
and raises questions that should be resolved, it may be treated as
one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the
term capital in Section 11, Article XII of the Constitution. He prays that this
Court declare that the term capital refers to common shares only, and
that such shares constitute the sole basis in determining foreign equity in
a public utility. Petitioner further asks this Court to declare any ruling
inconsistent with such interpretation unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the
Constitution has far-reaching implications to the national economy. In
fact, a resolution of this issue will determine whether Filipinos are masters,
or second class citizens, in their own country. What is at stake here is
whether Filipinos or foreigners will have effective control of the national
economy. Indeed, if ever there is a legal issue that has far-reaching
implications to the entire nation, and to future generations of Filipinos, it is
the threshhold legal issue presented in this case.
The Court first encountered the issue on the definition of the term capital
in Section 11, Article XII of the Constitution in the case of Fernandez
v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the
same public utility (PLDT) and substantially the same private respondents.
Despite the importance and novelty of the constitutional issue raised
therein and despite the fact that the petition involved a purely legal
question, the Court declined to resolve the case on the merits, and
instead denied the same for disregarding the hierarchy of
courts.17 There, petitioner Fernandez assailed on a pure question of law
the Regional Trial Courts Decision of 21 February 2003 via a petition for
review under Rule 45. The Courts Resolution, denying the petition,
became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity
to finally settle this purely legal issue which is of transcendental

importance to the national economy and a fundamental requirement to
a faithful adherence to our Constitution. The Court must forthwith seize
such opportunity, not only for the benefit of the litigants, but more
significantly for the benefit of the entire Filipino people, to ensure, in the
words of the Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.18 Besides, in the light of
vague and confusing positions taken by government agencies on this
purely legal issue, present and future foreign investors in this country
deserve, as a matter of basic fairness, a categorical ruling from this Court
on the extent of their participation in the capital of public utilities and
other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely

legal issue has remained unresolved for over 75 years since the 1935
Constitution. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term capital, which
appears not only in Section 11, Article XII of the Constitution, but also in
Section 2, Article XII on co-production and joint venture agreements for
the development of our natural resources,19 in Section 7, Article XII on
ownership of private lands,20 in Section 10, Article XII on the reservation
of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on
the ownership of educational institutions,22 and in Section 11(2), Article
XVI on the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has

the right to question the subject sale, which he claims to violate the

nationality requirement prescribed in Section 11, Article XII of the
Constitution. If the sale indeed violates the Constitution, then there is a
possibility that PLDTs franchise could be revoked, a dire consequence
directly affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises

matters of transcendental importance to the public. The fundamental
and threshold legal issue in this case, involving the national economy and
the economic welfare of the Filipino people, far outweighs any
perceived impediment in the legal personality of the petitioner to bring
this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a

suit on matters of transcendental importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue

concerns a public right and the object of mandamus is to obtain
the enforcement of a public duty, the people are regarded as
the real parties in interest; and because it is sufficient that
petitioner is a citizen and as such is interested in the execution of
the laws, he need not show that he has any legal or special
interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on
matters of public concern, a right then recognized in Section 6,
Article IV of the 1973 Constitution, in connection with the rule
that laws in order to be valid and enforceable must be published
in the Official Gazette or otherwise effectively promulgated. In
ruling for the petitioners legal standing, the Court declared that
the right they sought to be enforced is a public right recognized
by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada,

further declared that when a mandamus proceeding involves
the assertion of a public right, the requirement of personal
interest is satisfied by the mere fact that petitioner is a citizen
and, therefore, part of the general public which possesses the
right.
Further, in Albano v. Reyes, we said that while expenditure of

public funds may not have been involved under the questioned
contract for the development, management and operation of
the Manila International Container Terminal, public interest [was]
definitely involved considering the important role [of the subject
contract] . . . in the economic development of the country and
the magnitude of the financial consideration involved. We
concluded that, as a consequence, the disclosure provision in
the Constitution would constitute sufficient authority for
upholding the petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of

transcendental public importance, the petitioner has the
requisite locus standi.
Definition of the Term Capital in

Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987
Constitution mandates the Filipinization of public utilities, to wit:
Section 11. 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 corporations or
associations organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens; nor

shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of
such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the

1973 Constitution, thus:

except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least
sixty per centum of the capital of which is owned by such citizens,
nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall any
such franchise or right be granted except under the condition that
it shall be subject to amendment, alteration, or repeal by the
National Assembly when the public interest so requires. The State
shall encourage equity participation in public utilities by the general
public. The participation of foreign investors in the governing body
of any public utility enterprise shall be limited to their proportionate
share in the capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8,
Article XIV of the 1935 Constitution, viz:

except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines sixty per centum
of the capital of which is owned by citizens of the Philippines, nor
shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. No franchise or right
shall be granted to any individual, firm, or corporation, except
under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the public interest so
requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986

Constitutional Commission, reminds us that the Filipinization provision in
the 1987 Constitution is one of the products of the spirit of nationalism
which gripped the 1935 Constitutional Convention.25 The 1987
Constitution provides for the Filipinization of public utilities by requiring
that any form of authorization for the operation of public utilities should
be granted only to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens. The provision is [an
express] recognition of the sensitive and vital position of public utilities
both in the national economy and for national security.26 The evident
purpose of the citizenship requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to the national
interest.27 This specific provision explicitly reserves to Filipino citizens
control of public utilities, pursuant to an overriding economic goal of the
1987 Constitution: to conserve and develop our patrimony 28 and ensure
a self-reliant and independent national
economy effectively controlled by Filipinos.29
Any citizen or juridical entity desiring to operate a public utility must

therefore meet the minimum nationality requirement prescribed in
Section 11, Article XII of the Constitution. Hence, for a corporation to be
granted authority to operate a public utility, at least 60 percent of its
capital must be owned by Filipino citizens.
The crux of the controversy is the definition of the term capital. Does the
term capital in Section 11, Article XII of the Constitution refer to common
shares or to the total outstanding capital stock (combined total of
common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic

public utilities refers only to common shares because such shares are
entitled to vote and it is through voting that control over a corporation is
exercised. Petitioner posits that the term capital in Section 11, Article XII of
the Constitution refers to the ownership of common capital stock
subscribed and outstanding, which class of shares alone, under the
corporate set-up of PLDT, can vote and elect members of the board of
directors. It is undisputed that PLDTs non-voting preferred shares are held
mostly by Filipino citizens.30 This arose from Presidential Decree No.
217,31 issued on 16 June 1973 by then President Ferdinand Marcos,
requiring every applicant of a PLDT telephone line to subscribe to non-

voting preferred shares to pay for the investment cost of installing the
telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and

adopt petitioners definition of the term capital.33 Petitioners-in-
intervention allege that the approximate foreign ownership of common
capital stock of PLDT x x x already amounts to at least 63.54% of the total
outstanding common stock, which means that foreigners exercise
significant control over PLDT, patently violating the 40 percent foreign
equity limitation in public utilities prescribed by the Constitution.
Respondents, on the other hand, do not offer any definition of the term
capital in Section 11, Article XII of the Constitution. More importantly,
private respondents Nazareno and Pangilinan of PLDT do not dispute that
more than 40 percent of the common shares of PLDT are held by
foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73

pages, harps mainly on the procedural infirmities of the petition and the
supposed violation of the due process rights of the affected foreign
common shareholders. Respondent Nazareno does not deny petitioners
allegation of foreigners dominating the common shareholdings of
PLDT. Nazarenostressed mainly that the petition seeks to divest foreign
common shareholders purportedly exceeding 40% of the total common
shareholdings in PLDT of their ownership over their shares. Thus, the
foreign natural and juridical PLDT shareholders must be impleaded in this
suit so that they can be heard.34 Essentially, Nazareno invokes denial of
due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he
states that among the factual assertions that need to be established to
counter petitioners allegations is the uniform interpretation by
government agencies (such as the SEC), institutions and corporations
(such as the Philippine National Oil Company-Energy Development
Corporation or PNOC-EDC) of including both preferred shares and
common shares in controlling interest in view of testing compliance with
the 40% constitutional limitation on foreign ownership in public utilities.35
Similarly, respondent Manuel V. Pangilinan does not define the term

capital in Section 11, Article XII of the Constitution. Neither does he refute
petitioners claim of foreigners holding more than 40 percent of PLDTs
common shares. Instead, respondent Pangilinan focuses on the
procedural flaws of the petition and the alleged violation of the due
process rights of foreigners. Respondent Pangilinan emphasizes in his
Memorandum (1) the absence of this Courts jurisdiction over the petition;
(2) petitioners lack of standing; (3) mootness of the petition; (4) non-
availability of declaratory relief; and (5) the denial of due process rights.
Moreover, respondent Pangilinan alleges that the issue should be
whether owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their
shares in PLDT and in those companies without any law requiring them to
surrender their shares and also without notice and trial.
Respondent Pangilinan further asserts that Section 11, [Article XII of the
Constitution] imposes no nationality requirement on the shareholders of
the utility company as a condition for keeping their shares in the utility
company. According to him, Section 11 does not authorize taking one
persons property (the shareholders stock in the utility company) on the
basis of another partys alleged failure to satisfy a requirement that is a
condition only for that other partys retention of another piece of property

(the utility company being at least 60% Filipino-owned to keep its
franchise).36
The OSG, representing public respondents Secretary Margarito Teves,

Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the definition of the term capital. In
its Memorandum37 dated 24 September 2007, the OSG also limits its
discussion on the supposed procedural defects of the petition, i.e. lack of
standing, lack of jurisdiction, non-inclusion of interested parties, and lack
of basis for injunction. The OSG does not present any definition or
interpretation of the term capital in Section 11, Article XII of the
Constitution. The OSG contends that the petition actually partakes of a
collateral attack on PLDTs franchise as a public utility, which in effect
requires a full-blown trial where all the parties in interest are given their
day in court.38
Respondent Francisco Ed Lim, impleaded as President and Chief

Executive Officer of the Philippine Stock Exchange (PSE), does not also
define the term capital and seeks the dismissal of the petition on the
following grounds: (1) failure to state a cause of action against Lim; (2)
the PSE allegedly implemented its rules and required all listed companies,
including PLDT, to make proper and timely disclosures; and (3) the reliefs
prayed for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who

claimed to be a stockholder of record of PLDT, contended that the term
capital in the 1987 Constitution refers to shares entitled to vote or the
common shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities
prescribed by the Constitution refers to ownership of shares of stock
entitled to vote, i.e., common shares, considering that it is through
voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing

limitations and restrictions on fully nationalized and partially
nationalized activities is for Filipino nationals to be always in control
of the corporation undertaking said activities. Otherwise, if the Trial
Courts ruling upholding respondents arguments were to be given
credence, it would be possible for the ownership structure of a
public utility corporation to be divided into one percent (1%)
common stocks and ninety-nine percent (99%) preferred stocks.
Following the Trial Courts ruling adopting respondents arguments,
the common shares can be owned entirely by foreigners thus
creating an absurd situation wherein foreigners, who are supposed
to be minority shareholders, control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to

apply to both the beneficial ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in

public utilities prescribed by the Constitution refers to ownership of
shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown

that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners which would
gain entry to petitioner PLDT by the acquisition of SMART shares
through the Questioned Transactions is equivalent to 82.99%, and
the nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a violation of
Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14,
1987 cited by the Trial Court to support the proposition that the
meaning of the word capital as used in Section 11, Article XII of the
Constitution allegedly refers to the sum total of the shares
subscribed and paid-in by the shareholder and it allegedly is
immaterial how the stock is classified, whether as common or
preferred, cannot stand in the face of a clear legislative policy as
stated in the FIA which took effect in 1991 or way after said opinions
were rendered, and as clarified by the above-quoted
Amendments. In this regard, suffice it to state that as between the
law and an opinion rendered by an administrative agency, the law
indubitably prevails. Moreover, said Opinions are merely advisory
and cannot prevail over the clear intent of the framers of the
Constitution.
In the same vein, the SECs construction of Section 11, Article XII of
the Constitution is at best merely advisory for it is the courts that
finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel

V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B.

Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued
that the term capital in Section 11, Article XII of the Constitution includes
preferred shares since the Constitution does not distinguish among
classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the

corporations capital, without distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in

force at the time the present (1987) Constitution was drafted
defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term

outstanding capital stock, as used in this Code, means the total
shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares.
Section 137 of the Corporation Code also does not distinguish

between common and preferred shares, nor exclude either class of
shares, in determining the outstanding capital stock (the capital) of
a corporation. Consequently, petitioners suggestion to reckon PLDTs
foreign equity only on the basis of PLDTs outstanding common
shares is without legal basis. The language of the Constitution should
be understood in the sense it has in common use.
xxxx

17. But even assuming that resort to the proceedings of the
Constitutional Commission is necessary, there is nothing in the
Record of the Constitutional Commission (Vol. III) which petitioner
misleadingly cited in the Petition x x x which supports petitioners
view that only common shares should form the basis for computing
a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily

responsible for implementing the Corporation Code, and which also
has the responsibility of ensuring compliance with the Constitutions
foreign equity restrictions as regards nationalized activities x x x has
categorically ruled that both common and preferred shares are
properly considered in determining outstanding capital stock and
the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term capital

in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus in the present case
only to common shares,41 and not to the total outstanding capital stock
comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or

preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock

corporations may be divided into classes or series of shares, or both,
any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of

incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as preferred or
redeemable shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par value as may
be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance companies, public
utilities, and building and loan associations shall not be permitted to
issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given
preference in the distribution of the assets of the corporation in case
of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which
are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par
value. The Board of Directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares
of stock or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed
fully paid and non-assessable and the holder of such shares shall
not be liable to the corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be issued for a
consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the
corporation for its no-par value shares shall be treated as capital
and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of
insuring compliance with constitutional or legal requirements.

Except as otherwise provided in the articles of incorporation and
stated in the certificate of stock, each share shall be equal in all
respects to every other share.
Where the articles of incorporation provide for non-voting shares in
the cases allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the
vote necessary to approve a particular corporate act as provided
in this Code shall be deemed to refer only to stocks with voting
rights.
Indisputably, one of the rights of a stockholder is the right to participate in

the control or management of the corporation.43 This is exercised
through his vote in the election of directors because it is the board of
directors that controls or manages the corporation.44 In the absence of
provisions in the articles of incorporation denying voting rights to
preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the
same manner as bondholders.45 In fact, under the Corporation Code
only preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in any
corporate meeting, and any provision in the articles of incorporation
restricting the right of common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to

control, as opposed to preferred shares which usually have no voting
rights, the term capital in Section 11, Article XII of the Constitution refers
only to common shares. However, if the preferred shares also have the
right to vote in the election of directors, then the term capital shall
include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right
to vote in the election of directors. In short, the term capital in Section 11,
Article XII of the Constitution refers only to shares of stock that can vote in
the election of directors.
This interpretation is consistent with the intent of the framers of the

Constitution to place in the hands of Filipino citizens the control and
management of public utilities. As revealed in the deliberations of the
Constitutional Commission, capital refers to the voting stock or controlling
interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local
or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this

question: Where do we base the equity requirement, is it on the
authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the Committee please
enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members
of the team from the UP Law Center who provided us a draft. The
phrase that is contained here which we adopted from the UP draft is
60 percent of voting stock.
MR. NOLLEDO. That must be based on the subscribed capital stock,

because unless declared delinquent, unpaid capital stock shall be
entitled to vote.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another

corporation, say, a corporation with 60-40 percent equity invests in
another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather
rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was
accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the

deletion of the phrase voting stock or controlling interest.
MR. AZCUNA. Hence, without the Davide amendment, the

committee report would read: corporations or associations at least
sixty percent of whose CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with

60 percent of the capital to be owned by citizens.

MR. AZCUNA. But the control can be with the foreigners even if they
are the minority. Let us say 40 percent of the capital is owned by
them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the corporation
is controlled by foreigners despite being the minority because they
have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as

stated in the 1973 and 1935 Constitutions is that according to
Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling

interest.
MR. BENGZON. In the case of stock corporations, it is

assumed.49 (Emphasis supplied)
Thus, 60 percent of the capital assumes, or should result in, controlling

interest in the corporation. Reinforcing this interpretation of the term
capital, as referring to controlling interest or shares entitled to vote, is the
definition of a Philippine national in the Foreign Investments Act of
1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:

a. The term Philippine national shall mean a citizen of the
Philippines; or a domestic partnership or association wholly owned
by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a corporation organized abroad and
registered as doing business in the Philippines under the Corporation
Code of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-
Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the
Philippines and at least sixty percent (60%) of the members of the
Board of Directors of each of both corporations must be citizens of
the Philippines, in order that the corporation, shall be considered a
Philippine national. (Emphasis supplied)
In explaining the definition of a Philippine national, the Implementing

Rules and Regulations of the Foreign Investments Act of 1991 provide:
b. Philippine national shall mean a citizen of the Philippines or a

domestic partnership or association wholly owned by the citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital stock
outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee

retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent [60%] of the fund will accrue to
the benefit of the Philippine nationals; Provided,that where a
corporation its non-Filipino stockholders own stocks in a Securities
and Exchange Commission [SEC] registered enterprise, at least sixty
percent [60%] of the capital stock outstanding and entitled to vote
of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent [60%] of the members of the
Board of Directors of each of both corporation must be citizens of
the Philippines, in order that the corporation shall be considered a
Philippine national. The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation

shall be determined on the basis of outstanding capital stock
whether fully paid or not, but only such stocks which are generally
entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or

Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks, the
voting rights of which have been assigned or transferred to aliens
cannot be considered held by Philippine citizens or Philippine
nationals.
Individuals or juridical entities not meeting the aforementioned

qualifications are considered as non-Philippine nationals. (Emphasis
supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned
capital required in the Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60 percent
of the outstanding capital stock must rest in the hands of Filipino nationals
in accordance with the constitutional mandate. Otherwise, the
corporation is considered as non-Philippine national[s].
Under Section 10, Article XII of the Constitution, Congress may reserve to
citizens of the Philippines or to corporations or associations at least
sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of
investments. Thus, in numerous laws Congress has reserved certain areas
of investments to Filipino citizens or to corporations at least sixty percent
of the capital of which is owned by Filipino citizens. Some of these laws
are: (1) Regulation of Award of Government Contracts or R.A. No. 5183;
(2) Philippine Inventors Incentives Act or R.A. No. 3850; (3)
Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977;
(4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6)
Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship
Mortgage Decree or P.D. No. 1521. Hence, the term capital in Section 11,
Article XII of the Constitution is also used in the same context in numerous
lawsreserving certain areas of investments to Filipino citizens.

To construe broadly the term capital as the total outstanding capital
stock, including both common and non-voting preferred shares, grossly
contravenes the intent and letter of the Constitution that the State shall
develop a self-reliant and independent national economy effectively
controlled by Filipinos. A broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to control
of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the

term capital. Let us assume that a corporation has 100 common shares
owned by foreigners and 1,000,000 non-voting preferred shares owned
by Filipinos, with both classes of share having a par value of one peso
(P1.00) per share. Under the broad definition of the term capital, such
corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares
have voting rights in the election of directors, even if they hold only 100
shares. The foreigners, with a minuscule equity of less than 0.001 percent,
exercise control over the public utility. On the other hand, the Filipinos,
holding more than 99.999 percent of the equity, cannot vote in the
election of directors and hence, have no control over the public utility.
This starkly circumvents the intent of the framers of the Constitution, as
well as the clear language of the Constitution, to place the control of
public utilities in the hands of Filipinos. It also renders illusory the State
policy of an independent national economy effectively controlled by
Filipinos.

The example given is not theoretical but can be found in the real
world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote
in the election of directors. PLDTs Articles of Incorporation expressly state
that the holders of Serial Preferred Stock shall not be entitled to vote at
any meeting of the stockholders for the election of directors or for any
other purpose or otherwise participate in any action taken by the
corporation or its stockholders, or to receive notice of any meeting of
stockholders.51
On the other hand, holders of common shares are granted the exclusive
right to vote in the election of directors. PLDTs Articles of
Incorporation52 state that each holder of Common Capital Stock shall
have one vote in respect of each share of such stock held by him on all
matters voted upon by the stockholders, and the holders of Common
Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes.53
In short, only holders of common shares can vote in the election of

directors, meaning only common shareholders exercise control over
PLDT. Conversely, holders of preferred shares, who have no voting rights
in the election of directors, do not have any control over PLDT. In fact,
under PLDTs Articles of Incorporation, holders of common shares have
voting rights for all purposes, while holders of preferred shares have no
voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold

a majority of the common shares of PLDT. In fact, based on PLDTs 2010

General Information Sheet (GIS),54which is a document required to be
submitted annually to the Securities and Exchange
Commission,55 foreigners hold 120,046,690 common shares of PLDT
whereas Filipinos hold only 66,750,622 common shares.56 In other words,
foreigners hold 64.27% of the total number of PLDTs common shares, while
Filipinos hold only 35.73%. Since holding a majority of the common shares
equates to control, it is clear that foreigners exercise control over PLDT.
Such amount of control unmistakably exceeds the allowable 40 percent
limit on foreign ownership of public utilities expressly mandated in Section
11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to

the SEC, shows that per share the SIP58 preferred shares earn a pittance
in dividends compared to the common shares. PLDT declared dividends
for the common shares at P70.00 per share, while the declared dividends
for the preferred shares amounted to a measly P1.00 per share.59 So the
preferred shares not only cannot vote in the election of directors, they
also have very little and obviously negligible dividend earning capacity
compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of
PLDT common shares is P5.00 per share, whereas the par value of
preferred shares is P10.00 per share. In other words, preferred shares have
twice the par value of common shares but cannot elect directors and
have only 1/70 of the dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while foreigners own only a
minuscule 0.56% of the preferred shares.61 Worse, preferred shares
constitute 77.85% of the authorized capital stock of PLDT while common
shares constitute only 22.15%.62 This undeniably shows that beneficial

interest in PLDT is not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional requirement of 60
percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding

capital stock must rest in the hands of Filipinos in accordance with the
constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is
constitutionally required for the States grant of authority to operate a
public utility. The undisputed fact that the PLDT preferred shares, 99.44%
owned by Filipinos, are non-voting and earn only 1/70 of the dividends
that PLDT common shares earn, grossly violates the constitutional
requirement of 60 percent Filipino control and Filipino beneficial
ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn
less than 60 percent of the dividends, of PLDT. This directly contravenes
the express command in Section 11, Article XII of the Constitution that
[n]o franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to x x xcorporations
x x x organized under the laws of the Philippines, at least sixty per centum
of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT,

which class of shares exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDTs common shares, constituting a minority of the voting
stock, and thus do not exercise control over PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn
only 1/70 of the dividends that common shares earn;63 (5) preferred
shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and
common shares only 22.15%. This kind of ownership and control of a
public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00
have a current stock market value of P2,328.00 per share,64 while PLDT
preferred shares with a par value of P10.00 per share have a current
stock market value ranging from only P10.92 to P11.06 per share,65 is a
glaring confirmation by the market that control and beneficial ownership
of PLDT rest with the common shares, not with the preferred shares.
Indisputably, construing the term capital in Section 11, Article XII of the
Constitution to include both voting and non-voting shares will result in the
abject surrender of our telecommunications industry to foreigners,
amounting to a clear abdication of the States constitutional duty to limit
control of public utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision reserving certain
areas of investment to Filipino citizens, such as the exploitation of natural
resources as well as the ownership of land, educational institutions and
advertising businesses. The Court should never open to foreign control
what the Constitution has expressly reserved to Filipinos for that would be
a betrayal of the Constitution and of the national interest. The Court must
perform its solemn duty to defend and uphold the intent and letter of the
Constitution to ensure, in the words of the Constitution, a self-reliant and
independent national economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the
Constitution expressly reserving to Filipinos specific areas of investment,
such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There is
no need for legislation to implement these self-executing provisions of the

Constitution. The rationale why these constitutional provisions are self-
executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption
now is that all provisions of the constitution are self-executing. If the
constitutional provisions are treated as requiring legislation instead
of self-executing, the legislature would have the power to ignore
and practically nullify the mandate of the fundamental law. This
can be cataclysmic. That is why the prevailing view is, as it has
always been, that
. . . in case of doubt, the Constitution should be considered self-

executing rather than non-self-executing. . . . Unless the contrary is
clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the
legislature discretion to determine when, or whether, they shall be
effective. These provisions would be subordinated to the will of the
lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. (Emphasis
supplied)
In Manila Prince Hotel, even the Dissenting Opinion of then Associate

Justice Reynato S. Puno, later Chief Justice, agreed that constitutional
provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-
executing, rather than as requiring future legislation for their
enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law
ratified by the sovereign people can be easily ignored and nullified
by Congress. Suffused with wisdom of the ages is the unyielding rule
that legislative actions may give breath to constitutional rights but
congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of

Rights on arrests, searches and seizures, the rights of a person under
custodial investigation, the rights of an accused, and the privilege
against self-incrimination. It is recognized that legislation is
unnecessary to enable courts to effectuate constitutional provisions
guaranteeing the fundamental rights of life, liberty and the
protection of property. The same treatment is accorded to
constitutional provisions forbidding the taking or damaging of
property for public use without just compensation. (Emphasis
supplied)
Thus, in numerous cases,67 this Court, even in the absence of

implementing legislation, applied directly the provisions of the 1935, 1973
and 1987 Constitutions limiting land ownership to Filipinos. In Soriano
v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of

a sale by a citizen of his land to an alien, and as both the citizen

and the alien have violated the law, none of them should have a
recourse against the other, and it should only be the State that
should be allowed to intervene and determine what is to be done
with the property subject of the violation. We have said that what
the State should do or could do in such matters is a matter of public
policy, entirely beyond the scope of judicial authority. (Dinglasan, et
al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While
the legislature has not definitely decided what policy should be
followed in cases of violations against the constitutional prohibition,
courts of justice cannot go beyond by declaring the disposition to
be null and void as violative of the Constitution. x x x (Emphasis
supplied)
To treat Section 11, Article XII of the Constitution as not self-executing

would mean that since the 1935 Constitution, or over the last 75 years,
not one of the constitutional provisions expressly reserving specific areas
of investments to corporations, at least 60 percent of the capital of which
is owned by Filipinos, was enforceable. In short, the framers of the 1935,
1973 and 1987 Constitutions miserably failed to effectively reserve to
Filipinos specific areas of investment, like the operation by corporations of
public utilities, the exploitation by corporations of mineral resources, the
ownership by corporations of real estate, and the ownership of
educational institutions. All the legislatures that convened since 1935 also
miserably failed to enact legislations to implement these vital
constitutional provisions that determine who will effectively control the
national economy, Filipinos or foreigners. This Court cannot allow such an
absurd interpretation of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative
functions.69 Under its regulatory functions, the SEC can be compelled by
mandamus to perform its statutory duty when it unlawfully neglects to
perform the same. Under its adjudicative or quasi-judicial functions, the
SEC can be also be compelled by mandamus to hear and decide a
possible violation of any law it administers or enforces when it is
mandated by law to investigate such violation.
Under Section 17(4)70 of the Corporation Code, the SEC has the
regulatory function to reject or disapprove the Articles of Incorporation of
any corporation where the required percentage of ownership of the
capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution. Thus, the
SEC is the government agency tasked with the statutory duty to enforce
the nationality requirement prescribed in Section 11, Article XII of the
Constitution on the ownership of public utilities. This Court, in a petition for
declaratory relief that is treated as a petition for mandamus as in the
present case, can direct the SEC to perform its statutory duty under the
law, a duty that the SEC has apparently unlawfully neglected to
do based on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested
with the power and function to suspend or revoke, after proper notice
and hearing, the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by
law. The SEC is mandated under Section 5(d) of the same Code with the
power and function to investigate x x x the activities of persons to ensure
compliance with the laws and regulations that SEC administers or
enforces. The GIS that all corporations are required to submit to SEC
annually should put the SEC on guard against violations of the nationality
requirement prescribed in the Constitution and existing laws. This Court
can compel the SEC, in a petition for declaratory relief that is treated as
a petition for mandamus as in the present case, to hear and decide a
possible violation of Section 11, Article XII of the Constitution in view of the

ownership structure of PLDTs voting shares, as admitted by respondents
and as stated in PLDTs 2010 GIS that PLDT submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term capital
in Section 11, Article XII of the 1987 Constitution refers only to shares of
stock entitled to vote in the election of directors, and thus in the present
case only to common shares, and not to the total outstanding capital
stock (common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission is DIRECTED to
apply this definition of the term capital in determining the extent of
allowable foreign ownership in respondent Philippine Long Distance
Telephone Company, and if there is a violation of Section 11, Article XII of
the Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.

EN BANC
G.R. No. 207246, November 22, 2016
JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA,THE
SECURITIES AND EXCHANGE COMMISSION, AND PHILILIPPINE LONG
DISTANCE TELEPHONE COMPANY, Respondents.
WILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN WARREN P.

GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y. MAMON III,
AND GERARDO C. EREBAREN, Petitioners-in-Intervention,
PHILIPPINE STOCK EXCHANGE, INC., Respondent-in-Intervention,
SHAREHOLDERS' ASSOCIATION OF THE PHILIPPINES, INC., Respondent-

in-Intervention.
DECISION
CAGUIOA, J.:
The petitions1 before the Court are special civil actions

for certiorari under Rule 65 of the Rules of Court seeking to annul
Memorandum Circular No. 8, Series of 2013 ("SEC-MC No. 8") issued by
the Securities and Exchange Commission ("SEC") for allegedly being in
violation of the Court's Decision2 ("GamboaDecision") and
Resolution3 ("Gamboa Resolution") in Gamboa v. Finance Secretary
Teves, G.R. No. 176579, respectively promulgated on June 28, 2011,
and October 9, 2012, which jurisprudentially established the proper
interpretation of Section 11, Article XII of the
Constitution.chanroblesvirtuallawlibrary
The Antecedents

On June 28, 2011, the Court issued the Gamboa Decision, the
dispositive portion of which reads:chanRoblesvirtualLawlibrary
WHEREFORE, we PARTLY GRANT the petition and rule that the
term "capital" in Section 11, Article XII of the 1987 Constitution
refers only to shares of stock entitled to vote in the election of
directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the
law.
SO ORDERED.4
Several motions for reconsideration were filed assailing

the Gamboa Decision. They were denied in the Gamboa Resolution
issued by the Court on October 9,
2012, viz:chanRoblesvirtualLawlibrary
WHEREFORE, we DENY the motions for reconsideration WITH
FINALITY. No further pleadings shall be entertained.
SO ORDERED.5
The Gamboa Decision attained finality on October 18, 2012, and Entry
of Judgment was thereafter issued on December 11, 2012.6
On November 6, 2012, the SEC posted a Notice in its website inviting

the public to attend a public dialogue and to submit comments on
the draft memorandum circular (attached thereto) on the guidelines

to be followed in determining compliance with the Filipino ownership
requirement in public utilities under Section 11, Article XII of the
Constitution pursuant to the Court's directive in
the Gamboa Decision.7
On November 9, 2012, the SEC held the scheduled dialogue and

more than 100 representatives from various organizations,
government agencies, the academe and the private sector
attended.8
On January 8, 2013, the SEC received a copy of the Entry of

Judgment9 from the Court certifying that on October 18, 2012,
the Gamboa Decision had become final and executory.10
On March 25, 2013, the SEC posted another Notice in its website
soliciting from the public comments and suggestions on the draft
guidelines.11
On April 22, 2013, petitioner Atty. Jose M. Roy III ("Roy") submitted his
written comments on the draft guidelines.12
On May 20, 2013, the SEC, through respondent Chairperson Teresita J.

Herbosa, issued SEC-MC No. 8 entitled "Guidelines on Compliance
with the Filipino-Foreign Ownership Requirements Prescribed in the
Constitution and/or Existing Laws by Corporations Engaged in
Nationalized and Partly Nationalized Activities." It was published in
the Philippine Daily Inquirer and the Business Mirror on May 22,
2013.13Section 2 of SEC-MC No. 8
provides:chanRoblesvirtualLawlibrary

Section 2. All covered corporations shall, at all times, observe
the constitutional or statutory ownership requirement. For
purposes of determining compliance therewith, the required
percentage of Filipino ownership shall be applied to BOTH (a)
the total number of outstanding shares of stock entitled to
vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in
the election of directors.
Corporations covered by special laws which provide specific

citizenship requirements shall comply with the provisions of
said law.14
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the
Petition,15 assailing the validity of SEC-MC No. 8 for not conforming to
the letter and spirit of the Gamboa Decision and Resolution and for
having been issued by the SEC with grave abuse of discretion.
Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement
separately to each class of shares of a public utility corporation,
whether common, preferred non�voting, preferred voting or any
other class of shares. Petitioner Roy also questions the ruling of the SEC
that respondent Philippine Long Distance Telephone Company
("PLDT") is compliant with the constitutional rule on foreign ownership.
He prays that the Court declare SEC-MC No. 8 unconstitutional and
direct the SEC to issue new guidelines regarding the determination of
compliance with Section 11, Article XII of the Constitution in
accordance with Gamboa.
Wilson C. Gamboa, Jr.,16 Daniel V. Cartagena, John Warren P.

Gabinete, Antonio V. Pesina, Jr., Modesto Martin Y. Mamon III, and
Gerardo C. Erebaren ("intervenors Gamboa, et al.") filed a Motion for
Leave to File Petition-in-Intervention17 on July 30, 2013, which the
Court granted. The Petition-in-Intervention18filed by intervenors

Gamboa, et al. mirrored the issues, arguments and prayer of
petitioner Roy.
On September 5, 2013, respondent PLDT filed its Comment (on the

Petition dated 10 June 2013).19 PLDT posited that the Petition should
be dismissed because it violates the doctrine of hierarchy of courts as
there are no compelling reasons to invoke the Court's original
jurisdiction; it is prematurely filed because petitioner Roy failed to
exhaust administrative remedies before the SEC; the principal
actions/remedies of mandamus and declaratory relief are not within
the exclusive and/or original jurisdiction of the Court; the petition
for certiorari is an inappropriate remedy since the SEC issued SEC-MC
No. 8 in the exercise of its quasi-legislative power; it deprives the
necessary and indispensable parties of their constitutional right to due
process; and the SEC merely implemented the dispositive portion of
the Gamboa Decision.
On September 20, 2013, respondents Chairperson Teresita Herbosa

and SEC filed their Consolidated Comment.20 They sought the
dismissal of the petitions on the following grounds: (1) the petitioners
do not possess locus standi to assail the constitutionality of SEC-MC
No. 8; (2) a petition for certiorari under Rule 65 is not the appropriate
and proper remedy to assail the validity and constitutionality of the
SEC-MC No. 8; (3) the direct resort to the Court violates the doctrine
of hierarchy of courts; (4) the SEC did not abuse its discretion; (5) on
PLDT's compliance with the capital requirement as stated in
the Gamboaruling, the petitioners' challenge is premature
considering that the SEC has not yet issued a definitive ruling thereon.
On October 22, 2013, PLDT filed its Comment (on the Petition-in�-
Intervention dated 16 July 2013).21PLDT adopted the position that

intervenors Gamboa, et al. have no standing and are not the proper
party to question the constitutionality of SEC-MC No. 8; they are in no
position to assail SEC-MC No. 8 considering that they did not
participate in the public consultations or give comments thereon; and
their Petition-in-Intervention is a disguised motion for reconsideration
of the Gamboa Decision and Resolution.
On May 7, 2014, Petitioner Roy and intervenors Gamboa, et al.22 filed

their Joint Consolidated Reply with Motion for Issuance of Temporary
Restraining Order.23
On May 22, 2014, PLDT filed its Rejoinder [To Petitioner and Petitioners-
in-Intervention's Joint Consolidated Reply dated 7 May 2014] and
Opposition [To Petitioner and Petitioners-in-Intervention's Motion for
Issuance of a Temporary Restraining Order dated 7 May 2014].24
On June 18, 2014, the Philippine Stock Exchange, Inc. ("PSE") filed its
Motion to Intervene with Leave of Court 25 and its Comment-in�
Intervention.26 The PSE alleged that it has standing to intervene as the
primary regulator of the stock exchange and will sustain direct injury
should the petitions be granted. The PSE argued that in
the Gamboa ruling, "capital" refers only to shares entitled to vote in
the election of directors, and excludes those not so entitled; and the
dispositive portion of the decision is the controlling factor that
determines and settles the questions presented in the case. The PSE
further argued that adopting a new interpretation of Section 11,
Article XII of the Constitution violates the policy of conclusiveness of
judgment, stare decisis, and the State's obligation to maintain a stable
and predictable legal framework for foreign investors under
international treaties; and adopting a new definition of "capital" will
prove disastrous for the Philippine stock market. The Court granted the

Motion to Intervene filed by PSE.27
PLDT filed its Consolidated Memorandum28 on February 10, 2015.
On June 1, 2016, Shareholders' Association of the Philippines,

Inc.29 ("SHAREPHIL") filed an Omnibus Motion [1] For Leave to
Intervene; and [2] To Admit Attached Comment-in-
Intervention.30 The Court granted the Omnibus Motion of
SHAREPHIL.31
On June 30, 2016, petitioner Roy filed his Opposition and Reply to
Interventions of Philippine Stock Exchange and
Sharephil.32 Intervenors Gamboa, et al. then filed on September 14,
2016, their Reply (to Interventions by Philippine Stock Exchange and
Sharephil).33
The Issues
The twin issues of the Petition and the Petition-in-Intervention are: (1)
whether the SEC gravely abused its discretion in issuing SEC-MC No. 8
in light of the Gamboa Decision and Gamboa Resolution, and (2)
whether the SEC gravely abused its discretion in ruling that PLDT is
compliant with the constitutional limitation on foreign
ownership.chanroblesvirtuallawlibrary
The Court's Ruling
At the outset, the Court disposes of the second issue for being without
merit. In its Consolidated Comment dated September 13, 2013,34 the
SEC already clarified that it "has not yet issued a definitive ruling anent
PLDT's compliance with the limitation on foreign ownership imposed

under the Constitution and relevant laws [and i]n fact, a careful
perusal of x x x SEC�-MC No. 8 readily reveals that all existing covered
corporations which are non-compliant with Section 2 thereof were
given a period of one (1) year from the effectivity of the same within
which to comply with said ownership requirement. x x x." 35 Thus, in the
absence of a definitive ruling by the SEC on PLDT's compliance with
the capital requirement pursuant to the Gamboa Decision and
Resolution, any question relative to the inexistent ruling is premature.
Also, considering that the Court is not a trier of facts and is in no

position to make a factual determination of PLDT's compliance with
the constitutional provision under review, the Court can only resolve
the first issue, which is a pure question of law. However, before the
Court tackles the first issue, it has to rule on certain procedural
challenges that have been raised.chanroblesvirtuallawlibrary
The Procedural Issues
The Court may exercise its power of judicial review and take
cognizance of a case when the following specific requisites are met:
(1) there is an actual case or controversy calling for the exercise of
judicial power; (2) the petitioner has standing to question the validity
of the subject act or issuance, i.e., he has a personal and substantial
interest in the case that he has sustained, or will sustain, direct injury as
a result of the enforcement of the act or issuance; (3) the question of
constitutionality is raised at the earliest opportunity; and (4) the
constitutional question is the very lis mota of the case.36
The first two requisites of judicial review are not met.
Petitioners' failure to sufficiently allege, much less establish, the

existence of the first two requisites for the exercise of judicial review

warrants the perfunctory dismissal of the petitions.
a. No actual controversy.
Regarding the first requisite, the Court in Belgica v. Ochoa37 stressed

anew that an actual case or controversy is one which involves a
conflict of legal rights, an assertion of opposite legal claims,
susceptible of judicial resolution as distinguished from a hypothetical
or abstract difference or dispute since the courts will decline to pass
upon constitutional issues through advisory opinions, bereft as they are
of authority to resolve hypothetical or moot questions. Related to the
requirement of an actual case or controversy is the requirement of
"ripeness", and a question is ripe for adjudication when the act being
challenged has a direct adverse effect on the individual challenging
it.
Petitioners have failed to show that there IS an actual case or

controversy which is ripe for adjudication.
The Petition and the Petition-in-Intervention identically

allege:chanRoblesvirtualLawlibrary
3. The standing interpretation of the SEC found in MC8
practically encourages circumvention of the 60-40 ownership
rule by impliedly allowing the creation of several classes of
voting shares with different degrees of beneficial ownership
over the same, but at the same time, not imposing a 40% limit
on foreign ownership of the higher yielding stocks.38
4. For instance, a situation may arise where a corporation

may issue several classes of shares of stock, one of which are
common shares with rights to elect directors, another are
preferred shares with rights to elect directors but with much

lesser entitlement to dividends, and still another class of
preferred shares with no rights to elect the directors and even
less dividends. In this situation, the corporation may issue
common shares to foreigners amounting to forty percent
(40%) of the outstanding capital stock and issue preferred
shares entitled to vote the directors of the corporation to
Filipinos consisting of 60%39 percent (sic) of the outstanding
capital stock entitled to vote. Although it may appear that
the 60-40 rule has been complied with, the beneficial
ownership of the corporation remains with the foreign
stockholder since the Filipino owners of the preferred shares
have only a miniscule share in the dividends and profit of the
corporation. Plainly, this situation runs contrary to the
Constitution and the ruling of this x x x Court.40
Petitioners' hypothetical illustration as to how SEC-MC No. 8

"practically encourages circumvention of the 60-40 ownership rule" is
evidently speculative and fraught with conjectures and assumptions.
There is clearly wanting specific facts against which the veracity of the
conclusions purportedly following from the speculations and
assumptions can be validated. The lack of a specific factual milieu
from which the petitions originated renders any pronouncement from
the Court as a purely advisory opinion and not a decision binding on
identified and definite parties and on a known set of facts.
Firstly, unlike in Gamboa, the identity of the public utility corporation,

the capital of which is at issue, is unknown. Its outstanding capital
stock and the actual composition thereof in terms of numbers, classes,
preferences and features are all theoretical. The description
"preferred shares with rights to elect directors but with much lesser
entitlement to dividends, and still another class of preferred shares
with no rights to elect the directors and even less dividends" is
ambiguous. What are the specific dividend policies or entitlements of
the purported preferred shares? How are the preferred shares'

dividend policies different from those of the common shares? Why
and how did the fictional public utility corporation issue those
preferred shares intended to be owned by Filipinos? What are the
actual features of the foreign-owned common shares which make
them superior over those owned by Filipinos? How did it come to be
that Filipino holders of preferred shares ended up with "only a
miniscule share in the dividends and profit of the [hypothetical]
corporation"? Any answer to any of these questions will, at best, be
contingent, conjectural, indefinite or anticipatory.
Secondly, preferred shares usually have preference over the common

shares in the payment of dividends. If most of the "preferred shares
with rights to elect directors but with much lesser entitlement to
dividends" and the other "class of preferred shares with no rights to
elect the directors and even less dividends" are owned by Filipinos,
they stand to receive their dividend entitlement ahead of the
foreigners, who are common shareholders. For the common
shareholders to have "bigger dividends" as compared to the
dividends paid to the preferred shareholders, which are supposedly
predominantly owned by Filipinos, there must still be unrestricted
retained earnings of the fictional corporation left after payment of the
dividends declared in favor of the preferred shareholders. The fictional
illustration does not even intimate how this situation can be possible.
No permutation of unrestricted retained earnings of the hypothetical
corporation is shown that makes the present conclusion of the
petitioners achievable. Also, no concrete meaning to the petitioners'
claim of the Filipinos' "miniscule share in the dividends and profit of the
[fictional] corporation" is demonstrated.
Thirdly, petitioners fail to allege or show how their hypothetical

illustration will directly and adversely affect them. That is impossible

since their relationship to the fictional corporation is a matter of
guesswork.
From the foregoing, it is evident that the Court can only surmise or
speculate on the situation or controversy that the petitioners
contemplate to present for judicial determination. Petitioners are
likewise conspicuously silent on the direct adverse impact to them of
the implementation of SEC�-MC No. 8. Thus, the petitions must fail
because the Court is barred from rendering a decision based on
assumptions, speculations, conjectures and hypothetical or fictional
illustrations, more so in the present case which is not even ripe for
decision.
b. No locus standi.
The personal and substantial interest that enables a party to have

legal standing is one that is both material, an interest in issue and to
be affected by the government action, as distinguished from mere
interest in the issue involved, or a mere incidental interest, and real,
which means a present substantial interest, as distinguished from a
mere expectancy or a future, contingent, subordinate, or
consequential interest.41cralawred
As to injury, the party must show that (1) he will personally suffer some
actual or threatened injury because of the allegedly illegal conduct
of the government; (2) the injury is fairly traceable to the challenged
action; and (3) the injury is likely to be redressed by a favorable
action.42 If the asserted injury is more imagined than real, or is merely
superficial and insubstantial, an excursion into constitutional
adjudication by the courts is not warranted.43

Petitioners have no legal standing to question the constitutionality of
SEC-MC No. 8.
To establish his standing, petitioner Roy merely claimed that he has

standing to question SEC-MC No. 8 "as a concerned citizen, an officer
of the Court and as a taxpayer" as well as "the senior law partner of
his own law firm[, which] x x x is a subscriber of PLDT." 44 On the other
hand, intervenors Gamboa, et al.allege, as basis of their locus standi,
their "[b]eing lawyers and officers of the Court" and "citizens x x x and
taxpayers."45
The Court has previously emphasized that the locus standi requisite is
not met by the expedient invocation of one's citizenship or
membership in the bar who has an interest in ensuring that laws and
orders of the Philippine government are legally and validly issued as
these supposed interests are too general, which are shared by other
groups and by the whole citizenry.46 Per their allegations, the personal
interest invoked by petitioners as citizens and members of the bar in
the validity or invalidity of SEC-MC No. 8 is at best equivocal, and
totally insufficient.
Petitioners' status as taxpayers is also of no moment. As often

reiterated by the Court, a taxpayer's suit is allowed only when the
petitioner has demonstrated the direct correlation of the act
complained of and the disbursement of public funds in contravention
of law or the Constitution, or has shown that the case involves the
exercise of the spending or taxing power of Congress.47 SEC-MC No.
8 does not involve an additional expenditure of public funds and the
taxing or spending power of Congress.
The allegation that petitioner Roy's law firm is a "subscriber of PLDT" is

ambiguous. It is unclear whether his law firm is a "subscriber" of PLDT's
shares of stock or of its various telecommunication services. Petitioner
Roy has not identified the specific direct and substantial injury he or
his law firm stands to suffer as "subscriber of PLDT" as a result of the
issuance of SEC-MC No. 8 and its enforcement.
As correctly observed by respondent PLDT, "(w]hether or not the

constitutionality of SEC-MC No. 8 is upheld, the rights and privileges of
all PLDT subscribers, as with all the rest of subscribers of other
corporations, are necessarily and equally preserved and protected.
Nothing is added [to] or removed from a PLDT subscriber in terms of
the extent of his or her participation, relative to what he or she had
originally enjoyed from the beginning. In the most practical sense, a
PLDT subscriber loses or gains nothing in the event that SEC-MC No. 8
is either sustained or struck down by [the Court]." 48
More importantly, the issue regarding PLDT's compliance with Section

11, Article XII of the Constitution has been earlier ruled as premature
and beyond the Court's jurisdiction. Thus, petitioner Roy's allegation
that his law firm is a "subscriber of PLDT" is insufficient to clothe him
with locus standi.
Petitioners' cursory incantation of "transcendental importance x x x of

the rules on foreign ownership of corporations or entities vested with
public interest"49 does not automatically justify the brushing aside of
the strict observance of the requisites for the Court's exercise of judicial
review. An indiscriminate disregard of the requisites every time
"transcendental or paramount importance or significance" is invoked
would result in an unacceptable corruption of the settled doctrine
of locus standi, as every worthy cause is an interest shared by the
general public.50

In the present case, the general and equivocal allegations of
petitioners on their legal standing do not justify the relaxation of
the locus standi rule. While the Court has taken an increasingly liberal
approach to the rule of locus standi, evolving from the stringent
requirements of personal injury to the broader transcendental
importance doctrine, such liberality is not to be abused.51
The Rule on the Hierarchy of Courts has been violated.
The Court in Ba�ez, Jr. v. Concepcion52 stressed

that:chanRoblesvirtualLawlibrary
The Court must enjoin the observance of the policy on the
hierarchy of courts, and now affirms that the policy is not to
be ignored without serious consequences. The strictness of
the policy is designed to shied the Court from having to deal
with causes that are also well within the competence of the
lower courts, and thus leave time to the Court to deal with
the more fundamental and more essential tasks that the
Constitution has assigned to it. The Court may act on petitions
for the extraordinary writs of certiorari, prohibition
and mandamus only when absolutely necessary or when
serious and important reasons exist to justifY an exception to
the policy. x x x
x x x Where the issuance of an extraordinary writ is

also within the competence of the Court of Appeals
or a Regional Trial Court, it is in either of these courts
that the specific action for the writ's procurement
must be presented. This is and should continue to be
the policy in this regard, a policy that courts and
lawyers must strictly observe. x x x53

Petitioners' invocation of "transcendental importance" is hollow and
does not merit the relaxation of the rule on hierarchy of courts. There
being no special, important or compelling reason that justified the
direct filing of the petitions in the Court in violation of the policy on
hierarchy of courts, their outright dismissal on this ground is further
warranted.54
The petitioners failed to implead indispensable parties.
The cogent submissions of the PSE in its Comment-in-Intervention

dated June 16, 201455 and SHAREPHIL in its Omnibus Motion [1] For
Leave to Intervene; and [2] To Admit Attached Comment-in-
Intervention dated May 30, 201656 demonstrate how petitioners
should have impleaded not only PLDT but all other corporations in
nationalized and partly�nationalized industries because the
propriety of the SEC's enforcement of the Court's interpretation of
"capital" through SEC-MC No. 8 affects them as well.
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is

a party-in-interest without whom there can be no final determination
of an action. Indispensable parties are those with such a material and
direct interest in the controversy that a final decree would necessarily
affect their rights, so that the court cannot proceed without their
presence.57 The interests of such indispensable parties in the subject
matter of the suit and the relief are so bound with those of the other
parties that their legal presence as parties to the proceeding is an
absolute necessity and a complete and efficient determination of the
equities and rights of the parties is not possible if they are not joined.58
Other than PLDT, the petitions failed to join or implead other public
utility corporations subject to the same restriction imposed by Section

11, Article XII of the Constitution. These corporations are in danger of
losing their franchise and property if they are found not compliant with
the restrictive interpretation of the constitutional provision under
review which is being espoused by petitioners. They should be
afforded due notice and opportunity to be heard, lest they be
deprived of their property without due process.
Not only are public utility corporations other than PLDT directly and
materially affected by the outcome of the petitions, their shareholders
also stand to suffer in case they will be forced to divest their
shareholdings to ensure compliance with the said restrictive
interpretation of the term "capital". As explained by SHAREPIDL, in five
corporations alone, more than Php158 Billion worth of shares must be
divested by foreign shareholders and absorbed by Filipino investors if
petitioners' position is upheld.59
Petitioners' disregard of the rights of these other corporations and

numerous shareholders constitutes another fatal procedural flaw,
justifYing the dismissal of their petitions. Without giving all of them their
day in court, they will definitely be deprived of their property without
due process of law.
During the deliberations, Justice Velasco stressed on the foregoing

procedural objections to the granting of the petitions; and Justice
Bersamin added that the special civil action for certiorari and
prohibition is not the proper remedy to assail SEC-MC No. 8 because
it was not issued under the adjudicatory or quasi-judicial functions of
the SEC.chanroblesvirtuallawlibrary
The Substantive Issue
The only substantive issue that the petitions assert is whether the SEC's

issuance of SEC-MC No. 8 is tainted with grave abuse of discretion.
The Court holds that, even if the resolution of the procedural issues
were conceded in favor of petitioners, the petitions, being anchored
on Rule 65, must nonetheless fail because the SEC did notcommit
grave abuse of discretion amounting to lack or excess of jurisdiction
when it issued SEC�-MC No. 8. To the contrary, the Court finds SEC-
MC No. 8 to have been issued in fealty to the Gamboa Decision and
Resolution.
The ratio in the Gamboa Decision and Gamboa Resolution.
To determine what the Court directed the SEC to do - and therefore

resolve whether what the SEC did amounted to grave abuse of
discretion - the Court resorts to the decretal portion of
the GamboaDecision, as this is the portion of the decision that a party
relies upon to determine his or her rights and
duties,60viz:chanRoblesvirtualLawlibrary
WHEREFORE, we PARTLY GRANT the petition and rule that the
term "capital" in Section II, Article XII of the I987 Constitution
directors, and thus in the present case only to common
shares, and not to the total outstanding capital stock
(common and non-voting preferred shares). Respondent
Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term "capital" in
determining the extent of allowable foreign ownership in
respondent Philippine Long Distance Telephone Company,
and if there is a violation of Section II, Article XII of the
Constitution, to impose the appropriate sanctions under the
law.61
In turn, the Gamboa Resolution stated:chanRoblesvirtualLawlibrary

In any event, the SEC has expressly manifested 62 that it will
abide by the Court's decision and defer to the Court's
definition of the term "capital" in Section II, Article XII of the
Constitution. Further, the SEC entered its special appearance
in this case and argued during the Oral Arguments, indicating
its submission to the Court's jurisdiction. It is clear, therefore,
that there exists no legal impediment against the proper and
immediate implementation of the Court's directive to the
SEC.
x x x x
x x x The dispositive portion of the Court's ruling is addressed

not to PLDT but solely to the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership requirement
in favor of Filipino citizens in Section 11, Article XII of the
Constitution.63
To recall, the sole issue in the Gamboa case was: "whether the term
'capital' in Section 11, Article XII of the Constitution refers to the total
common shares only or to the total outstanding capital stock
(combined total of common and non-voting preferred shares) of
PLDT, a public utility."64
The Court directly answered the Issue and consistently defined the
term "capital" as follows:chanRoblesvirtualLawlibrary
x x x The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to
common shares, and not to the total outstanding capital
stock comprising both common and non� voting preferred
shares.
x x x x

Considering that common shares have voting rights which
translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11,
Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in
the election of directors, then the term "capital" shall include
such preferred shares because the right to participate in the
control or management of the corporation is exercised
through the right to vote in the election of directors. In short,
the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of
directors.65
The decretal portion of the Gamboa Decision follows the definition of

the term "capital" in the body of the decision, to wit: "x x x we x x x rule
that the term 'capital' in Section 11, Article XII of the 1987 Constitution
directors, and thus in the present case only to common shares, and
not to the total outstanding capital stock (common and non-voting
preferred shares)."66
The Court adopted the foregoing definition of the term "capital" in

Section 11, Article XII of the 1987 Constitution in furtherance of "the
intent and letter of the Constitution that the 'State shall develop a self-
reliant and independent national economy effectively controlled by
Filipinos' [because a] broad definition unjustifiably disregards who
owns the all-important voting stock, which necessarily equates to
control of the public utility."67 The Court, recognizing that the provision
is an express recognition of the sensitive and vital position of public
utilities both in the national economy and for national security, also
pronounced that the evident purpose of the citizenship requirement
is to prevent aliens from assuming control of public utilities, which may
be inimical to the national interest.68 Further, the Court noted that the

foregoing interpretation is consistent with the intent of the framers of
the Constitution to place in the hands of Filipino citizens the control
and management of public utilities; and, as revealed in the
deliberations of the Constitutional Commission, "capital" refers to the
voting stock or controlling interest of a corporation.69
In this regard, it would be apropos to state that since Filipinos own at

least 60% of the outstanding shares of stock entitled to vote directors,
which is what the Constitution precisely requires, then the Filipino
stockholders control the corporation, i.e., they dictate corporate
actions and decisions, and they have all the rights of ownership
including, but not limited to, offering certain preferred shares that may
have greater economic interest to foreign investors - as the need for
capital for corporate pursuits (such as expansion), may be good for
the corporation that they own. Surely, these "true owners" will not allow
any dilution of their ownership and control if such move will not be
beneficial to them.
As owners of the corporation, the economic benefits will necessarily

accrue to them. There is thus no logical reason why Filipino
shareholders will allow foreigners to have greater economic benefits
than them. It is illogical to speculate that they will create shares which
have features that will give greater economic interests or benefits
than they are holding and not benefit from such offering, or that they
will allow foreigners to profit more than them from their own
corporation - unless they are dummies. But, Commonwealth Act No.
108, the Anti-Dummy Law, is NOT in issue in these petitions. Notably,
even if the shares of a particular public utility were owned 100%
Filipino, that does not discount the possibility of a dummy situation
from arising. Hence, even if the 60-40 ownership in favor of Filipinos rule
is applied separately to each class of shares of a public utility

corporation, as the petitioners insist, the rule can easily be side-
stepped by a dummy relationship. In other words, even applying the
60-40 Filipino� foreign ownership rule to each class of shares will not
assure the lofty purpose enunciated by petitioners.
The Court observed further in the Gamboa Decision that reinforcing

this interpretation of the term "capital", as referring to interests or shares
entitled to vote, is the definition of a Philippine national in the Foreign
Investments Act of 1991 ("FIA"), which is explained in the Implementing
Rules and Regulations of the FIA ("FIA-IRR"). The FIA-IRR
Compliance with the required Filipino ownership of a
corporation shall be determined on the basis of outstanding
capital stock whether fully paid or not, but only such stocks
which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine

citizens or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial ownership
of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be considered held
by Philippine citizens or Philippine nationals.70
Echoing the FIA-IRR, the Court stated in the Gamboa Decision

Mere legal title is insufficient to meet the 60 percent
Filipino�owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent of the
outstanding capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional mandate.
Otherwise, the corporation is "considered as non-Philippine

national[s]."
x x x x

outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is constitutionally
required for the State's grant of authority to operate a public
utility. x x x71
Was the definition of the term "capital" in Section 11, Article XII of the
1987 Constitution declared for the first time by the Court in
the Gamboa Decision modified in the Gamboa Resolution?
The Court is convinced that it was not. The Gamboa Resolution

consists of 51 pages (excluding the dissenting opinions of Associate
Justices Velasco and Abad). For the most part of
the Gamboa Resolution, the Court, after reviewing SEC and
DOJ72 Opinions as well as the provisions of the FIA and its predecessor
statutes,73 reiterated that both the Voting Control Test and the
Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national"74 and that a "Philippine national,"
as defined in the FIA and all its predecessor statutes, is "a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the
capital stock outstanding and entitled to vote," is owned by Filipino
citizens. A domestic corporation is a "Philippine national" only if at least
60% of its voting stock is owned by Filipino citizens."75 The Court also
reiterated that, from the deliberations of the Constitutional
Commission, it is evident that the term "capital" refers to controlling
interest of a corporation,76 and the framers of the Constitution
intended public utilities to be majority Filipino-owned and controlled.

The "Final Word" of the Gamboa Resolution put to rest the Court's
interpretation of the term "capital", and this is quoted verbatim, to
wit:chanRoblesvirtualLawlibrary
XII.
Final Word
The Constitution expressly declares as State policy the

development of an economy "effectively controlled" by
Filipinos. Consistent with such State policy, the Constitution
explicitly reserves the ownership and operation of public
utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or
associations at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA's implementing rules explain
that "[f]or stocks to be deemed owned and held by Philippine
of stocks, coupled with appropriate voting rights is essential."
In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII
of the 1987 Constitution refers to shares with voting rights, as
well as with full beneficial ownership. This is precisely because
the right to vote in the election of directors, coupled with full
beneficial ownership of stocks, translates to effective control
of a corporation.77
Everything told, the Court, in both the Gamboa Decision

and Gamboa Resolution, finally settled with the PIA's definition of
"Philippine national" as expounded in the FIA-IRR in construing the term
"capital" in Section 11, Article XII of the 1987 Constitution.
The assailed SEC-MC No. 8.

The relevant provision in the assailed SEC-MC No. 8 IS Section 2, which
Section 2. All covered corporations shall, at all times, observe
the constitutional or statutory ownership requirement. For
purposes of determining compliance therewith, the required
percentage of Filipino ownership shall be applied to BOTH (a)
the total number of outstanding shares of stock entitled to
vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote in
the election of directors.78
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test

or the controlling interest requirement. In fact, Section 2 goes beyond
requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks;
it moreover requires the 60-40 percentage ownership in the total
number of outstanding shares of stock, whether voting or not. The SEC
formulated SEC-MC No. 8 to adhere to the Court's unambiguous
pronouncement that "[f]ull beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights
is required."79 Clearly, SEC-MC No. 8 cannot be said to have been
issued with grave abuse of discretion.
A simple illustration involving Company X with three kinds of shares of

stock, easily shows how compliance with the requirements of SEC-MC
No. 8 will necessarily result to full and faithful compliance with
the Gamboa Decision as well as the Gamboa Resolution.
The following is the composition of the outstanding capital stock of

Company X:chanRoblesvirtualLawlibrary
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)

SEC-MC No. 8 GAMBOA DECISION
(1) 60% (required percentage of "shares of stock entitled to vote in the
Filipino) applied to the total election of directors"80 (60% of the
number of outstanding shares of voting rights)
stock entitled to vote in the
election of directors
If at least a total of 120 of common shares and Class A preferred

shares (in any combination) are owned and controlled by Filipinos,
Company X is compliant with the 60% of the voting rights in favor of
Filipinos requirement of both SEC-MC No. 8 and
the Gamboa Decision.
SEC-MC No. 8 GAMBOA DECISION/RESOLUTION

(2) 60% (required percentage "Full beneficial ownership of 60 percent
of Filipino) applied to BOTH (a) of the outstanding capital stock,
the total number of coupled with 60 percent of the voting
outstanding shares of stock, rights"81 or "Full beneficial ownership of
entitled to vote in the election the stocks, coupled with appropriate
of directors; AND (b) the total voting rights x x x shares with voting rights,
number of outstanding shares as well as with full beneficial
of stock, whether or not
ownership"82
entitled to vote in the election
of directors.
If at least a total of 180 shares of all the outstanding capital stock of

Company X are owned and controlled by Filipinos, provided that
among those 180 shares a total of 120 of the common shares and
Class A preferred shares (in any combination) are owned and
controlled by Filipinos, then Company X is compliant with both
requirements of voting rights and beneficial ownership under SEC-MC
No. 8 and the Gamboa Decision and Resolution.

From the foregoing illustration, SEC-MC No. 8 simply implemented,
and is fully in accordance with, the Gamboa Decision and Resolution.
While SEC-MC No. 8 does not expressly mention the Beneficial

Ownership Test or full beneficial ownership of stocks requirement in the
FIA, this will not, as it does not, render it invalid meaning, it does not
follow that the SEC will not apply this test in determining whether the
shares claimed to be owned by Philippine nationals are Filipino, i.e.,
are held by them by mere title or in full beneficial ownership. To be
sure, the SEC takes its guiding lights also from the FIA and its
implementing rules, the Securities Regulation Code (Republic Act No.
8799; "SRC") and its implementing rules.83
The full beneficial ownership test.
The minority justifies the application of the 60-40 Filipino-foreign

ownership rule separately to each class of shares of a public utility
corporation in this fashion:chanRoblesvirtualLawlibrary
x x x The words "own and control," used to qualify the
minimum Filipino participation in Section 11, Article XII of the
Constitution, reflects the importance of Filipinos having both
the ability to influence the corporation through voting rights
and economic benefits. In other words, full ownership up to
60% of a public utility encompasses both
controland economic rights, both of which must stay in
Filipino hands. Filipinos, who own 60% of the controlling
interest, must also own 60% of the economic interest in a
public utility.
x x x In mixed class or dual structured corporations, however,

there is variance in the proportion of stockholders' controlling
interest vis�a-vis their economic ownership rights. This
resulting variation is recognized by the Implementing Rules

and Regulations (IRR) of the Securities Regulation Code,
which defined beneficial ownership as that may exist either
through voting power and/or through investment returns. By
using and/or in defining beneficial ownership, the IRR, in
effect, recognizes a possible situation where voting power is
not commensurate to investment power.
The definition of "beneficial owner" or "beneficial ownership" in the

Implementing Rules and Regulations of the Securities Regulation
Code ("SRC-IRR") is consistent with the concept of"full beneficial
ownership" in the FIA-IRR.
As defined in the SRC-IRR, "[b]eneficial owner or beneficial

ownership means any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has
or shares voting power (which includes the power to vote or direct the
voting of such security) and/or investment returns or power (which
includes the power to dispose of, or direct the disposition of such
security) x x x."84
While it is correct to state that beneficial ownership is that which may

exist either through voting power and/or investment returns, it does
not follow, as espoused by the minority opinion, that the SRC-IRR, in
effect, recognizes a possible situation where voting power is not
commensurate to investment power. That is a wrong syllogism. The
fallacy arises from a misunderstanding on what the definition is for. The
"beneficial ownership" referred to in the definition, while it may
ultimately and indirectly refer to the overall ownership of the
corporation, more pertinently refers to the ownership of the share
subject of the question: is it Filipino-owned or not?
As noted earlier, the FIA-IRR states:chanRoblesvirtualLawlibrary

Compliance with the required Filipino ownership of a
corporation shall be determined on the basis of outstanding
capital stock whether fully paid or not, but only such stocks
which are generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine

of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be considered held
by Philippine citizens or Philippine nationals.85
The emphasized portions in the foregoing provision is the equivalent

of the so-called "beneficial ownership test". That is all.
The term "full beneficial ownership" found in the FIA-IRR is to be

understood in the context of the entire paragraph defining the term
"Philippine national". Mere legal title is not enough to meet the
required Filipino equity, which means that it is not sufficient that a
share is registered in the name of a Filipino citizen or national, i.e., he
should also have full beneficial ownership of the share. If the voting
right of a share held in the name of a Filipino citizen or national is
assigned or transferred to an alien, that share is not to be counted in
the determination of the required Filipino equity. In the same vein, if
the dividends and other fruits and accessions of the share do not
accrue to a Filipino citizen or national, then that share is also to be
excluded or not counted.
In this regard, it is worth reiterating the Court's pronouncement in

the Gamboa Decision, which is consistent with the FIA-
IRR, viz:chanRoblesvirtualLawlibrary

Mere legal title is insufficient to meet the 60 percent
Filipino�owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is
required. x x x
x x x x

outstanding capital stock must rest in the hands of Filipinos in
accordance with the constitutional mandate. Full beneficial
ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is constitutionally
required (or the State's grant of authority to operate a public
utility. x x x.86
And the "Final Word" of the Gamboa Resolution is in full accord with
the foregoing pronouncement of the Court, to
wit:chanRoblesvirtualLawlibrary
XII.
Final Word
x x x The FIA's implementing rules explain that "[f]or stocks to

be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential."87
Given that beneficial ownership of the outstanding capital stock of

the public utility corporation has to be determined for purposes of
compliance with the 60% Filipino ownership requirement, the
definition in the SRC-IRR can now be applied to resolve only the
question of who is the beneficial owner or who has beneficial
ownership of each "specific stock" of the said corporation. Thus, if a
"specific stock" is owned by a Filipino in the books of the corporation,

but the stock's voting power or disposing power belongs to a
foreigner, then that "specific stock" will not be deemed as "beneficially
owned" by a Filipino.
Stated inversely, if the Filipino has the "specific stock's" voting power
(he can vote the stock or direct another to vote for him), or the Filipino
has the investment power over the "specific stock" (he can dispose of
the stock or direct another to dispose it for him), or he has both (he
can vote and dispose of the "specific stock" or direct another to vote
or dispose it for him), then such Filipino is the "beneficial owner" of that
"specific stock" and that "specific stock" is considered (or counted) as
part of the 60% Filipino ownership of the corporation. In the end, all
those "specific stocks" that are determined to be Filipino (per definition
of "beneficial owner" or "beneficial ownership") will be added together
and their sum must be equivalent to at least 60% of the total
outstanding shares of stock entitled to vote in the election of directors
and at least 60% of the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors.
To reiterate, the "beneficial owner or beneficial ownership" definition

in the SRC-IRR is understood only in determining the respective
nationalities of the outstanding capital stock of a public utility
corporation in order to determine its compliance with the percentage
of Filipino ownership required by the Constitution.
The restrictive re-interpretation of "capital" as insisted by the petitioners

is unwarranted.
Petitioners' insistence that the 60% Filipino equity requirement must be

applied to each class of shares is simply beyond the literal text and

contemplation of Section 11, Article XII of the 1987
Constitution, viz:chanRoblesvirtualLawlibrary
Sec. 11. 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 corporations
or associations organized under the laws of the Philippines at
least sixty per centum or whose capital is owned by such
citizens, nor shall such franchise, certificate or authorization
be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted
except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity
participation in public utilities by the general public. The
participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of
the Philippines.
As worded, effective control by Filipino citizens of a public utility is

already assured in the provision. With respect to a stock corporation
engaged in the business of a public utility, the constitutional provision
mandates three safeguards: (1) 60% of its capital must be owned by
Filipino citizens; (2) participation of foreign investors in its board of
directors is limited to their proportionate share in its capital; and (3) all
its executive and managing officers must be citizens of the Philippines.
In the exhaustive review made by the Court in the Gamboa Resolution

of the deliberations of the Constitutional Commission, the opinions of
the framers of the 1987 Constitution, the opinions of the SEC and the
DOJ as well as the provisions of the FIA, its implementing rules and its
predecessor statutes, the intention to apply the voting control test and
the beneficial ownership test was not mentioned in reference to "each

class of shares." Even the Gamboa Decision was silent on this point.
To be sure, the application of the 60-40 Filipino-foreign ownership

requirement separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of shares fails
to understand and appreciate the nature and features of stocks as
financial instruments.88
There are basically only two types of shares or stocks, i.e., common
stock and preferred stock. However, the classes and variety of shares
that a corporation may issue are dictated by the confluence of the
corporation's financial position and needs, business opportunities,
short-term and long� term targets, risks involved, to name a few; and
they can be classified and re-classified from time to time. With respect
to preferred shares, there are cumulative preferred shares, non-
cumulative preferred shares, convertible preferred shares,
participating preferred shares.
Because of the different features of preferred shares, it is required that

the presentation and disclosure of these financial instruments in
financial statements should be in accordance with the substance of
the contractual arrangement and the definitions of a financial liability,
a financial asset and an equity instrument.89
Under IAS90 32.16, a financial instrument is an equity instrument only if

(a) the instrument includes no contractual obligation to deliver cash
or another financial asset to another entity, and (b) if the instrument
will or may be settled in the issuer's own equity instruments, it is either:
(i) a non� derivative that includes no contractual obligation for the
issuer to deliver a variable number of its own equity instruments; or (ii)
a derivative that will be settled only by the issuer exchanging a fixed

amount of cash or another financial asset for a fixed number of its own
equity instruments.91
The following are illustrations of how preferred shares should be

presented and disclosed:chanRoblesvirtualLawlibrary
Illustration - preference shares
If an entity issues preference (preferred) shares that pay a

fixed rate of dividend and that have a mandatory
redemption feature at a future date, the substance is that
they are a contractual obligation to deliver cash and,
therefore, should be recognized as a liability. [IAS 32.18(a)] In
contrast, preference shares that do not have a fixed maturity,
and where the issuer does not have a contractual obligation
to make any payment are equity. In this example even
though both instruments are legally termed preference
shares they have different contractual terms and one is a
financial liability while the other is equity.
Illustration - issuance of fixed monetary amount of equity

instruments
A contractual right or obligation to receive or deliver a

number of its own shares or other equity instruments that
varies so that the fair value of the entity's own equity
instruments to be received or delivered equals the fixed
monetary amount of the contractual right or obligation is a
financial liability. [IAS 32.20]
Illustration - one party bas a choice over bow an instrument

is settled
When a derivative financial instrument gives one party a

choice over how it is settled (for instance, the issuer or the
holder can choose settlement net in cash or by exchanging
shares for cash), it is a financial asset or a financial liability

unless all of the settlement alternatives would result in it being
an equity instrument. [IAS 32.26] 92
The fact that from an accounting standpoint, the substance or

essence of the financial instrument is the key determinant whether it
should be categorized as a financial liability or an equity instrument,
there is no compelling reason why the same treatment may not be
recognized from a legal perspective. Thus, to require Filipino
shareholders to acquire preferred shares that are substantially debts,
in order to meet the "restrictive" Filipino ownership requirement that
petitioners espouse, may not bode well for the Philippine corporation
and its Filipino shareholders.
Parenthetically, given the innumerable permutations that the types

and classes of stocks may take, requiring the SEC and other
government agencies to keep track of the ever-changing capital
classes of corporations will be impracticable, if not downright
impossible. And the law does not require the impossible. (Lex non
cogit ad impossibilia.)93
That stock corporations are allowed to create shares of different

classes with varying features is a flexibility that is granted, among
others, for the corporation to attract and generate capital (funds)
from both local and foreign capital markets. This access to capital -
which a stock corporation may need for expansion, debt
relief/repayment, working capital requirement and other corporate
pursuits - will be greatly eroded with further unwarranted limitations
that are not articulated in the Constitution. The intricacies and
delicate balance between debt instruments (liabilities) and equity
(capital) that stock corporations need to calibrate to fund their
business requirements and achieve their financial targets are better
left to the judgment of their boards and officers, whose bounden duty

is to steer their companies to financial stability and profitability and
who are ultimately answerable to their shareholders.
Going back to the illustration above, the restrictive meaning of the

term "capital" espoused by petitioners will definitely be complied with
if 60% of each of the three classes of shares of Company X, consisting
of 100 common shares, 100 Class A preferred shares (with right to elect
directors) and 100 Class B preferred shares (without right to elect
directors), is owned by Filipinos. However, what if the 60% Filipino
ownership in each class of preferred shares, i.e., 60 Class A preferred
shares and 60 Class B preferred shares, is not fully subscribed or
achieved because there are not enough Filipino takers? Company X
will be deprived of capital that would otherwise be accessible to it
were it not for this unwarranted "restrictive" meaning of "capital".
The fact that all shares have the right to vote in 8 specific corporate
actions as provided in Section 6 of the Corporation Code does not per
se justify the favorable adoption of the restrictive re-interpretation of
"capital" as the petitioners espouse. As observed in
the Gamboa Decision, viz:chanRoblesvirtualLawlibrary
The Corporation Code of the Philippines classifies shares as
common or preferred, thus:chanRoblesvirtualLawlibrary
Sec. 6. Classification of shares. The shares of stock of

stock corporations may be divided into classes or
series of shares, or both, any of which classes or series
of shares may have such rights, privileges or
restrictions as may be stated in the articles of
incorporation: Provided, That no share may be
deprived of voting rights except those classified and
issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided, further,
That there shall always be a class or series of shares

which have complete voting rights. Any or all of the
shares or series of shares may have a par value or
have no par value as may be provided for in the
articles of incorporation: Provided, however, That
banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any corporation

may be given preference in the distribution of the
assets of the corporation in case of liquidation and in
the distribution of dividends, or such other
preferences as may be stated in the articles of
incorporation which are not violative of the
provisions of this Code: Provided, That preferred
shares of stock may be issued only with a stated par
value. The Board of Directors, where authorized in the
articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions
shall be effective upon the filing of a certificate
thereof with the Securities and Exchange
Commission.
x x x x
A corporation may, furthermore, classify its shares for

the purpose of insuring compliance with
constitutional or legal requirements.
Except as otherwise provided in the articles of

incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every
other share.
Where the articles of incorporation provide for non�

voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled
to vote on the following matters:cralawlawlibrary
1. Amendment of the articles of

incorporation;ChanRoblesVirtualawlibrary
2. Adoption and amendment of by-

laws;ChanRoblesVirtualawlibrary
3. Sale, lease, exchange, mortgage, pledge or other

disposition of all or substantially all of the corporate
property;ChanRoblesVirtualawlibrary
4. Incurring, creating or increasing bonded

indebtedness;ChanRoblesVirtualawlibrary
5. Increase or decrease of capital

stock;ChanRoblesVirtualawlibrary
6. Merger or consolidation of the corporation with

another corporation or other
corporations;ChanRoblesVirtualawlibrary
7. Investment of corporate funds in another

corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding

paragraph, the vote necessary to approve a
particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting
rights.

Indisputably, one of the rights of a stockholder is the right to
participate in the control or management of the corporation.
This is exercised through his vote in the election of directors
because it is the board of directors that controls or manages
the corporation. In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares,
preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded
from any control, that is, deprived of the right to vote in the
election of directors and on other matters, on the theory that
the preferred shareholders are merely investors in the
corporation for income in the same manner as
bondholders. In fact, under the Corporation Code only
preferred or redeemable shares can be deprived of the right
to vote. Common shares cannot be deprived of the right to
vote in any corporate meeting, and any provision in the
articles of incorporation restricting the right of common
shareholders to vote is invalid.
Considering that common shares have voting rights which

translate to control, as opposed to preferred shares which
usually have no voting rights, the term "capital" in Section 11,
Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in
the election of directors, then the term "capital" shall include
such preferred shares because the right to participate in the
control or management of the corporation is exercised
through the right to vote in the election of directors. In short,
the term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the election of
directors.
This interpretation is consistent with the intent of the framers of

the Constitution to place in the hands of Filipino citizens the
control and management of public utilities. As revealed in the
deliberations of the Constitutional Commission, "capital"

refers to the voting stock or controlling interest of a
corporation x x x.94
The Gamboa Decision held that preferred shares are to be factored

in only if they are entitled to vote in the election of directors. If
preferred shares have no voting rights, then they cannot elect
members of the board of directors, which wields control of the
corporation. As to the right of non� voting preferred shares to vote in
the 8 instances enumerated in Section 6 of the Corporation Code,
the Gamboa Decision considered them but, in the end, did not find
them significant in resolving the issue of the proper interpretation of
the word "capital" in Section 11, Article XII of the Constitution.
Therefore, to now insist in the present case that preferred shares be

regarded differently from their unambiguous treatment in
the Gamboa Decision is enough proof that the Gamboa Decision,
which had attained finality more than 4 years ago, is being drastically
changed or expanded.
In this regard, it should be noted that the 8 corporate matters

enumerated in Section 6 of the Corporation Code require, at the
outset, a favorable recommendation by the management to the
board. As mandated by Section 11, Article XII of the Constitution, all
the executive and managing officers of a public utility company must
be Filipinos. Thus, the all-Filipino management team must first be
convinced that any of the 8 corporate actions in Section 6 will be to
the best interest of the company. Then, when the all�-Filipino
management team recommends this to the board, a majority of the
board has to approve the recommendation and, as required by the
Constitution, foreign participation in the board cannot exceed 40% of
the total number of board seats. Since the Filipino directors comprise
the majority, they, if united, do not even need the vote of the foreign

directors to approve the intended corporate act. After approval by
the board, all the shareholders (with and without voting rights) will vote
on the corporate action. The required vote in the shareholders'
meeting is 2/3 of the outstanding capital stock.95Given the super
majority vote requirement, foreign shareholders cannot dictate upon
their Filipino counterpart. However, foreigners (if owning at least a third
of the outstanding capital stock) must agree with Filipino shareholders
for the corporate action to be approved. The 2/3 voting requirement
applies to all corporations, given the significance of the 8 corporate
actions contemplated in Section 6 of the Corporation Code.
In short, if the Filipino officers, directors and shareholders will not

approve of the corporate act, the foreigners are helpless.
Allowing stockholders holding preferred shares without voting rights to

vote in the 8 corporate matters enumerated in Section 6 is an
acknowledgment of their right of ownership. If the owners of preferred
shares without right to vote/elect directors are not allowed to vote in
any of those 8 corporate actions, then they will not be entitled to the
appraisal right provided under Section 8196 of the Corporation Code
in the event that they dissent in the corporate act. As required in
Section 82, the appraisal right can only be exercised by any
stockholder who voted against the proposed action. Thus, without
recognizing the right of every stockholder to vote in the 8 instances
enumerated in Section 6, the stockholder cannot exercise his
appraisal right in case he votes against the corporate action. In simple
terms, the right to vote in the 8 instances enumerated in Section 6 is
more in furtherance of the stockholder's right of ownership rather than
as a mode of control.
As to financial interest, giving short-lived preferred or superior terms to

certain classes or series of shares may be a welcome option to
expand capital, without the Filipino shareholders putting up additional
substantial capital and/or losing ownership and control of the
company. For shareholders who are not keen on the creation of those
shares, they may opt to avail themselves of their appraisal right. As
acknowledged in the Gamboa Decision, preferred shareholders are
merely investors in the company for income in the same manner as
bondholders. Without a lucrative package, including an attractive
return of investment, preferred shares will not be subscribed and the
much-needed additional capital will be elusive. A too restrictive
definition of "capital", one which was never contemplated in
the GamboaDecision, will surely have a dampening effect on the
business milieu by eroding the flexibility inherent in the issuance of
preferred shares with varying terms and conditions. Consequently, the
rights and prerogatives of the owners of the corporation will be
unwarrantedly stymied.
Moreover, the restrictive interpretation of the term "capital" would

have a tremendous impact on the country as a whole and to all
Filipinos.
The PSE's Comment-in-Intervention dated June 16, 201497 warns

80. [R]edefining "capital" as used in Section 11, Article XII of
the 1987 Constitution and adopting the supposed "Effective
Control Test" will lead to disastrous consequences to the
Philippine stock market.
81. Current data of the PSE show that, if the "Effective Control
Test" were applied, the total value of shares that would be
deemed in excess of the foreign-ownership limits based on
stock prices as of 30 April 2014 is One Hundred Fifty Nine Billion

Six Hundred Thirty Eight Million Eight Hundred Forty Five
Thousand Two Hundred Six Pesos and Eighty Nine Cents
(Php159,638,845,206.89).
82. The aforementioned value of investments would have to

be discharged by foreign holders, and consequently must be
absorbed by Filipino investors. Needless to state, the lack of
investments may lead to shutdown of the affected
enterprises and to immeasurable consequences to the
Philippine economy.98
In its Omnibus Motion [1] For Leave to Intervene; and [2] To Admit
Attached Comment-in-Intervention dated May 30, 2016,99 SHAREPHIL
further warns that "[t]he restrictive re-interpretation of the term
"capital" will result in massive forced divestment of foreign
stockholdings in Philippine corporations." 100SHAREPHIL
explains:chanRoblesvirtualLawlibrary
4.51. On 16 October 2012, Deutsche Bank released a Market
Research Study, which analyzed the implications of the ruling
in Gamboa. The Market Research Study stated
"If this thinking is applied and becomes established

precedent, it would significantly expand on the rules
for determining nationality in partially nationalized
industries. If that were to happen, not only will PLDT's
move to issue the 150m voting prefs be inadequate
to address the issue, a large number of listed
companies with similar capital structures could also
be affected."
4.52. In five (5) companies alone, One Hundred Fifty Eight

Billion Pesos (PhP158,000,000,000.00) worth of shares will have
to be sold by foreign shareholders in a forced divestment, if
the obiter in Gamboa were to be implemented. Foreign
shareholders of PLDT will have to divest One Hundred Three

Billion Eight Hundred Sixty Million Pesos
(PhP103,860,000,000.00) worth of shares.
a. Foreign shareholders of Globe Telecom will have to divest

Thirty Eight Billion Two Hundred Fifty Million Pesos
b. Foreign shareholders of Ayala Land will have to divest

Seventeen Billion Five Hundred Fifty Million Pesos
c. Foreign shareholders of ICTSI will have to divest Six Billion Four

Hundred Ninety Million Pesos (PhP6,490,000,000.00) worth of
shares.
d. Foreign shareholders of MWC will have to divest Seven Billion

Seven Hundred Fourteen Million Pesos (PhP7,714,000,000.00)
worth of shares.
4.53. Clearly, the local stock market which has an average

value turn-over of Seven Billion Pesos cannot adequately
absorb the influx of shares caused by the forced divestment.
As a result, foreign stockholders will have to sell these shares
at bargain prices just to comply with the Obiter.
4.54. These shares being part of the Philippine index, their

forced divestment vis-a-vis the inability of the local stock
market to absorb these shares will necessarily bring immense
downward pressure on the index. A domino-effect implosion
of the Philippine stock market and the Philippine economy, in
general is not remote. x x x.101
Petitioners have failed to counter or refute these submissions of the PSE

and SHAREPHIL. These unrefuted observations indicate to the Court
that a restrictive interpretation - or rather, re-interpretation, of
"capital", as already defined with finality in the Gamboa Decision and
Resolution - directly affects the well-being of the country

and cannot be labelled as "irrelevant and impertinent concerns x x x
add[ing] burden [to] the Court." 102 These observations by the
PSE103 and SHAREPHIL,104 unless refuted, must be considered by the
Court to be valid and sound.
The Court in Abacus Securities Corp. v. Ampil 105 observed that:

"[s]tock market transactions affect the general public and the
national economy. The rise and fall of stock market indices reflect to
a considerable degree the state of the economy. Trends in stock
prices tend to herald changes in business conditions. Consequently,
securities transactions are impressed with public interest x x x."106 The
importance of the stock market in the economy cannot simply be
glossed over.
In view of the foregoing, the pronouncement of the Court in

the Gamboa Resolution - the constitutional requirement to apply
uniformly and across the board to all classes of shares, regardless of
nomenclature and category, comprising the capital of a
corporation107 - is clearly an obiter dictum that cannot override the
Court's unequivocal definition of the term "capital" in both
the Gamboa Decision and Resolution.
Nowhere in the discussion of the definition of the term "capital" in

Section 11, Article XII of the 1987 Constitution in the Gamboa Decision
did the Court mention the 60% Filipino equity requirement to be
applied to each class of shares. The definition of "Philippine national"
in the FIA and expounded in its IRR, which the Court adopted in its
interpretation of the term "capital", does not support such application.
In fact, even the Final Word of the Gamboa Resolution does not even
intimate or suggest the need for a clarification or re-interpretation.

To revisit or even clarify the unequivocal definition of the term "capital"
as referring "only to shares of stock entitled to vote in the election of
directors" and apply the 60% Filipino ownership requirement to each
class of share is effectively and unwarrantedly amending or changing
the Gamboa Decision and Resolution. The Gamboa Decision and
Resolution Doctrine did NOT make any definitive ruling that the 60%
Filipino ownership requirement was intended to apply to each class of
share.
In Malayang Manggagawa ng Stayfast Phils., Inc. v. NLRC,108 the

Court stated:chanRoblesvirtualLawlibrary
Where a petition for certiorari under Rule 65 of the Rules of
Court alleges grave abuse of discretion, the petitioner should
establish that the respondent court or tribunal acted in a
capricious, whimsical, arbitrary or despotic manner in the
exercise of its jurisdiction as to be equivalent to lack of
jurisdiction. This is so because "grave abuse of discretion" is
well-defined and not an amorphous concept that may easily
be manipulated to suit one's purpose. In this connection, Yu
v. Judge Reyes-Carpio, is
instructive:chanRoblesvirtualLawlibrary
The term "grave abuse of discretion" has a specific

meaning. An act of a court or tribunal can only be
considered as with grave abuse of discretion when
such act is done in a "capricious or whimsical
exercise of judgment as is equivalent to lack of
jurisdiction." The abuse of discretion must be so
patent and gross as to amount to an "evasion of a
positive duty or to a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of
law, as where the power is exercised in an arbitrary
and despotic manner by reason of passion and
hostility." Furthermore, the use of a petition
for certiorari is restricted only to "truly extraordinary

cases wherein the act of the lower court or quasi-
judicial body is wholly void." From the foregoing
definition, it is clear that the special civil action
of certiorari under Rule 65 can only strike an act
down for having been done with grave abuse of
discretion if the petitioner could manifestly show that
such act was patent and gross. x x x.
The onus rests on petitioners to clearly and sufficiently establish that

the SEC, in issuing SEC-MC No. 8, acted in a capricious, whimsical,
arbitrary or despotic manner in the exercise of its jurisdiction as to be
equivalent to lack of jurisdiction or that the SEC's abuse of discretion is
so patent and gross as to amount to an evasion of a positive duty or
to a virtual refusal to perform a duty enjoined by law, or to act at all
in contemplation of law and the Gamboa Decision and
Resolution. Petitioners miserably failed in this respect.
The clear and unequivocal definition of "capital" in Gamboa has

attained finality.
It is an elementary principle in procedure that the resolution of the

court in a given issue as embodied in the dispositive portion or fallo of
a decision controls the settlement of rights of the parties and the
questions, notwithstanding statement in the body of the decision
which may be somewhat confusing, inasmuch as the dispositive part
of a final decision is definite, clear and unequivocal and can be
wholly given effect without need of interpretation or construction.109
As explained above, the fallo or decretal/dispositive portions of both

the Gamboa Decision and Resolution are definite, clear and
unequivocaL While there is a passage in the body of
the Gamboa Resolution that might have appeared contrary to

the fallo of the Gamboa Decision - capitalized upon by petitioners to
espouse a restrictive re-interpretation of "capital" - the definiteness
and clarity of the fallo of the GamboaDecision must control over
the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to
"each class of shares, regardless of differences in voting rights,
privileges and restrictions."
The final judgment as rendered is the judgment of the court

irrespective of all seemingly contrary statements in the decision
because at the root of the doctrine that the premises must yield to the
conclusion is, side by side with the need of writing finis to litigations,
the recognition of the truth that "the trained intuition of the judge
continually leads him to right results for which he is puzzled to give
unimpeachable legal reasons."110
Petitioners cannot, after Gamboa has attained finality, seek a belated

correction or reconsideration of the Court's unequivocal definition of
the term "capital". At the core of the doctrine of finality of judgments
is that public policy and sound practice demand that, at the risk of
occasional errors, judgments of courts should become final at some
definite date fixed by law and the very objects for which courts were
instituted was to put an end to controversies.111 Indeed, the definition
of the term "capital" in the fallo of the Gamboa Decision has acquired
finality.
Because the SEC acted pursuant to the Court's pronouncements in

both the Gamboa Decision and Gamboa Resolution, then it could not
have gravely abused its discretion. That portion found in the body of
the Gamboa Resolution which the petitioners rely upon is nothing
more than an obiter dictum and the SEC could not be expected to

apply it as it was not - is not - a binding pronouncement of the
Court.112
Furthermore, as opined by Justice Bersamin during the deliberations,

the doctrine of immutability of judgment precludes the Court from
re� examining the definition of "capital" under Section 11, Article XII
of the Constitution. Under the doctrine of finality and immutability of
judgment, a decision that has acquired finality becomes immutable
and unalterable, and may no longer be modified in any respect, even
if the modification is meant to correct erroneous conclusions of fact
and law, and even if the modification is made by the court that
rendered it or by the Highest Court of the land. Any act that violates
the principle must be immediately stricken down.113 The petitions
have not succeeded in pointing to any exceptions to the doctrine of
finality of judgments, under which the present case falls, to wit: (1) the
correction of clerical errors; (2) the so-called nunc pro tunc entries
which cause no prejudice to any party; (3) void judgments; and (4)
whenever circumstances transpire after the finality of the decision
rendering its execution unjust and inequitable.114
With the foregoing disquisition, the Court rules that SEC-MC No. 8
is not contrary to the Court's definition and interpretation of the term
"capital". Accordingly, the petitions must be denied for failing to show
grave abuse of discretion in the issuance of SEC-MC No. 8.
The petitions are second motions for Reconsideration, which are

proscribed.
As Justice Bersamin further noted during the deliberations, the

petitions are in reality second motions for reconsideration prohibited
by the Internal Rules of the Supreme Court.115 The parties, particularly

intervenors Gamboa, et al., could have filed a motion for clarification
in Gamboa in order to fill in the perceived shortcoming occasioned
by the non-inclusion in the dispositive portion of
the GamboaResolution of what was discussed in the body.116 The
statement in the fallo of the Gamboa Resolution to the effect that
"[n]o further pleadings shall be entertained" could not be a hindrance
to a motion for clarification that sought an unadulterated inquiry
arising upon an ambiguity in the decision.117
Closing
Ultimately, the key to nationalism is in the individual. Particularly for a

public utility corporation or association, whether stock or non-stock, it
starts with the Filipino shareholder or member who, together with other
Filipino shareholders or members wielding 60% voting power, elects
the Filipino director who, in turn, together with other Filipino directors
comprising a majority of the board of directors or trustees, appoints
and employs the all-Filipino management team. This is what is
envisioned by the Constitution to assure effective control by Filipinos.
If the safeguards, which are already stringent, fail, i.e., a public utility
corporation whose voting stocks are beneficially owned by Filipinos,
the majority of its directors are Filipinos, and all its managing officers
are Filipinos, is pro�alien (or worse, dummies), then that is not the fault
or failure of the Constitution. It is the breakdown of nationalism in each
of the Filipino shareholders, Filipino directors and Filipino officers of that
corporation. No Constitution, no decision of the Court, no legislation,
no matter how ultra�nationalistic they are, can guarantee
nationalism.
WHEREFORE, premises considered, the Court DENIES the Petition and

Petition-in-Intervention.

SO ORDERED.ChanRoblesVirtualawlibrary

EN BANC
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the
Ninoy Aquino International Airport (NAIA) Complex in Parañaque City
under Executive Order No. 903, otherwise known as the Revised
Charter of the Manila International Airport Authority ("MIAA Charter").
Executive Order No. 903 was issued on 21 July 1983 by then President
Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and
2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA
Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and
Buildings") then under the Bureau of Air Transportation.4 The MIAA
Charter further provides that no portion of the land transferred to
MIAA shall be disposed of through sale or any other mode unless
specifically approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel
(OGCC) issued Opinion No. 061. The OGCC opined that the Local

Government Code of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate
tax imposed by the City. MIAA then paid some of the real estate tax
already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax
Delinquency from the City of Parañaque for the taxable years 1992 to
2001. MIAA's real estate tax delinquency is broken down as follows:
TAX
TAXABLE
DECLARATI TAX DUE PENALTY TOTAL
YEAR
ON
E-016-01370 1992-2001 19,558,160.0 11,201,083.2 30,789,243.2

0 0 0
E-016-01374 1992-2001 111,689,424. 68,149,479.5 179,838,904.

90 9 49
E-016-01375 1992-2001 20,276,058.0 12,371,832.0 32,647,890.0

0 0 0
E-016-01376 1992-2001 58,144,028.0 35,477,712.0 93,621,740.0

0 0 0
E-016-01377 1992-2001 18,134,614.6 11,065,188.5 29,199,803.2

5 9 4
E-016-01378 1992-2001 111,107,950. 67,794,681.5 178,902,631.

40 9 99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.0

0

*E-016-013- 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
85
*E-016- 1998-2001 34,876,800.0 5,694,560.00 50,571,360.0

01387 0 0
*E-016- 1998-2001 75,240.00 33,858.00 109,098.00

01396
GRAND P392,435,86 P232,070,86 P 624,506,72

TOTAL 1.95 3.47 5.42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Parañaque threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay
the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to
show proof of exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original
petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to
restrain the City of Parañaque from imposing real estate tax on,

levying against, and auctioning for public sale the Airport Lands and
Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition
because MIAA filed it beyond the 60-day reglementary period. The
Court of Appeals also denied on 27 September 2002 MIAA's motion
for reconsideration and supplemental motion for reconsideration.
Hence, MIAA filed on 5 December 2002 the present petition for
review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of
auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Tambo, Parañaque City; in the public market of Barangay La Huerta;
and in the main lobby of the Parañaque City Hall. The City of
Parañaque published the notices in the 3 and 10 January 2003 issues
of the Philippine Daily Inquirer, a newspaper of general circulation in
the Philippines. The notices announced the public auction sale of the
Airport Lands and Buildings to the highest bidder on 7 February 2003,
10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m.,
MIAA filed before this Court an Urgent Ex-Parte and Reiteratory Motion
for the Issuance of a Temporary Restraining Order. The motion sought
to restrain respondents — the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer
of Parañaque, and the City Assessor of Parañaque ("respondents") —
from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order
(TRO) effective immediately. The Court ordered respondents to cease
and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the
Court issued it. However, respondents received the TRO only at 1:25
p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc
pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In
compliance with the directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor General
subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out
that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public
service, the ownership of these properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are not subject
to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it
is also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are
owned by the Republic. To justify the exemption, MIAA invokes the
principle that the government cannot tax itself. MIAA points out that
the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code,
which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the
effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express mention
of one person, thing, or act excludes all others. An international airport
is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim
that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International
Airport v. Marcos8 where we held that the Local Government Code
has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has
already paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws.
If so exempt, then the real estate tax assessments issued by the City of
Parañaque, and all proceedings taken pursuant to such assessments,
are void. In such event, the other issues raised in this petition become
moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from
local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or
controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-
owned or controlled so exempt by its charter" in Section 234(e) of the
Local Government Code withdrew the real estate tax exemption of
government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is not
a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized
as a stock or non-stock corporation." MIAA is not organized as a stock
or non-stock corporation. MIAA is not a stock corporation because it
has no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed
by the National Government shall be increased from Two and One-
half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,]
which may be contributed by the National Government or transferred
by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other
deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted share
of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be provided in the
General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as
one whose "capital stock is divided into shares and x x x authorized
to distribute to the holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation
as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-
stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and like
chambers." MIAA is not organized for any of these purposes. MIAA, a
public utility, is organized to operate an international and domestic
airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does
not qualify as a government-owned or controlled corporation. What
then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers
to perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory Provisions of
the Administrative Code defines a government "instrumentality" as
follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA exercises
the governmental powers of eminent domain,12 police
authority13 and the levying of fees and charges.14 At the same time,
MIAA exercises "all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the provisions of
this Executive Order."15
Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated
with the department framework. The MIAA Charter expressly states
that transforming MIAA into a "separate and autonomous body"16 will
make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers
but they do not become stock or non-stock corporations, which is a
necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but
they are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing
law defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of
the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalitiesand local government units.(Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely
delegated to local governments the power to tax. While the 1987
Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power
"subject to such guidelines and limitations as the Congress may
provide."18
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing
each other, unless a sound and compelling policy requires such
transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public services to
inhabitants of local governments. The only exception is when the
legislature clearly intended to tax government instrumentalities for the
delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law
empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved
against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax
national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to
the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power
to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial
property of the State.
No one can dispute that properties of public dominion mentioned in
Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports
and bridges constructed by the State," are owned by the State. The
term "ports" includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road
as one for public use. Someone must pay for the maintenance of the
road, either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not determine the character
of the property whether it is of public dominion or not. Article 420 of
the Civil Code defines property of public dominion as one "intended
for public use." Even if the government collects toll fees, the road is still
"intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees,
the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect
the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing
fees MIAA charges to airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection of such fees does not
change the character of MIAA as an airport for public use. Such fees
are often termed user's tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user's tax
is more equitable — a principle of taxation mandated in the 1987
Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and domestic
air traffic,"22 are properties of public dominion because they are
intended for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use
and thus are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are outside the commerce
of man. The Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. As early as 1915, this
Court already ruled in Municipality of Cavite v. Rojas that properties
devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and
public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude
from public use a portion thereof in order to lease it for the sole benefit
of the defendant Hilaria Rojas. In leasing a portion of said plaza or
public place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it
empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895, which
says: "Communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that
properties of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by
private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said
temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.25
Properties of public dominion, being for public use, are not subject to
levy, encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of
public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the
City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the
President must first withdraw from public usethe Airport Lands and
Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing
general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations for
highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks,
public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of
Section eighty-three shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties remain
properties of public dominion and are inalienable. Since the Airport
Lands and Buildings are inalienable in their present status as properties
of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are
reserved for public use, their ownership remains with the State or the
Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section
14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which
states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of
the Government. — (1) The President shall have the power to reserve
for settlement or public use, and for specific public purposes, any of
the lands of the public domain, the use of which is not otherwise
directed by law. The reserved land shall thereafter remain subject to
the specific public purpose indicated until otherwise provided by law
or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust
for the Republic. Section 48, Chapter 12, Book I of the Administrative
Code allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real
property of the Government is authorized by law to be conveyed, the
deed of conveyance shall be executed in behalf of the government
by the following:
(1) For property belonging to and titled in the name of the Republic
of the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the
deed of conveyance on behalf of the Republic. Only the President of
the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the
Airport Lands and Buildings from the Bureau of Air Transportation of the
Department of Transportation and Communications. The MIAA
Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x
xxx
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year
from the promulgation of this Executive Order and the corresponding
title to be issued in the name of the Authority. Any portion thereof shall
not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines. (Emphasis
supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations,
including all equipment which are necessary for the operation of
crash fire and rescue facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division
in the Bureau of Air Transportation and Transitory Provisions. — The
Manila International Airport including the Manila Domestic Airport as
a division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock
since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of
the Philippines for both international and domestic air traffic, is
required to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air
traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated
that the objectives of providing high standards of accommodation
and service within the context of a financially viable operation, will
best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership
of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a
separate and autonomous body. The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely
by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and
Buildings "shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines."
This only means that the Republic retained the beneficial ownership
of the Airport Lands and Buildings because under Article 428 of the
Civil Code, only the "owner has the right to x x x dispose of a thing."
Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA
does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to
the Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is
the only one who can authorize the sale or disposition of the Airport
Lands and Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real
estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the
same Code, which prohibits local governments from imposing
"[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalitiesx x x." The real properties owned by the
Republic are titled either in the name of the Republic itself or in the
name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic
to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an
agency or instrumentality of the national government. This happens
when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real
property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the
"beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the
Local Government Code. Thus, even if we assume that the Republic
has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases
to private entities are not exempt from real estate tax. For example,
the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a consideration to
a taxable person and therefore such land area is subject to real estate
tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax
because Section 193 of the Local Government Code of 1991
withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise
provided in this Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except
local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions are
hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The
minority argues that since the Local Government Code withdrew the
tax exemption of all juridical persons, then MIAA is not exempt from
real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code
that the withdrawn exemptions from realty tax cover not just GOCCs,
but all persons. To repeat, the provisions lay down the explicit
proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only clarificatory
or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at
all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is
exempt from local taxation is its status — whether MIAA is a juridical
person or not. The minority also insists that "Sections 193 and 234 may
be examined in isolation from Section 133(o) to ascertain MIAA's claim
of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local
Government Code expressly withdrew the tax exemption of all
juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly provides
otherwise, specifically prohibiting local governments from imposing
any kind of tax on national government instrumentalities. Section
133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise of
xxxx
(o) Taxes, fees or charges of any kinds on the National Government,
its agencies and instrumentalities, and local government units.
(Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not
extend to the national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the saving
clause of Section 133. The saving clause refers to Section 234(a) on
the exception to the exemption from real estate tax of real property
owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193
itself, all juridical persons are subject to tax by local governments. The
minority insists that the juridical persons exempt from local taxation are
limited to the three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water
districts; (b) cooperatives duly registered under Republic Act No. 6938;
and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not
fall within any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates
Section 133(o) of the Local Government Code. This theory will result in
gross absurdities. It will make the national government, which itself is a
juridical person, subject to tax by local governments since the national
government is not included in the enumeration of exempt entities in
Section 193. Under this theory, local governments can impose any
kind of local tax, and not only real estate tax, on the national
government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be subject to any
kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical personalities
are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research
Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases
Conversion Development Authority,34Philippine Ports
Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National
Railways.39
The minority's theory violates Section 133(o) of the Local Government
Code which expressly prohibits local governments from imposing any
kind of tax on national government instrumentalities. Section 133(o)
does not distinguish between national government instrumentalities
with or without juridical personalities. Where the law does not
distinguish, courts should not distinguish. Thus, Section 133(o) applies
to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from
local taxation is not whether MIAA is a juridical person, but whether it
is a national government instrumentality under Section 133(o) of the
Local Government Code. Section 133(o) is the specific provision of
law prohibiting local governments from imposing any kind of tax on
the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving
clause "[u]nless otherwise provided in this Code." This means that
unless the Local Government Code grants an express authorization,
local governments have no power to tax the national government, its
agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may
tax the national government, its agencies and instrumentalities only if
the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the
exemption in Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the beneficial use
of its real properties to a taxable entity. Section 234(a) of the Local
Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
been granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt
from real estate tax. The exception to this exemption is when the
government gives the beneficial use of the real property to a taxable
entity.
The exception to the exemption in Section 234(a) is the only instance
when the national government, its agencies and instrumentalities are
subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to public
use or public service but devoted to the private gain of a taxable
person.
The minority also argues that since Section 133 precedes Section 193
and 234 of the Local Government Code, the later provisions prevail
over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and
234. Following an accepted rule of construction, in case of conflict
the subsequent provisions should prevail. Therefore, MIAA, as a
juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193 and 234 of
the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between
Section 133 on one hand, and Sections 193 and 234 on the other. No
one has urged that there is such a conflict, much less has any one
presenteda persuasive argument that there is such a conflict. The
minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193
because Section 193 expressly admits its subordination to other
provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that limit
the exercise of the taxing power in Section 193. When a provision of
law grants a power but withholds such power on certain matters,
there is no conflict between the grant of power and the withholding
of power. The grantee of the power simply cannot exercise the power
on matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing
Powers of Local Government Units." Section 133 limits the grant to local
governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of
local governments "shall not extend to the levy" of any kind of tax on
the national government, its agencies and instrumentalities. There is
no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing
powers of local governments, Section 133 logically prevails over
Section 193 which grants local governments such taxing powers. By
their very meaning and purpose, the "common limitations" on the
taxing power prevail over the grant or exercise of the taxing power. If
the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government,
its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government,
its agencies and instrumentalities, except as otherwise provided in the
Local Government Code pursuant to the saving clause in Section 133
stating "[u]nless otherwise provided in this Code." This exception —
which is an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to Section 234(a)
of the Code. The exception to the exemption in Section 234(a)
subjects real property owned by the Republic, whether titled in the
name of the national government, its agencies or instrumentalities, to
real estate tax if the beneficial use of such property is given to a
taxable entity.
The minority also claims that the definition in the Administrative Code
of the phrase "government-owned or controlled corporation" is not
controlling. The minority points out that Section 2 of the Introductory
Provisions of the Administrative Code admits that its definitions are not
controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text,
or the context as a whole, or a particular statute, shall require a
different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code
definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this
does not automatically mean that the definition in the Administrative
Code does not apply to the Local Government Code. Section 2 of
the Administrative Code clearly states that "unless the specific words
x x x of a particular statute shall require a different meaning," the
definition in Section 2 of the Administrative Code shall apply. Thus,
unless there is specific language in the Local Government Code
defining the phrase "government-owned or controlled corporation"
differently from the definition in the Administrative Code, the definition
in the Administrative Code prevails.
The minority does not point to any provision in the Local Government
Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code.
Indeed, there is none. The Local Government Code is silent on the
definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the
phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of
the phrase "government-owned or controlled corporation" applies to
the Local Government Code.
The third whereas clause of the Administrative Code states that the
Code "incorporates in a unified document the major structural,
functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies
and instrumentalities. Unless a statute expressly provides for a different
status and relationship for a specific government unit or entity, the
provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or
controlled corporation" should apply only to corporations organized
under the Corporation Code, the general incorporation law, and not
to corporations created by special charters. The minority sees no
reason why government corporations with special charters should
have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which
are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs without original
charters.
xxxx
It might as well be worth pointing out that there is no point in requiring
a capital structure for GOCCs whose full ownership is limited by its
charter to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord
with the Constitution and existing legislations. It will also result in gross
absurdities.
First, the Administrative Code definition of the phrase "government-
owned or controlled corporation" does not distinguish between one
incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several
government-owned corporations organized as stock corporations.
Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the
Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall
be nine billion pesos, divided into seven hundred and eighty million
common shares with a par value of ten pesos each, which shall be
fully subscribed by the Government, and one hundred and twenty
million preferred shares with a par value of ten pesos each, which shall
be issued in accordance with the provisions of Sections seventy-seven
and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the
Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock
of the Bank shall be Five Billion Pesos to be divided into Fifty Million
common shares with par value of P100 per share. These shares are
available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to
Twenty-Five Million common shares of stock worth Two Billion Five
Hundred Million which shall be deemed paid for by the Government
with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis
supplied)
Other government-owned corporations organized as stock
corporations under their special charters are the Philippine Crop
Insurance Corporation,42 Philippine International Trading
Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All
these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-
owned or controlled corporations because they are not registered
with the Securities and Exchange Commission would remove them
from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is
that the government-owned or controlled corporation must meet the
test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good
and subject to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress
has no power to create government-owned or controlled
corporations with special charters unless they are made to comply
with the two conditions of common good and economic viability. The
test of economic viability applies only to government-owned or
controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially
economic vehicles of the State for the common good — meaning for
economic development purposes — these government-owned or
controlled corporations with special charters are usually organized as
stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need
not be economically viable since the government may even subsidize
their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section
16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate powers
but performing essential governmental or public functions. Congress
has plenary authority to create government instrumentalities vested
with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the
legislature creates through special charters corporations that perform
economic or commercial activities, such entities — known as
"government-owned or controlled corporations" — must meet the test
of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned
or controlled corporations, which derive their income to meet
operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to
prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,
explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which
this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of
a budget of P115 billion for the entire government, about P28 billion
of this will go into equity infusions to support a few government
financial institutions. And this is all taxpayers' money which could have
been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together
with the "common good," this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common
good.45
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in the
interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show
capacity to function efficiently in business and that they should not go
into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in
financial terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to government
entities vested with corporate powers and performing essential public
services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does
not excuse the State from withholding such essential services from the
public.
However, government-owned or controlled corporations with special
charters, organized essentially for economic or commercial
objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like the
Land Bank of the Philippines and the Development Bank of the
Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under
the definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market place. MIAA
does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA
performs an essential public service as the primary domestic and
international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the
following government agencies:
1. The Bureau of Immigration and Deportation, to document the
arrival and departure of passengers, screening out those without visas
or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban
on prohibited importations;
3. The quarantine office of the Department of Health, to enforce
health measures against the spread of infectious diseases into the
country;
4. The Department of Agriculture, to enforce measures against the
spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police,
to prevent the entry of terrorists and the escape of criminals, as well
as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and
buildings — for the government personnel, passengers, and airlines,
and to manage the airport operations.
All these agencies of government perform government functions
essential to the operation of an international airport.
MIAA performs an essential public service that every modern State
must provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and
airlines. The terminal fees that MIAA charges every passenger are
regulatory or administrative fees47 and not income from commercial
transactions.
MIAA falls under the definition of a government instrumentality under
Section 2(10) of the Introductory Provisions of the Administrative Code,
which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government,
autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not
make MIAA a government-owned or controlled corporation. Without
a change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-
owned or controlled corporations" under Section 16, Article XII of the
1987 Constitution.
The minority belittles the use in the Local Government Code of the
phrase "government-owned or controlled corporation" as merely
"clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes
explicit conditions for the creation of "government-owned or
controlled corporations." The Administrative Code defines what
constitutes a "government-owned or controlled corporation." To
belittle this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of the
Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability.
MIAA is a government instrumentality vested with corporate powers
and performing essential public services pursuant to Section 2(10) of
the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not
apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use
of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted
to public use and thus are properties of public dominion. Properties of
public dominion are owned by the State or the Republic. Article 420
of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents,
ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for
public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic
and thus exempt from real estate tax under Section 234(a) of the
Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o)
of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only
exception is when MIAA leases its real property to a "taxable person"
as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real
estate tax. Thus, only portions of the Airport Lands and Buildings leased
to taxable persons like private parties are subject to real estate tax by
the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are properties of public dominion
and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions "ports x x x constructed by the State," which
includes public airports and seaports, as properties of public dominion
and owned by the Republic. As properties of public dominion owned
by the Republic, there is no doubt whatsoever that the Airport Lands
and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly
ruled that properties of public dominion are not subject to execution
or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed
Resolutions of the Court of Appeals of 5 October 2001 and 27
September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport
Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of
Parañaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by
the City of Parañaque on the Airport Lands and Buildings of the Manila
International Airport Authority, except for the portions that the Manila
International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport
Authority.
No costs.
SO ORDERED.
Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-
Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr.,
Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.
x------------------------------------------------------------------------------
-x
DISSENTING OPINION
TINGA, J. :
The legally correct resolution of this petition would have had the
added benefit of an utterly fair and equitable result – a recognition of
the constitutional and statutory power of the City of Parañaque to
impose real property taxes on the Manila International Airport
Authority (MIAA), but at the same time, upholding a statutory
limitation that prevents the City of Parañaque from seizing and
conducting an execution sale over the real properties of MIAA. In the
end, all that the City of Parañaque would hold over the MIAA is a
limited lien, unenforceable as it is through the sale or disposition of
MIAA properties. Not only is this the legal effect of all the relevant
constitutional and statutory provisions applied to this case, it also
leaves the room for negotiation for a mutually acceptable resolution
between the City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today veers wildly
off-course, shattering statutes and judicial precedents left and right in
order to protect the precious Ming vase that is the Manila
International Airport Authority (MIAA). While the MIAA is left
unscathed, it is surrounded by the wreckage that once was the
constitutional policy, duly enacted into law, that was local autonomy.
Make no mistake, the majority has virtually declared war on the
seventy nine (79) provinces, one hundred seventeen (117) cities, and
one thousand five hundred (1,500) municipalities of the Philippines.1
The icing on this inedible cake is the strained and purposely vague
rationale used to justify the majority opinion. Decisions of the Supreme
Court are expected to provide clarity to the parties and to students of
jurisprudence, as to what the law of the case is, especially when the
doctrines of long standing are modified or clarified. With all due
respect, the decision in this case is plainly so, so wrong on many levels.
More egregious, in the majority's resolve to spare the Manila
International Airport Authority (MIAA) from liability for real estate taxes,
no clear-cut rule emerges on the important question of the power of
local government units (LGUs) to tax government corporations,
instrumentalities or agencies.
The majority would overturn sub silencio, among others, at least one
dozen precedents enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the
leading case penned in 1997 by recently retired Chief Justice Davide,
which held that the express withdrawal by the Local Government
Code of previously granted exemptions from realty taxes applied to
instrumentalities and government-owned or controlled corporations
(GOCCs) such as the Mactan-Cebu International Airport Authority
(MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a
precedent discredited in Mactan, and a vanguard of a doctrine so
noxious to the concept of local government rule that the Local
Government Code was drafted precisely to counter such philosophy.
The efficacy of several rulings that expressly rely on Mactan, such as
PHILRECA v. DILG Secretary,4 City Government of San Pablo v. Hon.
Reyes5 is now put in question.
2) The rulings in National Power Corporation v. City of
Cabanatuan,6 wherein the Court, through Justice Puno, declared
that the National Power Corporation, a GOCC, is liable for franchise
taxes under the Local Government Code, and succeeding cases that
have relied on it such as Batangas Power Corp. v. Batangas City7 The
majority now states that deems instrumentalities as defined under the
Administrative Code of 1987 as purportedly beyond the reach of any
form of taxation by LGUs, stating "[l]ocal governments are devoid of
instrumentalities."8 Unfortunately, using the definition employed by the
majority, as provided by Section 2(d) of the Administrative Code,
GOCCs are also considered as instrumentalities, thus leading to the
astounding conclusion that GOCCs may not be taxed by LGUs under
the Local Government Code.
3) Lung Center of the Philippines v. Quezon City,9 wherein a
unanimous en banc Court held that the Lung Center of the Philippines
may be liable for real property taxes. Using the majority's reasoning,
the Lung Center would be properly classified as an instrumentality
which the majority now holds as exempt from all forms of local
taxation.10
4) City of Davao v. RTC,11 where the Court held that the Government
Service Insurance System (GSIS) was liable for real property taxes for
the years 1992 to 1994, its previous exemption having been withdrawn
by the enactment of the Local Government Code.12 This decision,
which expressly relied on Mactan, would be directly though silently
overruled by the majority.
5) The common essence of the Court's rulings in the two Philippine
Ports Authority v. City of Iloilo,13 cases penned by Justices Callejo and
Azcuna respectively, which relied in part on Mactan in holding the
Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding
the fact that it is a GOCC. Based on the reasoning of the majority, the
PPA cannot be considered a GOCC. The reliance of these cases on
Mactan, and its rationale for holding governmental entities like the
PPA liable for local government taxation is mooted by the majority.
6) The 1963 precedent of Social Security System Employees
Association v. Soriano,14 which declared the Social Security
Commission (SSC) as a GOCC performing proprietary functions. Based
on the rationale employed by the majority, the Social Security System
is not a GOCC. Or perhaps more accurately, "no longer" a GOCC.
7) The decision penned by Justice (now Chief Justice) Panganiban,
Light Rail Transit Authority v. Central Board of Assessment.15 The
characterization therein of the Light Rail Transit Authority (LRTA) as a
"service-oriented commercial endeavor" whose patrimonial property
is subject to local taxation is now rendered inconsequential, owing to
the majority's thinking that an entity such as the LRTA is itself exempt
from local government taxation16, irrespective of the functions it
performs. Moreover, based on the majority's criteria, LRTA is not a
GOCC.
8) The cases of Teodoro v. National Airports Corporation17 and Civil
Aeronautics Administration v. Court of Appeals.18 wherein the Court
held that the predecessor agency of the MIAA, which was similarly
engaged in the operation, administration and management of the
Manila International Agency, was engaged in the exercise of
proprietary, as opposed to sovereign functions. The majority would
hold otherwise that the property maintained by MIAA is actually
patrimonial, thus implying that MIAA is actually engaged in sovereign
functions.
9) My own majority in Phividec Industrial Authority v. Capitol
Steel,19 wherein the Court held that the Phividec Industrial Authority,
a GOCC, was required to secure the services of the Office of the
Government Corporate Counsel for legal representation.20 Based on
the reasoning of the majority, Phividec would not be a GOCC, and
the mandate of the Office of the Government Corporate Counsel
extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June
2006), National Power Corporation v. Province of Isabela21 and GSIS
v. City Assessor of Iloilo City.22 In the former, the Court pronounced
that "[a]lthough as a general rule, LGUs cannot impose taxes, fees, or
charges of any kind on the National Government, its agencies and
instrumentalities, this rule admits of an exception, i.e., when specific
provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities." Yet the majority now rules
that the exceptions in the LGC no longer hold, since "local
governments are devoid of power to tax the national government, its
agencies and instrumentalities."23 The ruling in the latter case, which
held the GSIS as liable for real property taxes, is now put in jeopardy
by the majority's ruling.
There are certainly many other precedents affected, perhaps all
previous jurisprudence regarding local government taxation vis-a-vis
government entities, as well as any previous definitions of GOCCs,
and previous distinctions between the exercise of governmental and
proprietary functions (a distinction laid down by this Court as far back
as 191624). What is the reason offered by the majority for overturning
or modifying all these precedents and doctrines? None is given, for
the majority takes comfort instead in the pretense that these
precedents never existed. Only children should be permitted to
subscribe to the theory that something bad will go away if you
pretend hard enough that it does not exist.
I.
Case Should Have Been Decided
Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to the City of
Parañaque for real property taxes under the Local Government
Code, has already been decided by this Court in the Mactan case,
and should have been resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-Cebu
International Airport Authority (MCIAA) claimed that it was exempt
from payment of real property taxes to the City of Cebu, invoking the
specific exemption granted in Section 14 of its charter, Republic Act
No. 6958, and its status as an instrumentality of the government
performing governmental functions.25 Particularly, MCIAA invoked
Section 133 of the Local Government Code, precisely the same
provision utilized by the majority as the basis for MIAA's exemption.
Section 133 reads:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units.— Unless otherwise provided herein, the exercise of
xxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. (emphasis
and underscoring supplied).
However, the Court in Mactan noted that Section 133 qualified the
exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise
provided herein." It then considered the other relevant provisions of
the Local Government Code, particularly the following:
SEC. 193. Withdrawal of Tax Exemption Privileges. – Unless otherwise
provided in this Code, tax exemption or incentives granted to, or
enjoyed by all persons, whether natural or juridical, including
government-owned and controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.26
SECTION 232. Power to Levy Real Property Tax. – A province or city or
a municipality within the Metropolitan Manila area may levy an
annual ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter specifically
exempted.27
SECTION 234. Exemptions from Real Property Tax. -- The following are
been granted, for consideration or otherwise, to a taxable person:
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and
exclusively used for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned and
controlled corporations engaged in the distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity
of this Code.28
Clearly, Section 133 was not intended to be so absolute a prohibition
on the power of LGUs to tax the National Government, its agencies
and instrumentalities, as evidenced by these cited provisions which
"otherwise provided." But what was the extent of the limitation under
Section 133? This is how the Court, correctly to my mind, defined the
parameters in Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions
thereto. The use of exceptions or provisos in these sections, as shown
by the following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of
Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that
the aforementioned clause in Section 133 seems to be inaccurately
worded. Instead of the clause "unless otherwise provided herein," with
the "herein" to mean, of course, the section, it should have used the
clause "unless otherwise provided in this Code." The former results in
absurdity since the section itself enumerates what are beyond the
taxing powers of local government units and, where exceptions were
intended, the exceptions are explicitly indicated in the next. For
instance, in item (a) which excepts income taxes "when levied on
banks and other financial institutions"; item (d) which excepts
"wharfage on wharves constructed and maintained by the local
government unit concerned"; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses or permits for
the driving of "tricycles." It may also be observed that within the body
itself of the section, there are exceptions which can be found only in
other parts of the LGC, but the section interchangeably uses therein
the clause, "except as otherwise provided herein" as in items (c) and
(i), or the clause "except as provided in this Code" in item (j). These
clauses would be obviously unnecessary or mere surplusages if the
opening clause of the section were "Unless otherwise provided in this
Code" instead of "Unless otherwise provided herein." In any event,
even if the latter is used, since under Section 232 local government
units have the power to levy real property tax, except those
exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in Section 133, the
taxing powers of local government units cannot extend to the levy of,
inter alia, "taxes, fees and charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units"; however, pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan Manila Area may impose the
real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person," as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or judicial persons, including government-owned and
controlled corporations, Section 193 of the LGC prescribes the
general rule, viz., they are withdrawn upon the effectivity of the LGC,
except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The
latter proviso could refer to Section 234 which enumerates the
properties exempt from real property tax. But the last paragraph of
Section 234 further qualifies the retention of the exemption insofar as
real property taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in the enumeration
lost the privilege upon the effectivity of the LGC. Moreover, even as
to real property owned by the Republic of the Philippines or any of its
political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of such
property has been granted to a taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon
the effectivity of the LGC, exemptions from payment of real property
taxes granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said
section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided in
Section 234, but not under Section 133, as it now asserts, since, as
shown above, the said section is qualified by Sections 232 and 234.29
The Court in Mactan acknowledged that under Section 133,
instrumentalities were generally exempt from all forms of local
government taxation, unless otherwise provided in the Code. On the
other hand, Section 232 "otherwise provided" insofar as it allowed
LGUs to levy an ad valorem real property tax, irrespective of who
owned the property. At the same time, the imposition of real property
taxes under Section 232 is in turn qualified by the phrase "not
hereinafter specifically exempted." The exemptions from real property
taxes are enumerated in Section 234, which specifically states that
only real properties owned "by the Republic of the Philippines or any
of its political subdivisions" are exempted from the payment of the tax.
Clearly, instrumentalities or GOCCs do not fall within the exceptions
under Section 234.30
Mactan Overturned the
Precedents Now Relied
Upon by the Majority
But the petitioners in Mactan also raised the Court's ruling in Basco v.
PAGCOR,31 decided before the enactment of the Local
Government Code. The Court in Basco declared the PAGCOR as
exempt from local taxes, justifying the exemption in this wise:
Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. In addition to its corporate
powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx
PAGCOR has a dual role, to operate and to regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government. Being
an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local
government.
"The states have no power by taxation or otherwise, to retard impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government." (McCulloch v. Marland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to
the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state
or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activates or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power
to destroy" (McCulloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the
inherent power to wield it.32
Basco is as strident a reiteration of the old guard view that frowned on
the principle of local autonomy, especially as it interfered with the
prerogatives and privileges of the national government. Also consider
the following citation from Maceda v. Macaraig,33 decided the same
year as Basco. Discussing the rule of construction of tax exemptions
on government instrumentalities, the sentiments are of a similar vein.
Moreover, it is a recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in favor of a
government political subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory
provisions granting tax exemptions or deductions, even more obvious
than with reference to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the
course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in
favor of non tax-liability of such agencies.
In the case of property owned by the state or a city or other public
corporations, the express exemption should not be construed with the
same degree of strictness that applies to exemptions contrary to the
policy of the state, since as to such property "exemption is the rule and
taxation the exception."34
Strikingly, the majority cites these two very cases and the stodgy
rationale provided therein. This evinces the perspective from which
the majority is coming from. It is admittedly a viewpoint once shared
by this Court, and en vogue prior to the enactment of the Local
Government Code of 1991.
However, the Local Government Code of 1991 ushered in a new ethos
on how the art of governance should be practiced in the Philippines,
conceding greater powers once held in the private reserve of the
national government to LGUs. The majority might have private qualms
about the wisdom of the policy of local autonomy, but the members
of the Court are not expected to substitute their personal biases for
the legislative will, especially when the 1987 Constitution itself
promotes the principle of local autonomy.
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local
autonomy.
Section 3. The Congress shall enact a local government code which
shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization
with effective mechanisms of recall, initiative, and referendum,
allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to
the organization and operation of the local units.
xxx
Section 5. Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local
governments.
xxx
The Court in Mactan recognized that a new day had dawned with
the enactment of the 1987 Constitution and the Local Government
Code of 1991. Thus, it expressly rejected the contention of the MCIAA
that Basco was applicable to them. In doing so, the language of the
Court was dramatic, if only to emphasize how monumental the shift in
philosophy was with the enactment of the Local Government Code:
Accordingly, the position taken by the [MCIAA] is untenable. Reliance
on Basco v. Philippine Amusement and Gaming Corporation is
unavailing since it was decided before the effectivity of the [Local
Government Code]. Besides, nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy,
no one can doubt its wisdom.35 (emphasis supplied)
The Court Has Repeatedly
Reaffirmed Mactan Over the
Precedents Now Relied Upon
By the Majority
Since then and until today, the Court has been emphatic in declaring
the Basco doctrine as dead. The notion that instrumentalities may be
subjected to local taxation by LGUs was again affirmed in National
Power Corporation v. City of Cabanatuan,36 which was penned by
Justice Puno. NPC or Napocor, invoking its continued exemption from
payment of franchise taxes to the City of Cabanatuan, alleged that
it was an instrumentality of the National Government which could not
be taxed by a city government. To that end, Basco was cited by NPC.
The Court had this to say about Basco.
xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming
Corporation relied upon by the petitioner to support its claim no
longer applies. To emphasize, the Basco case was decided prior to
the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities of the National Government
was in effect. However, as this Court ruled in the case of Mactan Cebu
International Airport Authority (MCIAA) vs. Marcos, nothing prevents
Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject
to tax. In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after
reviewing the specific provisions of the LGC, this Court held that
MCIAA, although an instrumentality of the national government, was
subject to real property tax.37
In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the
Court, in the able ponencia of Justice Azcuna, affirmed the levy of
realty taxes on the PPA. Although the taxes were assessed under the
old Real Property Tax Code and not the Local Government Code, the
Court again cited Mactan to refute PPA's invocation of Basco as the
basis of its exemption.
[Basco] did not absolutely prohibit local governments from taxing
government instrumentalities. In fact we stated therein:
The power of local government to "impose taxes and fees" is always
subject to "limitations" which Congress may provide by law. Since P.D.
1869 remains an "operative" law until "amended, repealed or
revoked". . . its "exemption clause" remains an exemption to the
exercise of the power of local governments to impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International
Airport Authority v. Marcos, where the Basco case was similarly
invoked for tax exemption, we stated: "[N]othing can prevent
Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject
to tax. Where it is done precisely to fulfill a constitutional mandate and
national policy, no one can doubt its wisdom." The fact that tax
exemptions of government-owned or controlled corporations have
been expressly withdrawn by the present Local Government Code
clearly attests against petitioner's claim of absolute exemption of
government instrumentalities from local taxation.39
Just last month, the Court in National Power Corporation v. Province
of Isabela40 again rejected Basco in emphatic terms. Held the Court,
through Justice Callejo, Sr.:
Thus, the doctrine laid down in the Basco case is no longer true. In the
Cabanatuan case, the Court noted primarily that the Basco case was
decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National
Government was in effect. It further explained that in enacting the
LGC, Congress empowered the LGUs to impose certain taxes even on
instrumentalities of the National Government.41
The taxability of the PPA recently came to fore in Philippine Ports
Authority v. City of Iloilo42 case, a decision also penned by Justice
Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at
public auction for failure to pay realty taxes. The Court again
reiterated that "it was the intention of Congress to withdraw the tax
exemptions granted to or presently enjoyed by all persons, including
government-owned or controlled corporations, upon the effectivity"
of the Code.43 The Court in the second Public Ports Authority case
likewise cited Mactan as providing the "raison d'etre for the
withdrawal of the exemption," namely, "the State policy to ensure
autonomy to local governments and the objective of the [Local
Government Code] that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-
reliant communities. . . . "44
Last year, the Court, in City of Davao v. RTC,45 affirmed that the
legislated exemption from real property taxes of the Government
Service Insurance System (GSIS) was removed under the Local
Government Code. Again, Mactan was relied upon as the governing
precedent. The removal of the tax exemption stood even though the
then GSIS law46 prohibited the removal of GSIS' tax exemptions unless
the exemption was specifically repealed, "and a provision is enacted
to substitute the declared policy of exemption from any and all taxes
as an essential factor for the solvency of the fund."47 The Court, citing
established doctrines in statutory construction and Duarte v.
Dade48ruled that such proscription on future legislation was itself
prohibited, as "the legislature cannot bind a future legislature to a
particular mode of repeal."49
And most recently, just less than one month ago, the Court, through
Justice Corona in Government Service Insurance System v. City
Assessor of Iloilo50 again affirmed that the Local Government Code
removed the previous exemption from real property taxes of the GSIS.
Again Mactan was cited as having "expressly withdrawn the [tax]
exemption of the [GOCC].51
Clearly then, Mactan is not a stray or unique precedent, but the basis
of a jurisprudential rule employed by the Court since its adoption, the
doctrine therein consistent with the Local Government Code.
Corollarily, Basco, the polar opposite of Mactan has been
emphatically rejected and declared inconsistent with the Local
Government Code.
II.
Majority, in Effectively Overturning Mactan,
Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite Mactan, other than
an incidental reference that it is relied upon by the
respondents.52 However, the ineluctable conclusion is that the
majority rejects the rationale and ruling in Mactan. The majority
provides for a wildly different interpretation of Section 133, 193 and
234 of the Local Government Code than that employed by the Court
in Mactan. Moreover, the parties in Mactan and in this case are
similarly situated, as can be obviously deducted from the fact that
both petitioners are airport authorities operating under similarly
worded charters. And the fact that the majority cites doctrines
contrapuntal to the Local Government Code as in Basco and
Maceda evinces an intent to go against the Court's jurisprudential
trend adopting the philosophy of expanded local government rule
under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief
comment is necessitated on the majority's studied murkiness vis-à-vis
the Mactan precedent. The majority is obviously inconsistent with
Mactan and there is no way these two rulings can stand together.
Following basic principles in statutory construction, Mactan will be
deemed as giving way to this new ruling.
However, the majority does not bother to explain why Mactan is
wrong. The interpretation in Mactan of the relevant provisions of the
Local Government Code is elegant and rational, yet the majority
refuses to explain why this reasoning of the Court in Mactan is
erroneous. In fact, the majority does not even engage Mactan in any
meaningful way. If the majority believes that Mactan may still stand
despite this ruling, it remains silent as to the viable distinctions between
these two cases.
The majority's silence on Mactan is baffling, considering how different
this new ruling is with the ostensible precedent. Perhaps the majority
does not simply know how to dispense with the ruling in Mactan. If
Mactan truly deserves to be discarded as precedent, it deserves a
more honorable end than death by amnesia or ignonominous
disregard. The majority could have devoted its discussion in explaining
why it thinks Mactan is wrong, instead of pretending that Mactan
never existed at all. Such an approach might not have won the votes
of the minority, but at least it would provide some degree of
intellectual clarity for the parties, LGUs and the national government,
students of jurisprudence and practitioners. A more meaningful
debate on the matter would have been possible, enriching the study
of law and the intellectual dynamic of this Court.
There is no way the majority can be justified unless Mactan is
overturned. The MCIAA and the MIAA are similarly situated. They are
both, as will be demonstrated, GOCCs, commonly engaged in the
business of operating an airport. They are the owners of airport
properties they respectively maintain and hold title over these
properties in their name.53 These entities are both owned by the State,
and denied by their respective charters the absolute right to dispose
of their properties without prior approval elsewhere.54 Both of them
are
not empowered to obtain loans or encumber their properties without
prior approval the prior approval of the President.55
III.
Instrumentalities, Agencies
And GOCCs Generally
Liable for Real Property Tax
I shall now proceed to demonstrate the errors in reasoning of the
majority. A bulwark of my position lies with Mactan, which will further
demonstrate why the majority has found it inconvenient to even
grapple with the precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national government,
its agencies and instrumentalities under Section 133 is qualified by
Section 232 and Section 234, and accordingly, the only relevant
exemption now applicable to these bodies is as provided under
Section 234(o), or on "real property owned by the Republic of the
Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."
It should be noted that the express withdrawal of previously granted
exemptions by the Local Government Code do not even make any
distinction as to whether the exempt person is a governmental entity
or not. As Sections 193 and 234 both state, the withdrawal applies to
"all persons, including [GOCCs]", thus encompassing the two classes
of persons recognized under our laws, natural persons56 and juridical
persons.57
The fact that the Local Government Code mandates the withdrawal
of previously granted exemptions evinces certain key points. If an
entity was previously granted an express exemption from real property
taxes in the first place, the obvious conclusion would be that such
entity would ordinarily be liable for such taxes without the exemption.
If such entities were already deemed exempt due to some
overarching principle of law, then it would be a redundancy or
surplusage to grant an exemption to an already exempt entity. This
fact militates against the claim that MIAA is preternaturally exempt
from realty taxes, since it required the enactment of an express
exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan and
asserts that government instrumentalities are not taxable persons
unless they lease their properties to a taxable person. The general rule
laid down in Section 232 is given short shrift. In arriving at this
conclusion, several leaps in reasoning are committed.
Majority's Flawed Definition
of GOCCs.
The majority takes pains to assert that the MIAA is not a GOCC, but
rather an instrumentality. However, and quite grievously, the
supposed foundation of this assertion is an adulteration.
The majority gives the impression that a government instrumentality is
a distinct concept from a government corporation.58 Most tellingly,
the majority selectively cites a portion of Section 2(10) of the
Administrative Code of 1987, as follows:
Instrumentality refers to any agency of the National Government not
integrated within the department framework, vested with special
autonomy, usually through a charter. xxx59 (emphasis omitted)
However, Section 2(10) of the Administrative Code, when read in full,
makes an important clarification which the majority does not show.
The portions omitted by the majority are highlighted below:
(10)Instrumentality refers to any agency of the National Government
autonomy, usually through a charter. This term includes regulatory
agencies, chartered institutions and government—owned or
controlled corporations.60
Since Section 2(10) makes reference to "agency of the National
Government," Section 2(4) is also worth citing in full:
(4) Agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality,
or government-owned or controlled corporation, or a local
government or a distinct unit therein. (emphasis supplied)61
Clearly then, based on the Administrative Code, a GOCC may be an
instrumentality or an agency of the National Government. Thus, there
actually is no point in the majority's assertion that MIAA is not a GOCC,
since based on the majority's premise of Section 133 as the key
provision, the material question is whether MIAA is either an
instrumentality, an agency, or the National Government itself. The very
provisions of the Administrative Code provide that a GOCC can be
either an instrumentality or an agency, so why even bother to
extensively discuss whether or not MIAA is a GOCC?
Indeed as far back as the 1927 case of Government of the Philippine
Islands v. Springer,62 the Supreme Court already noted that a
corporation of which the government is the majority stockholder
"remains an agency or instrumentality of government."63
Ordinarily, the inconsequential verbiage stewing in judicial opinions
deserve little rebuttal. However, the entire discussion of the majority
on the definition of a GOCC, obiter as it may ultimately be, deserves
emphatic refutation. The views of the majority on this matter are very
dangerous, and would lead to absurdities, perhaps unforeseen by the
majority. For in fact, the majority effectively declassifies many entities
created and recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters as to
the definition of these entities.
Majority Ignores the Power
Of Congress to Legislate and
Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the
Administrative Code, a GOCC must be "organized as a stock or non-
stock corporation," as defined under the Corporation Code. To insist
on this as an absolute rule fails on bare theory. Congress has the
undeniable power to create a corporation by legislative charter, and
has been doing so throughout legislative history. There is no
constitutional prohibition on Congress as to what structure these
chartered corporations should take on. Clearly, Congress has the
prerogative to create a corporation in whatever form it chooses, and
it is not bound by any traditional format. Even if there is a definition of
what a corporation is under the Corporation Code or the
Administrative Code, these laws are by no means sacrosanct. It
should be remembered that these two statutes fall within the same
level of hierarchy as a congressional charter, since they all are
legislative enactments. Certainly, Congress can choose to disregard
either the Corporation Code or the Administrative Code in defining
the corporate structure of a GOCC, utilizing the same extent of
legislative powers similarly vesting it the putative ability to amend or
abolish the Corporation Code or the Administrative Code.
These principles are actually recognized by both the Administrative
Code and the Corporation Code. The definition of GOCCs, agencies
and instrumentalities under the Administrative Code are laid down in
the section entitled "General Terms Defined," which qualifies:
Sec. 2. General Terms Defined. – Unless the specific words of the text,
or the context as a whole, or a particular statute, shall require a
different meaning: (emphasis supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which provides:
SEC. 4. Corporations created by special laws or charters.—
Corporations created by special laws or charters shall be governed
primarily by the provisions of the special law or charter creating them
or applicable to them, supplemented by the provisions of this Code,
insofar as they are applicable. (emphasis supplied)
Thus, the clear doctrine emerges – the law that governs the definition
of a corporation or entity created by Congress is its legislative charter.
If the legislative enactment defines an entity as a corporation, then it
is a corporation, no matter if the Corporation Code or the
Administrative Code seemingly provides otherwise. In case of conflict
between the legislative charter of a government corporation, on one
hand, and the Corporate Code and the Administrative Code, on the
other, the former always prevails.
Majority, in Ignoring the
Legislative Charters, Effectively
Classifies Duly Established GOCCs,
With Disastrous and Far Reaching
Legal Consequences
Second, the majority claims that MIAA does not qualify either as a
stock or non-stock corporation, as defined under the Corporation
Code. It explains that the MIAA is not a stock corporation because it
does not have any capital stock divided into shares. Neither can it be
considered as a non-stock corporation because it has no members,
and under Section 87, a non-stock corporation is one where no part
of its income is distributable as dividends to its members, trustees or
officers.
This formulation of course ignores Section 4 of the Corporation Code,
which again provides that corporations created by special laws or
charters shall be governed primarily by the provisions of the special
law or charter, and not the Corporation Code.
That the MIAA cannot be considered a stock corporation if only
because it does not have a stock structure is hardly a plausible
proposition. Indeed, there is no point in requiring a capital stock
structure for GOCCs whose full ownership is limited by its charter to the
State or Republic. Such GOCCs are not empowered to declare
dividends or alienate their capital shares.
Admittedly, there are GOCCs established in such a manner, such as
the National Power Corporation (NPC), which is provided with
authorized capital stock wholly subscribed and paid for by the
Government of the Philippines, divided into shares but at the same
time, is prohibited from transferring, negotiating, pledging,
mortgaging or otherwise giving these shares as security for payment
of any obligation.64 However, based on the Corporation Code
definition relied upon by the majority, even the NPC cannot be
considered as a stock corporation. Under Section 3 of the Corporation
Code, stock corporations are defined as being "authorized to
distribute to the holders of its shares dividends or allotments of the
surplus profits on the basis of the shares held."65 On the other hand,
Section 13 of the NPC's charter states that "the Corporation shall be
non-profit and shall devote all its returns from its capital investment, as
well as excess revenues from its operation, for expansion."66 Can the
holder of the shares of NPC, the National Government, receive its
surplus profits on the basis of its shares held? It cannot, according to
the NPC charter, and hence, following Section 3 of the Corporation
Code, the NPC is not a stock corporation, if the majority is to be
believed.
The majority likewise claims that corporations without members
cannot be deemed non-stock corporations. This would seemingly
exclude entities such as the NPC, which like MIAA, has no ostensible
members. Moreover, non-stock corporations cannot distribute any
part of its income as dividends to its members, trustees or officers. The
majority faults MIAA for remitting 20% of its gross operating income to
the national government. How about the Philippine Health Insurance
Corporation, created with the "status of a tax-exempt government
corporation attached to the Department of Health" under Rep. Act
No. 7875.67 It too cannot be considered as a stock corporation
because it has no capital stock structure. But using the criteria of the
majority, it is doubtful if it would pass muster as a non-stock
corporation, since the PHIC or Philhealth, as it is commonly known, is
expressly empowered "to collect, deposit, invest, administer and
disburse" the National Health Insurance Fund.68 Or how about the
Social Security System, which under its revised charter, Republic Act
No. 8282, is denominated as a "corporate body."69 The SSS has no
capital stock structure, but has capital comprised of contributions by
its members, which are eventually remitted back to its members. Does
this disqualify the SSS from classification as a GOCC, notwithstanding
this Court's previous pronouncement in Social Security System
Employees Association v. Soriano?70
In fact, Republic Act No. 7656, enacted in 1993, requires that all
GOCCs, whether stock or non-stock,71 declare and remit at least fifty
percent (50%) of their annual net earnings as cash, stock or property
dividends to the National Government.72 But according to the
majority, non-stock corporations are prohibited from declaring any
part of its income as dividends. But if Republic Act No. 7656 requires
even non-stock corporations to declare dividends from income,
should it not follow that the prohibition against declaration of
dividends by non-stock corporations under the Corporation Code
does not apply to government-owned or controlled corporations? For
if not, and the majority's illogic is pursued, Republic Act No. 7656,
passed in 1993, would be fatally flawed, as it would contravene the
Administrative Code of 1987 and the Corporation Code.
In fact, the ruinous effects of the majority's hypothesis on the nature of
GOCCs can be illustrated by Republic Act No. 7656. Following the
majority's definition of a GOCC and in accordance with Republic Act
No. 7656, here are but a few entities which are not obliged to remit
fifty (50%) of its annual net earnings to the National Government as
they are excluded from the scope of Republic Act No. 7656:
1) Philippine Ports Authority73 – has no capital stock74, no members,
and obliged to apply the balance of its income or revenue at the end
of each year in a general reserve.75
2) Bases Conversion Development Authority76 - has no capital
stock,77 no members.
3) Philippine Economic Zone Authority78 - no capital stock,79 no
members.
4) Light Rail Transit Authority80 - no capital stock,81 no members.
5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members,
required to remit fifty percent (50%) of its net profits to the National
Treasury.84
6) National Power Corporation85 - has capital stock but is prohibited
from "distributing to the holders of its shares dividends or allotments of
the surplus profits on the basis of the shares held;"86 no members.
7) Manila International Airport Authority – no capital stock87, no
members88, mandated to remit twenty percent (20%) of its annual
gross operating income to the National Treasury.89
Thus, for the majority, the MIAA, among many others, cannot be
considered as within the coverage of Republic Act No. 7656.
Apparently, President Fidel V. Ramos disagreed. How else then could
Executive Order No. 483, signed in 1998 by President Ramos, be
explained? The issuance provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides that:
"Section 1. Declaration of Policy. - It is hereby declared the policy of
the State that in order for the National Government to realize
additional revenues, government-owned and/or controlled
corporations, without impairing their viability and the purposes for
which they have been established, shall share a substantial amount
of their net earnings to the National Government."
WHEREAS, to support the viability and mandate of government-
owned and/or controlled corporations [GOCCs], the liquidity,
retained earnings position and medium-term plans and programs of
these GOCCs were considered in the determination of the
reasonable dividend rates of such corporations on their 1997 net
earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance
recommended the adjustment on the percentage of annual net
earnings that shall be declared by the Manila International Airport
Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest
of national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by
virtue of the powers vested in me by law, do hereby order:
SECTION 1. The percentage of net earnings to be declared and
remitted by the MIAA and PIA as dividends to the National
Government as provided for under Section 3 of Republic Act No. 7656
is adjusted from at least fifty percent [50%] to the rates specified
hereunder:
1. Manila International Airport Authority - 35% [cash]
2. Phividec Industrial Authority - 25% [cash]
SECTION 2. The adjusted dividend rates provided for under Section 1
are only applicable on 1997 net earnings of the concerned
government-owned and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary of
Finance that MIAA is a GOCC, for how else could it have come under
the coverage of Republic Act No. 7656, a law applicable only to
GOCCs? But, the majority apparently disagrees, and resultantly holds
that MIAA is not obliged to remit even the reduced rate of thirty five
percent (35%) of its net earnings to the national government, since it
cannot be covered by Republic Act No. 7656.
All this mischief because the majority would declare the
Administrative Code of 1987 and the Corporation Code as the sole
sources of law defining what a government corporation is. As I stated
earlier, I find it illogical that chartered corporations are compelled to
comply with the templates of the Corporation Code, especially when
the Corporation Code itself states that these corporations are to be
governed by their own charters. This is especially true considering that
the very provision cited by the majority, Section 87 of the Corporation
Code, expressly says that the definition provided therein is laid down
"for the purposes of this [Corporation] Code." Read in conjunction with
Section 4 of the Corporation Code which mandates that corporations
created by charter be governed by the law creating them, it is clear
that contrary to the majority, MIAA is not disqualified from
classification as a non-stock corporation by reason of Section 87, the
provision not being applicable to corporations created by special
laws or charters. In fact, I see no real impediment why the MIAA and
similarly situated corporations such as the PHIC, the SSS, the Philippine
Deposit Insurance Commission, or maybe even the NPC could at the
very least, be deemed as no stock corporations (as differentiated
from non-stock corporations).
The point, stripped to bare simplicity, is that entity created by
legislative enactment is a corporation if the legislature says so. After
all, it is the legislature that dictates what a corporation is in the first
place. This is better illustrated by another set of entities created before
martial law. These include the Mindanao Development
Authority,90 the Northern Samar Development Authority,91 the Ilocos
Sur Development Authority,92 the Southeastern Samar Development
Authority93 and the Mountain Province Development Authority.94 An
examination of the first section of the statutes creating these entities
reveal that they were established "to foster accelerated and
balanced growth" of their respective regions, and towards such end,
the charters commonly provide that "it is recognized that a
government corporation should be created for the purpose," and
accordingly, these charters "hereby created a body
corporate."95 However, these corporations do not have capital stock
nor members, and are obliged to return the unexpended balances of
their appropriations and earnings to a revolving fund in the National
Treasury. The majority effectively declassifies these entities as GOCCs,
never mind the fact that their very charters declare them to be
GOCCs.
I mention these entities not to bring an element of obscurantism into
the fray. I cite them as examples to emphasize my fundamental
point—that it is the legislative charters of these entities, and not the
Administrative Code, which define the class of personality of these
entities created by Congress. To adopt the view of the majority would
be, in effect, to sanction an implied repeal of numerous congressional
charters for the purpose of declassifying GOCCs. Certainly, this could
not have been the intent of the crafters of the Administrative Code
when they drafted the "Definition of Terms" incorporated therein.
MIAA Is Without
Doubt, A GOCC
Following the charters of government corporations, there are two
kinds of GOCCs, namely: GOCCs which are stock corporations and
GOCCs which are no stock corporations (as distinguished from non-
stock corporation). Stock GOCCs are simply those which have capital
stock while no stock GOCCs are those which have no capital stock.
Obviously these definitions are different from the definitions of the
terms in the Corporation Code. Verily, GOCCs which are not
incorporated with the Securities and Exchange Commission are not
governed by the Corporation Code but by their respective charters.
For the MIAA's part, its charter is replete with provisions that indubitably
classify it as a GOCC. Observe the following provisions from MIAA's
charter:
SECTION 3. Creation of the Manila International Airport Authority.—
There is hereby established a body corporate to be known as the
Manila International Airport Authority which shall be attached to the
Ministry of Transportation and Communications. The principal office of
the Authority shall be located at the New Manila International Airport.
The Authority may establish such offices, branches, agencies or
subsidiaries as it may deem proper and necessary; Provided, That any
subsidiary that may be organized shall have the prior approval of the
President.
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year
from the promulgation of this Executive Order and the corresponding
title to be issued in the name of the Authority. Any portion thereof shall
not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.
xxx
SECTION 5. Functions, Powers, and Duties. — The Authority shall have
the following functions, powers and duties:
xxx
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time
to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or
otherwise dispose of any land, building, airport facility, or property of
whatever kind and nature, whether movable or immovable, or any
interest therein;
(j) To exercise the power of eminent domain in the pursuit of its
purposes and objectives;
xxx
(o) To exercise all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the provisions of
this Executive Order.
xxx
SECTION 16. Borrowing Power. — The Authority may, after consultation
with the Minister of Finance and with the approval of the President of
the Philippines, as recommended by the Minister of Transportation
and Communications, raise funds, either from local or international
sources, by way of loans, credits or securities, and other borrowing
instruments, with the power to create pledges, mortgages and other
voluntary liens or encumbrances on any of its assets or properties.
All loans contracted by the Authority under this Section, together with
all interests and other sums payable in respect thereof, shall constitute
a charge upon all the revenues and assets of the Authority and shall
rank equally with one another, but shall have priority over any other
claim or charge on the revenue and assets of the Authority: Provided,
That this provision shall not be construed as a prohibition or restriction
on the power of the Authority to create pledges, mortgages, and
other voluntary liens or encumbrances on any assets or property of
the Authority.
Except as expressly authorized by the President of the Philippines the
total outstanding indebtedness of the Authority in the principal
amount, in local and foreign currency, shall not at any time exceed
the net worth of the Authority at any given time.
xxx
The President or his duly authorized representative after consultation
with the Minister of Finance may guarantee, in the name and on
behalf of the Republic of the Philippines, the payment of the loans or
other indebtedness of the Authority up to the amount herein
authorized.
These cited provisions establish the fitness of MIAA to be the subject of
legal relations.96 MIAA under its charter may acquire and possess
property, incur obligations, and bring civil or criminal actions. It has the
power to contract in its own name, and to acquire title to real or
personal property. It likewise may exercise a panoply of corporate
powers and possesses all the trappings of corporate personality, such
as a corporate name, a corporate seal and by-laws. All these are
contained in MIAA's charter which, as conceded by the Corporation
Code and even the Administrative Code, is the primary law that
governs the definition and organization of the MIAA.
In fact, MIAA itself believes that it is a GOCC represents itself as such.
It said so itself in the very first paragraph of the present petition before
this Court.97 So does, apparently, the Department of Budget and
Management, which classifies MIAA as a "government owned &
controlled corporation" on its internet website.98 There is also the
matter of Executive Order No. 483, which evinces the belief of the
then-president of the Philippines that MIAA is a GOCC. And the Court
before had similarly characterized MIAA as a government-owned
and controlled corporation in the earlier MIAA case, Manila
International Airport Authority v. Commission on Audit.99
Why then the hesitance to declare MIAA a GOCC? As the majority
repeatedly asserts, it is because MIAA is actually an instrumentality.
But the very definition relied upon by the majority of an instrumentality
under the Administrative Code clearly states that a GOCC is likewise
an instrumentality or an agency. The question of whether MIAA is a
GOCC might not even be determinative of this Petition, but the effect
of the majority's disquisition on that matter may even be more
destructive than the ruling that MIAA is exempt from realty taxes. Is the
majority ready to live up to the momentous consequences of its
flawed reasoning?
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
One last point on this matter on whether MIAA is a GOCC. The majority
triumphantly points to Section 16, Article XII of the 1987 Constitution,
which mandates that the creation of GOCCs through special charters
be "in the interest of the common good and subject to the test of
economic viability." For the majority, the test of economic viability
does not apply to government entities vested with corporate powers
and performing essential public services. But this test of "economic
viability" is new to the constitutional framework. No such test was
imposed in previous Constitutions, including the 1973 Constitution
which was the fundamental law in force when the MIAA was created.
How then could the MIAA, or any GOCC created before 1987 be
expected to meet this new precondition to the creation of a GOCC?
Does the dissent seriously suggest that GOCCs created before 1987
may be declassified on account of their failure to meet this "economic
viability test"?
Instrumentalities and Agencies
Also Generally Liable For
Real Property Taxes
Next, the majority, having bludgeoned its way into asserting that MIAA
is not a GOCC, then argues that MIAA is an instrumentality. It cites
incompletely, as earlier stated, the provision of Section 2(10) of the
Administrative Code. A more convincing view offered during
deliberations, but which was not adopted by the ponencia, argued
that MIAA is not an instrumentality but an agency, considering the
fact that under the Administrative Code, the MIAA is attached within
the department framework of the Department of Transportation and
Communications.100 Interestingly, Executive Order No. 341, enacted
by President Arroyo in 2004, similarly calls MIAA an agency. Since
instrumentalities are expressly defined as "an agency not integrated
within the department framework," that view concluded that MIAA
cannot be deemed an instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as stated earlier,
the Administrative Code considers GOCCs as agencies,101 so the
fact that MIAA is an agency does not exclude it from classification as
a GOCC. On the other hand, the majority justifies MIAA's purported
exemption on Section 133 of the Local Government Code, which
similarly situates "agencies and instrumentalities" as generally exempt
from the taxation powers of LGUs. And on this point, the majority again
evades Mactan and somehow concludes that Section 133 is the
general rule, notwithstanding Sections 232 and 234(a) of the Local
Government Code. And the majority's ultimate conclusion? "By
express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of
instrumentalities."102
The Court's interpretation of the Local Government Code in Mactan
renders the law integrally harmonious and gives due accord to the
respective prerogatives of the national government and LGUs.
Sections 133 and 234(a) ensure that the Republic of the Philippines or
its political subdivisions shall not be subjected to any form of local
government taxation, except realty taxes if the beneficial use of the
property owned has been granted for consideration to a taxable
entity or person. On the other hand, Section 133 likewise assures that
government instrumentalities such as GOCCs may not be arbitrarily
taxed by LGUs, since they could be subjected to local taxation if there
is a specific proviso thereon in the Code. One such proviso is Section
137, which as the Court found in National Power
Corporation,103 permits the imposition of a franchise tax on
businesses enjoying a franchise, even if it be a GOCC such as NPC.
And, as the Court acknowledged in Mactan, Section 232 provides
another exception on the taxability of instrumentalities.
The majority abjectly refuses to engage Section 232 of the Local
Government Code although it provides the indubitable general rule
that LGUs "may levy an annual ad valorem tax on real property such
as land, building, machinery, and other improvements not hereafter
specifically exempted." The specific exemptions are provided by
Section 234. Section 232 comes sequentially after Section
133(o),104 and even if the sequencing is irrelevant, Section 232 would
fall under the qualifying phrase of Section 133, "Unless otherwise
provided herein." It is sad, but not surprising that the majority is not
willing to consider or even discuss the general rule, but only the
exemptions under Section 133 and Section 234. After all, if the majority
is dead set in ruling for MIAA no matter what the law says, why bother
citing what the law does say.
Constitution, Laws and
Jurisprudence Have Long
Explained the Rationale
Behind the Local Taxation
Of GOCCs.
This blithe disregard of precedents, almost all of them unanimously
decided, is nowhere more evident than in the succeeding discussion
of the majority, which asserts that the power of local governments to
tax national government instrumentalities be construed strictly against
local governments. The Maceda case, decided before the Local
Government Code, is cited, as is Basco. This section of the majority
employs deliberate pretense that the Code never existed, or that the
fundamentals of local autonomy are of limited effect in our country.
Why is it that the Local Government Code is barely mentioned in this
section of the majority? Because Section 5 of the Code, purposely
omitted by the majority provides for a different rule of interpretation
than that asserted:
Section 5. Rules of Interpretation. – In the interpretation of the
provisions of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question
thereon shall be resolved in favor of devolution of powers and of the
lower local government unit. Any fair and reasonable doubt as to the
existence of the power shall be interpreted in favor of the local
government unit concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be
construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer. Any tax exemption, incentive or relief
granted by any local government unit pursuant to the provisions of
this Code shall be construed strictly against the person claiming it; xxx
Yet the majority insists that "there is no point in national and local
governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government
pocket to another."105 I wonder whether the Constitution satisfies the
majority's desire for "a sound and compelling policy." To repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local
autonomy.
xxx
Section 5. Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and charges
taxes, fees, and charges shall accrue exclusively to the local
governments.
Or how about the Local Government Code, presumably an
expression of sound and compelling policy considering that it was
enacted by the legislature, that veritable source of all statutes:
SEC. 129. Power to Create Sources of Revenue. - Each local
government unit shall exercise its power to create its own sources of
revenue and to levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local government
units.
Justice Puno, in National Power Corporation v. City of
Cabanatuan,106 provides a more "sound and compelling policy
considerations" that would warrant sustaining the taxability of
government-owned entities by local government units under the
Local Government Code.
Doubtless, the power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the
Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With the added burden of
devolution, it is even more imperative for government entities to share
in the requirements of development, fiscal or otherwise, by paying
taxes or other charges due from them.107
I dare not improve on Justice Puno's exhaustive disquisition on the
statutory and jurisprudential shift brought about the acceptance of
the principles of local autonomy:
In recent years, the increasing social challenges of the times
expanded the scope of state activity, and taxation has become a
tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as
public welfare and similar objectives. Taxation assumes even greater
significance with the ratification of the 1987 Constitution. Thenceforth,
the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees
and other charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
"Section 5. Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and charges
taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine
development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long
time, the country's highly centralized government structure has bred
a culture of dependence among local government leaders upon the
national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development
on the part of local government leaders." 35 The only way to shatter
this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal,
section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic
policy of local autonomy, set the guidelines and limitations to this
grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which
shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization
with effective mechanisms of recall, initiative, and referendum,
allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications,
election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to
the organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160, also known
as the Local Government Code of 1991 (LGC), various measures have
been enacted to promote local autonomy. These include the Barrio
Charter of 1959, the Local Autonomy Act of 1959, the Decentralization
Act of 1967 and the Local Government Code of 1983. Despite these
initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the
same problems that hamper their capabilities to participate
effectively in the national development efforts, among which are: (a)
inadequate tax base, (b) lack of fiscal control over external sources
of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and
(e) limited supervisory control over personnel of national line
agencies.
Considered as the most revolutionary piece of legislation on local
autonomy, the LGC effectively deals with the fiscal constraints faced
by LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations,
and the like. The LGC likewise provides enough flexibility to impose tax
rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and
maximum tax rates and leaves the determination of the actual rates
to the respective sanggunian.108
And the Court's ruling through Justice Azcuna in Philippine Ports
Authority v. City of Iloilo109, provides especially clear and emphatic
rationale:
In closing, we reiterate that in taxing government-owned or controlled
corporations, the State ultimately suffers no loss. In National Power
Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:
Actually, the State has no reason to decry the taxation of NPC's
properties, as and by way of real property taxes. Real property taxes,
after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the
local government level.
xxxxxxxxx
To all intents and purposes, real property taxes are funds taken by the
State with one hand and given to the other. In no measure can the
government be said to have lost anything.
Finally, we find it appropriate to restate that the primary reason for the
withdrawal of tax exemption privileges granted to government-
owned and controlled corporations and all other units of government
was that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, hence
resulting in the need for these entities to share in the requirements of
development, fiscal or otherwise, by paying the taxes and other
charges due from them.110
How does the majority counter these seemingly valid rationales which
establish the soundness of a policy consideration subjecting national
instrumentalities to local taxation? Again, by simply ignoring that these
doctrines exist. It is unfortunate if the majority deems these cases or
the principles of devolution and local autonomy as simply too
inconvenient, and relies instead on discredited precedents. Of
course, if the majority faces the issues squarely, and expressly discusses
why Basco was right and Mactan was wrong, then this entire
endeavor of the Court would be more intellectually satisfying. But, this
is not a game the majority wants to play.
Mischaracterization of My
Views on the Tax Exemption
Enjoyed by the National Government
Instead, the majority engages in an extended attack pertaining to
Section 193, mischaracterizing my views on that provision as if I had
been interpreting the provision as making "the national government,
which itself is a juridical person, subject to tax by local governments
since the national government is not included in the enumeration of
exempt entities in Section 193."111
Nothing is farther from the truth. I have never advanced any theory of
the sort imputed in the majority. My main thesis on the matter merely
echoes the explicit provision of Section 193 that unless otherwise
provided in the Local Government Code (LGC) all tax exemptions
enjoyed by all persons, whether natural or juridical, including GOCCs,
were withdrawn upon the effectivity of the Code. Since the provision
speaks of withdrawal of tax exemptions of persons, it follows that the
exemptions theretofore enjoyed by MIAA which is definitely a person
are deemed withdrawn upon the advent of the Code.
On the other hand, the provision does not address the question of who
are beyond the reach of the taxing power of LGUs. In fine, the grant
of tax exemption or the withdrawal thereof assumes that the person
or entity involved is subject to tax. Thus, Section 193 does not apply to
entities which were never given any tax exemption. This would include
the national government and its political subdivisions which, as a
general rule, are not subjected to tax in the first place.112 Corollarily,
the national government and its political subdivisions do not need tax
exemptions. And Section 193 which ordains the withdrawal of tax
exemptions is obviously irrelevant to them.
Section 193 is in point for the disposition of this case as it forecloses
dependence for the grant of tax exemption to MIAA on Section 21 of
its charter. Even the majority should concede that the charter section
is now ineffectual, as Section 193 withdraws the tax exemptions
previously enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax exemptions
granted to all persons upon the effectivity of the LGC, for MIAA to
continue enjoying exemption from realty tax, it will have to rely on a
basis other than Section 21 of its charter.
Lung Center of the Philippines v. Quezon City113 provides another
illustrative example of the jurisprudential havoc wrought about by the
majority. Pursuant to its charter, the Lung Center was organized as a
trust administered by an eponymous GOCC organized with the
SEC.114 There is no doubt it is a GOCC, even by the majority's
reckoning. Applying the Administrative Code, it is also considered as
an agency, the term encompassing even GOCCs. Yet since the
Administrative Code definition of "instrumentalities" encompasses
agencies, especially those not attached to a line department such as
the Lung Center, it also follows that the Lung Center is an
instrumentality, which for the majority is exempt from all local
government taxes, especially real estate taxes. Yet just in 2004, the
Court unanimously held that the Lung Center was not exempt from
real property taxes. Can the majority and Lung Center be reconciled?
I do not see how, and no attempt is made to demonstrate otherwise.
Another key point. The last paragraph of Section 234 specifically
asserts that any previous exemptions from realty taxes granted to or
enjoyed by all persons, including all GOCCs, are thereby withdrawn.
The majority's interpretation of Sections 133 and 234(a) however
necessarily implies that all instrumentalities, including GOCCs, can
never be subjected to real property taxation under the Code. If that
is so, what then is the sense of the last paragraph specifically
withdrawing previous tax exemptions to all persons, including GOCCs
when juridical persons such as MIAA are anyway, to his view, already
exempt from such taxes under Section 133? The majority's
interpretation would effectively render the express and emphatic
withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat
quam pereat. Hence, where a statute is susceptible of more than one
interpretation, the court should adopt such reasonable and beneficial
construction which will render the provision thereof operative and
effective, as well as harmonious with each other.115
But, the majority seems content rendering as absurd the Local
Government Code, since it does not have much use anyway for the
Code's general philosophy of fiscal autonomy, as evidently seen by
the continued reliance on Basco or Maceda. Local government rule
has never been a grant of emancipation from the national
government. This is the favorite bugaboo of the opponents of local
autonomy—the fallacy that autonomy equates to independence.
Thus, the conclusion of the majority is that under Section 133(o), MIAA
as a government instrumentality is beyond the reach of local taxation
because it is not subject to taxes, fees or charges of any kind.
Moreover, the taxation of national instrumentalities and agencies by
LGUs should be strictly construed against the LGUs, citing Maceda
and Basco. No mention is made of the subsequent rejection of these
cases in jurisprudence following the Local Government Code,
including Mactan. The majority is similarly silent on the general rule
under Section 232 on real property taxation or Section 5 on the rules
of construction of the Local Government Code.
V.
MIAA, and not the National Government
Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly provides that
there are exceptions to the general rule on rule property taxation, as
"hereafter specifically exempted." Section 234, certainly "hereafter,"
provides indubitable basis for exempting entities from real property
taxation. It provides the most viable legal support for any claim that
an governmental entity such as the MIAA is exempt from real property
taxes. To repeat:
SECTION 234. Exemptions from Real Property Tax. -- The following are
xxx
(f) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by
the Republic of the Philippines, thus placing them under the
exemption under Section 234. To arrive at this conclusion, the majority
employs four main arguments.
MIAA Property Is Patrimonial
And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings are property
of public dominion as defined by the Civil Code, and therefore
owned by the State or the Republic of the Philippines. But as pointed
out by Justice Azcuna in the first PPA case, if indeed a property is
considered part of the public dominion, such property is "owned by
the general public and cannot be declared to be owned by a public
corporation, such as [the PPA]."
Relevant on this point are the following provisions of the MIAA charter:
Section 3. Creation of the Manila International Airport Authority. – xxx
administration of the Authority, subject to existing rights, if any. xxx Any
portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the
Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets. – All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all
assets, powers rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations,
including all equipment which are necessary for the operation of
crash fire and rescue facilities, are hereby transferred to the Authority.
Clearly, it is the MIAA, and not either the State, the Republic of the
Philippines or the national government that asserts legal title over the
Airport Lands and Buildings. There was an express transfer of ownership
between the MIAA and the national government. If the distinction is
to be blurred, as the majority does, between the
State/Republic/Government and a body corporate such as the
MIAA, then the MIAA charter showcases the remarkable absurdity of
an entity transferring property to itself.
Nothing in the Civil Code or the Constitution prohibits the State from
transferring ownership over property of public dominion to an entity
that it similarly owns. It is just like a family transferring ownership over
the properties its members own into a family corporation. The family
exercises effective control over the administration and disposition of
these properties. Yet for several purposes under the law, such as
taxation, it is the corporation that is deemed to own those properties.
A similar situation obtains with MIAA, the State, and the Airport Lands
and Buildings.
The second Public Ports Authority case, penned by Justice Callejo,
likewise lays down useful doctrines in this regard. The Court refuted the
claim that the properties of the PPA were owned by the Republic of
the Philippines, noting that PPA's charter expressly transferred
ownership over these properties to the PPA, a situation which similarly
obtains with MIAA. The Court even went as far as saying that the fact
that the PPA "had not been issued any torrens title over the port and
port facilities and appurtenances is of no legal consequence. A
torrens title does not, by itself, vest ownership; it is merely an evidence
of title over properties. xxx It has never been recognized as a mode of
acquiring ownership over real properties."116
The Court further added:
xxx The bare fact that the port and its facilities and appurtenances
are accessible to the general public does not exempt it from the
payment of real property taxes. It must be stressed that the said port
facilities and appurtenances are the petitioner's corporate
patrimonial properties, not for public use, and that the operation of
the port and its facilities and the administration of its buildings are in
the nature of ordinary business. The petitioner is clothed, under P.D.
No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests xxx The petitioner is even
empowered to invest its funds in such government securities
approved by the Board of Directors, and derives its income from rates,
charges or fees for the use by vessels of the port premises, appliances
or equipment. xxx Clearly then, the petitioner is a profit-earning
corporation; hence, its patrimonial properties are subject to tax.117
There is no doubt that the properties of the MIAA, as with the PPA, are
in a sense, for public use. A similar argument was propounded by the
Light Rail Transit Authority in Light Rail Transit Authority v. Central Board
of Assessment,118which was cited in Philippine Ports Authority and
deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a
body corporate, "provides valuable transportation facilities to the
paying public."119 It claimed that its carriage-ways and terminal
stations are immovably attached to government-owned national
roads, and to impose real property taxes thereupon would be to
impose taxes on public roads. This view did not persuade the Court,
whose decision was penned by Justice (now Chief Justice)
Panganiban. It was noted:
Though the creation of the LRTA was impelled by public service — to
provide mass transportation to alleviate the traffic and transportation
situation in Metro Manila — its operation undeniably partakes of
ordinary business. Petitioner is clothed with corporate status and
corporate powers in the furtherance of its proprietary objectives.
Indeed, it operates much like any private corporation engaged in the
mass transport industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations are
patrimonial property subject to tax, notwithstanding its claim of being
a government-owned or controlled corporation.
xxx
Petitioner argues that it merely operates and maintains the LRT system,
and that the actual users of the carriageways and terminal stations
are the commuting public. It adds that the public use character of
the LRT is not negated by the fact that revenue is obtained from the
latter's operations.
We do not agree. Unlike public roads which are open for use by
everyone, the LRT is accessible only to those who pay the required
fare. It is thus apparent that petitioner does not exist solely for public
service, and that the LRT carriageways and terminal stations are not
exclusively for public use. Although petitioner is a public utility, it is
nonetheless profit-earning. It actually uses those carriageways and
terminal stations in its public utility business and earns money
therefrom.120
xxx
Even granting that the national government indeed owns the
carriageways and terminal stations, the exemption would not apply
because their beneficial use has been granted to petitioner, a
taxable entity.121
There is no substantial distinction between the properties held by the
PPA, the LRTA, and the MIAA. These three entities are in the business
of operating facilities that promote public transportation.
The majority further asserts that MIAA's properties, being part of the
public dominion, are outside the commerce of man. But if this is so,
then why does Section 3 of MIAA's charter authorize the President of
the Philippines to approve the sale of any of these properties? In fact,
why does MIAA's charter in the first place authorize the transfer of
these airport properties, assuming that indeed these are beyond the
commerce of man?
No Trust Has Been Created
Over MIAA Properties For
The Benefit of the Republic
The majority posits that while MIAA might be holding title over the
Airport Lands and Buildings, it is holding it in trust for the Republic. A
provision of the Administrative Code is cited, but said provision does
not expressly provide that the property is held in trust. Trusts are either
express or implied, and only those situations enumerated under the
Civil Code would constitute an implied trust. MIAA does not fall within
this enumeration, and neither is there a provision in MIAA's charter
expressly stating that these properties are being held in trust. In fact,
under its charter, MIAA is obligated to retain up to eighty percent
(80%) of its gross operating income, not an inconsequential sum
assuming that the beneficial owner of MIAA's properties is actually the
Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA remains with
the government and not MIAA is ultimately irrelevant. Section 234(a)
of the Local Government Code provides among those exempted
from paying real property taxes are "[r]eal property owned by the
[Republic]… except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." In the
context of Section 234(a), the identity of the beneficial owner over the
properties is not determinative as to whether the exemption avails. It
is the identity of the beneficial user of the property owned by the
Republic or its political subdivisions that is crucial, for if said beneficial
user is a taxable person, then the exemption does not lie.
I fear the majority confuses the notion of what might be construed as
"beneficial ownership" of the Republic over the properties of MIAA as
nothing more than what arises as a consequence of the fact that the
capital of MIAA is contributed by the National Government.122 If so,
then there is no difference between the State's ownership rights over
MIAA properties than those of a majority stockholder over the
properties of a corporation. Even if such shareholder effectively owns
the corporation and controls the disposition of its assets, the
personality of the stockholder remains separately distinct from that of
the corporation. A brief recall of the entrenched rule in corporate law
is in order:
The first consequence of the doctrine of legal entity regarding the
separate identity of the corporation and its stockholders insofar as
their obligations and liabilities are concerned, is spelled out in this
general rule deeply entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or statutory
provisions, or by the charter, or by special agreement of the
stockholders, stockholders are not personally liable for debts of the
corporation either at law or equity. The reason is that the corporation
is a legal entity or artificial person, distinct from the members who
compose it, in their individual capacity; and when it contracts a debt,
it is the debt of the legal entity or artificial person – the corporation –
and not the debt of the individual members. (13A Fletcher Cyc. Corp.
Sec. 6213)
The entirely separate identity of the rights and remedies of a
corporation itself and its individual stockholders have been given
definite recognition for a long time. Applying said principle, the
Supreme Court declared that a corporation may not be made to
answer for acts or liabilities of its stockholders or those of legal entities
to which it may be connected, or vice versa. (Palay Inc. v. Clave et.
al. 124 SCRA 638) It was likewise declared in a similar case that a
bonafide corporation should alone be liable for corporate acts duly
authorized by its officers and directors. (Caram Jr. v. Court of Appeals
et.al. 151 SCRA, p. 372)123
It bears repeating that MIAA under its charter, is expressly conferred
the right to exercise all the powers of a corporation under the
Corporation Law, including the right to corporate succession, and the
right to sue and be sued in its corporate name.124 The national
government made a particular choice to divest ownership and
operation of the Manila International Airport and transfer the same to
such an empowered entity due to perceived advantages. Yet such
transfer cannot be deemed consequence free merely because it was
the State which contributed the operating capital of this body
corporate.
The majority claims that the transfer the assets of MIAA was meant
merely to effect a reorganization. The imputed rationale for such
transfer does not serve to militate against the legal consequences of
such assignment. Certainly, if it was intended that the transfer should
be free of consequence, then why was it effected to a body
corporate, with a distinct legal personality from that of the State or
Republic? The stated aims of the MIAA could have very well been
accomplished by creating an agency without independent juridical
personality.
VI.
MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by the
Republic of the Philippines or its political subdivisions from realty
taxation. The obvious question is what comprises "the Republic of the
Philippines." I think the key to understanding the scope of "the
Republic" is the phrase "political subdivisions." Under the Constitution,
political subdivisions are defined as "the provinces, cities,
municipalities and barangays."125 In correlation, the Administrative
Code of 1987 defines "local government" as referring to "the political
subdivisions established by or in accordance with the Constitution."
Clearly then, these political subdivisions are engaged in the exercise
of sovereign functions and are accordingly exempt. The same could
be said generally of the national government, which would be
similarly exempt. After all, even with the principle of local autonomy,
it is inherently noxious and self-defeatist for local taxation to interfere
with the sovereign exercise of functions. However, the exercise of
proprietary functions is a different matter altogether.
Sovereign and Proprietary
Functions Distinguished
Sovereign or constituent functions are those which constitute the very
bonds of society and are compulsory in nature, while ministrant or
proprietary functions are those undertaken by way of advancing the
general interests of society and are merely optional.126 An exhaustive
discussion on the matter was provided by the Court in Bacani v.
NACOCO:127
xxx This institution, when referring to the national government, has
reference to what our Constitution has established composed of three
great departments, the legislative, executive, and the judicial,
through which the powers and functions of government are
exercised. These functions are twofold: constituent and ministrant. The
former are those which constitute the very bonds of society and are
compulsory in nature; the latter are those that are undertaken only by
way of advancing the general interests of society, and are merely
optional. President Wilson enumerates the constituent functions as
follows:
"'(1) The keeping of order and providing for the protection of persons
and property from violence and robbery.
'(2) The fixing of the legal relations between man and wife and
between parents and children.
'(3) The regulation of the holding, transmission, and interchange of
property, and the determination of its liabilities for debt or for crime.
'(4) The determination of contract rights between individuals.
'(5) The definition and punishment of crime.
'(6) The administration of justice in civil cases.
'(7) The determination of the political duties, privileges, and relations
of citizens.
'(8) Dealings of the state with foreign powers: the preservation of the
state from external danger or encroachment and the advancement
of its international interests.'" (Malcolm, The Government of the
Philippine Islands, p. 19.)
The most important of the ministrant functions are: public works, public
education, public charity, health and safety regulations, and
regulations of trade and industry. The principles determining whether
or not a government shall exercise certain of these optional functions
are: (1) that a government should do for the public welfare those
things which private capital would not naturally undertake and (2)
that a government should do these things which by its very nature it is
better equipped to administer for the public welfare than is any
private individual or group of individuals. (Malcolm, The Government
of the Philippine Islands, pp. 19-20.)
From the above we may infer that, strictly speaking, there are
functions which our government is required to exercise to promote its
objectives as expressed in our Constitution and which are exercised
by it as an attribute of sovereignty, and those which it may exercise to
promote merely the welfare, progress and prosperity of the people.
To this latter class belongs the organization of those corporations
owned or controlled by the government to promote certain aspects
of the economic life of our people such as the National Coconut
Corporation. These are what we call government-owned or
controlled corporations which may take on the form of a private
enterprise or one organized with powers and formal characteristics of
a private corporations under the Corporation Law.128
The Court in Bacani rejected the proposition that the National
Coconut Corporation exercised sovereign functions:
Does the fact that these corporations perform certain functions of
government make them a part of the Government of the Philippines?
The answer is simple: they do not acquire that status for the simple
reason that they do not come under the classification of municipal or
public corporation. Take for instance the National Coconut
Corporation. While it was organized with the purpose of "adjusting the
coconut industry to a position independent of trade preferences in
the United States" and of providing "Facilities for the better curing of
copra products and the proper utilization of coconut by-products," a
function which our government has chosen to exercise to promote
the coconut industry, however, it was given a corporate power
separate and distinct from our government, for it was made subject
to the provisions of our Corporation Law in so far as its corporate
existence and the powers that it may exercise are concerned
(sections 2 and 4, Commonwealth Act No. 518). It may sue and be
sued in the same manner as any other private corporations, and in
this sense it is an entity different from our government. As this Court has
aptly said, "The mere fact that the Government happens to be a
majority stockholder does not make it a public corporation" (National
Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By
becoming a stockholder in the National Coal Company, the
Government divested itself of its sovereign character so far as respects
the transactions of the corporation. . . . Unlike the Government, the
corporation may be sued without its consent, and is subject to
taxation. Yet the National Coal Company remains an agency or
instrumentality of government." (Government of the Philippine Islands
vs. Springer, 50 Phil., 288.)
The following restatement of the entrenched rule by former SEC
Chairperson Rosario Lopez bears noting:
The fact that government corporations are instrumentalities of the
State does not divest them with immunity from suit. (Malong v. PNR,
138 SCRA p. 63) It is settled that when the government engages in a
particular business through the instrumentality of a corporation, it
divests itself pro hoc vice of its sovereign character so as to subject
itself to the rules governing private corporations, (PNB v. Pabolan 82
SCRA 595) and is to be treated like any other corporation. (PNR v.
Union de Maquinistas Fogonero y Motormen, 84 SCRA 223)
In the same vein, when the government becomes a stockholder in a
corporation, it does not exercise sovereignty as such. It acts merely as
a corporator and exercises no other power in the management of the
affairs of the corporation than are expressly given by the
incorporating act. Nor does the fact that the government may own
all or a majority of the capital stock take from the corporation its
character as such, or make the government the real party in interest.
(Amtorg Trading Corp. v. US 71 F2d 524, 528)129
MIAA Performs Proprietary
Functions No Matter How
Vital to the Public Interest
The simple truth is that, based on these accepted doctrinal tests, MIAA
performs proprietary functions. The operation of an airport facility by
the State may be imbued with public interest, but it is by no means
indispensable or obligatory on the national government. In fact, as
demonstrated in other countries, it makes a lot of economic sense to
leave the operation of airports to the private sector.
The majority tries to becloud this issue by pointing out that the MIAA
does not compete in the marketplace as there is no competing
international airport operated by the private sector; and that MIAA
performs an essential public service as the primary domestic and
international airport of the Philippines. This premise is false, for one. On
a local scale, MIAA competes with other international airports situated
in the Philippines, such as Davao International Airport and MCIAA.
More pertinently, MIAA also competes with other international airports
in Asia, at least. International airlines take into account the quality and
conditions of various international airports in determining the number
of flights it would assign to a particular airport, or even in choosing a
hub through which destinations necessitating connecting flights
would pass through.
Even if it could be conceded that MIAA does not compete in the
market place, the example of the Philippine National Railways should
be taken into account. The PNR does not compete in the
marketplace, and performs an essential public service as the operator
of the railway system in the Philippines. Is the PNR engaged in
sovereign functions? The Court, in Malong v. Philippine National
Railways,130 held that it was not.131
Even more relevant to this particular case is Teodoro v. National
Airports Corporation,132 concerning the proper appreciation of the
functions performed by the Civil Aeronautics Administration (CAA),
which had succeeded the defunction National Airports Corporation.
The CAA claimed that as an unincorporated agency of the Republic
of the Philippines, it was incapable of suing and being sued. The Court
noted:
Among the general powers of the Civil Aeronautics Administration
are, under Section 3, to execute contracts of any kind, to purchase
property, and to grant concession rights, and under Section 4, to
charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under
its management.
These provisions confer upon the Civil Aeronautics Administration, in
our opinion, the power to sue and be sued. The power to sue and be
sued is implied from the power to transact private business. And if it
has the power to sue and be sued on its behalf, the Civil Aeronautics
Administration with greater reason should have the power to
prosecute and defend suits for and against the National Airports
Corporation, having acquired all the properties, funds and choses in
action and assumed all the liabilities of the latter. To deny the National
Airports Corporation's creditors access to the courts of justice against
the Civil Aeronautics Administration is to say that the government
could impair the obligation of its corporations by the simple expedient
of converting them into unincorporated agencies. 133
xxx
Eventually, the charter of the CAA was revised, and it among its
expanded functions was "[t]o administer, operate, manage, control,
maintain and develop the Manila International
Airport."134 Notwithstanding this expansion, in the 1988 case of CAA
v. Court of Appeals135 the Court reaffirmed the ruling that the CAA
was engaged in "private or non-governmental functions."136 Thus, the
Court had already ruled that the predecessor agency of MIAA, the
CAA was engaged in private or non-governmental functions. These
are more precedents ignored by the majority. The following
observation from the Teodoro case very well applies to MIAA.
The Civil Aeronautics Administration comes under the category of a
private entity. Although not a body corporate it was created, like the
National Airports Corporation, not to maintain a necessary function of
government, but to run what is essentially a business, even if revenues
be not its prime objective but rather the promotion of travel and the
convenience of the traveling public. It is engaged in an enterprise
which, far from being the exclusive prerogative of state, may, more
than the construction of public roads, be undertaken by private
concerns.137
If the determinative point in distinguishing between sovereign
functions and proprietary functions is the vitality of the public service
being performed, then it should be noted that there is no more
important public service performed than that engaged in by public
utilities. But notably, the Constitution itself authorizes private persons to
exercise these functions as it allows them to operate public utilities in
this country138 If indeed such functions are actually sovereign and
belonging properly to the government, shouldn't it follow that the
exercise of these tasks remain within the exclusive preserve of the
State?
There really is no prohibition against the government taxing
itself,139 and nothing obscene with allowing government entities
exercising proprietary functions to be taxed for the purpose of raising
the coffers of LGUs. On the other hand, it would be an even more
noxious proposition that the government or the instrumentalities that it
owns are above the law and may refuse to pay a validly imposed tax.
MIAA, or any similar entity engaged in the exercise of proprietary, and
not sovereign functions, cannot avoid the adverse-effects of tax
evasion simply on the claim that it is imbued with some of the
attributes of government.
VII.
MIAA Property Not Subject to
Execution Sale Without Consent
Of the President.
Despite the fact that the City of Parañaque ineluctably has the power
to impose real property taxes over the MIAA, there is an equally
relevant statutory limitation on this power that must be fully upheld.
Section 3 of the MIAA charter states that "[a]ny portion [of the [lands
transferred, conveyed and assigned to the ownership and
administration of the MIAA] shall not be disposed through sale or
through any other mode unless specifically approved by the President
of the Philippines."140
Nothing in the Local Government Code, even with its wide grant of
powers to LGUs, can be deemed as repealing this prohibition under
Section 3, even if it effectively forecloses one possible remedy of the
LGU in the collection of delinquent real property taxes. While the Local
Government Code withdrew all previous local tax exemptions of the
MIAA and other natural and juridical persons, it did not similarly
withdraw any previously enacted prohibitions on properties owned by
GOCCs, agencies or instrumentalities. Moreover, the resulting legal
effect, subjecting on one hand the MIAA to local taxes but on the
other hand shielding its properties from any form of sale or disposition,
is not contradictory or paradoxical, onerous as its effect may be on
the LGU. It simply means that the LGU has to find another way to
collect the taxes due from MIAA, thus paving the way for a mutually
acceptable negotiated solution.141
There are several other reasons this statutory limitation should be
upheld and applied to this case. It is at this juncture that the
importance of the Manila Airport to our national life and commerce
may be accorded proper consideration. The closure of the airport,
even by reason of MIAA's legal omission to pay its taxes, will have an
injurious effect to our national economy, which is ever reliant on air
travel and traffic. The same effect would obtain if ownership and
administration of the airport were to be transferred to an LGU or some
other entity which were not specifically chartered or tasked to
perform such vital function. It is for this reason that the MIAA charter
specifically forbids the sale or disposition of MIAA properties without
the consent of the President. The prohibition prevents the peremptory
closure of the MIAA or the hampering of its operations on account of
the demands of its creditors. The airport is important enough to be
sheltered by legislation from ordinary legal processes.
Section 3 of the MIAA charter may also be appreciated as within the
proper exercise of executive control by the President over the MIAA,
a GOCC which despite its separate legal personality, is still subsumed
within the executive branch of government. The power of executive
control by the President should be upheld so long as such exercise
does not contravene the Constitution or the law, the President having
the corollary duty to faithfully execute the Constitution and the laws
of the land.142 In this case, the exercise of executive control is
precisely recognized and authorized by the legislature, and it should
be upheld even if it comes at the expense of limiting the power of
local government units to collect real property taxes.
Had this petition been denied instead with Mactan as basis, but with
the caveat that the MIAA properties could not be subject of
execution sale without the consent of the President, I suspect that the
parties would feel little distress. Through such action, both the Local
Government Code and the MIAA charter would have been upheld.
The prerogatives of LGUs in real property taxation, as guaranteed by
the Local Government Code, would have been preserved, yet the
concerns about the ruinous effects of having to close the Manila
International Airport would have been averted. The parties would
then be compelled to try harder at working out a compromise, a task,
if I might add, they are all too willing to engage in.143 Unfortunately,
the majority will cause precisely the opposite result of unremitting
hostility, not only to the City of Parañaque, but to the thousands of
LGUs in the country.
VIII.
Summary of Points
My points may be summarized as follows:
1) Mactan and a long line of succeeding cases have already settled
the rule that under the Local Government Code, enacted pursuant
to the constitutional mandate of local autonomy, all natural and
juridical persons, even those GOCCs, instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted an
exemption. The only exemptions from local taxes are those specifically
provided under the Local Government Code itself, or those enacted
through subsequent legislation.
2) Under the Local Government Code, particularly Section 232,
instrumentalities, agencies and GOCCs are generally liable for real
property taxes. The only exemptions therefrom under the same Code
are provided in Section 234, which include real property owned by
the Republic of the Philippines or any of its political subdivisions.
3) The subject properties are owned by MIAA, a GOCC, holding title
in its own name. MIAA, a separate legal entity from the Republic of
the Philippines, is the legal owner of the properties, and is thus liable
for real property taxes, as it does not fall within the exemptions under
Section 234 of the Local Government Code.
4) The MIAA charter expressly bars the sale or disposition of MIAA
properties. As a result, the City of Parañaque is prohibited from seizing
or selling these properties by public auction in order to satisfy MIAA's
tax liability. In the end, MIAA is encumbered only by a limited lien
possessed by the City of Parañaque.
On the other hand, the majority's flaws are summarized as follows:
1) The majority deliberately ignores all precedents which run counter
to its hypothesis, including Mactan. Instead, it relies and directly cites
those doctrines and precedents which were overturned by Mactan.
By imposing a different result than that warranted by the precedents
without explaining why Mactan or the other precedents are wrong,
the majority attempts to overturn all these ruling sub silencio and
without legal justification, in a manner that is not sanctioned by the
practices and traditions of this Court.
2) The majority deliberately ignores the policy and philosophy of local
fiscal autonomy, as mandated by the Constitution, enacted under
the Local Government Code, and affirmed by precedents. Instead,
the majority asserts that there is no sound rationale for local
governments to tax national government instrumentalities, despite the
blunt existence of such rationales in the Constitution, the Local
Government Code, and precedents.
3) The majority, in a needless effort to justify itself, adopts an extremely
strained exaltation of the Administrative Code above and beyond the
Corporation Code and the various legislative charters, in order to
impose a wholly absurd definition of GOCCs that effectively
declassifies innumerable existing GOCCs, to catastrophic legal
consequences.
4) The majority asserts that by virtue of Section 133(o) of the Local
Government Code, all national government agencies and
instrumentalities are exempt from any form of local taxation, in
contravention of several precedents to the contrary and the proviso
under Section 133, "unless otherwise provided herein [the Local
Government Code]."
5) The majority erroneously argues that MIAA holds its properties in trust
for the Republic of the Philippines, and that such properties are
patrimonial in character. No express or implied trust has been created
to benefit the national government. The legal distinction between
sovereign and proprietary functions, as affirmed by jurisprudence,
likewise preclude the classification of MIAA properties as patrimonial.
IX.
Epilogue
If my previous discussion still fails to convince on how wrong the
majority is, then the following points are well-worth considering. The
majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a
government instrumentality that exercises corporate powers but not
organized as a stock or non-stock corporation. Correspondingly for
the majority, the Bangko ng Sentral is exempt from all forms of local
taxation by LGUs by virtue of the Local Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:
SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt
for a period of five (5) years from the approval of this Act from all
national, provincial, municipal and city taxes, fees, charges and
assessments.
The New Central Bank Act was promulgated after the Local
Government Code if the BSP is already preternaturally exempt from
local taxation owing to its personality as an "government
instrumentality," why then the need to make a new grant of
exemption, which if the majority is to be believed, is actually a
redundancy. But even more tellingly, does not this provision evince a
clear intent that after the lapse of five (5) years, that the Bangko
Sentral will be liable for provincial, municipal and city taxes? This is the
clear congressional intent, and it is Congress, not this Court which
dictates which entities are subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the Bangko
Sentral is not even a government owned corporation, but a
government instrumentality, or perhaps "loosely", a "government
corporate entity." How could such an entity like the Bangko Sentral ,
which is not even a government owned corporation, be subjected to
local taxation like any mere mortal? But then, see Section 1 of the New
Central Bank Act:
SECTION 1. Declaration of Policy. — The State shall maintain a central
monetary authority that shall function and operate as an
independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In
line with this policy, and considering its unique functions and
responsibilities, the central monetary authority established under this
Act, while being a government-owned corporation, shall enjoy fiscal
and administrative autonomy.
Apparently, the clear legislative intent was to create a government
corporation known as the Bangko Sentral ng Pilipinas. But this
legislative intent, the sort that is evident from the text of the provision
and not the one that needs to be unearthed from the bowels of the
archival offices of the House and the Senate, is for naught to the
majority, as it contravenes the Administrative Code of 1987, which
after all, is "the governing law defining the status and relationship of
government agencies and instrumentalities" and thus superior to the
legislative charter in determining the personality of a chartered entity.
Its like saying that the architect who designed a school building is
better equipped to teach than the professor because at least the
architect is familiar with the geometry of the classroom.
Consider further the example of the Philippine Institute of Traditional
and Alternative Health Care (PITAHC), created by Republic Act No.
8243 in 1997. It has similar characteristics as MIAA in that it is
established as a body corporate,144 and empowered with the
attributes of a corporation,145 including the power to purchase or
acquire real properties.146 However the PITAHC has no capital stock
and no members, thus following the majority, it is not a GOCC.
The state policy that guides PITAHC is the development of traditional
and alternative health care,147 and its objectives include the
promotion and advocacy of alternative, preventive and curative
health care modalities that have been proven safe, effective and
cost effective.148 "Alternative health care modalities" include "other
forms of non-allophatic, occasionally non-indigenous or imported
healing methods" which include, among others "reflexology,
acupuncture, massage, acupressure" and chiropractics.149
Given these premises, there is no impediment for the PITAHC to
purchase land and construct thereupon a massage parlor that would
provide a cheaper alternative to the opulent spas that have
proliferated around the metropolis. Such activity is in line with the
purpose of the PITAHC and with state policy. Is such massage parlor
exempt from realty taxes? For the majority, it is, for PITAHC is an
instrumentality or agency exempt from local government taxation,
which does not fall under the exceptions under Section 234 of the
Local Government Code. Hence, this massage parlor would not just
be a shelter for frazzled nerves, but for taxes as well.
Ridiculous? One might say, certainly a decision of the Supreme Court
cannot be construed to promote an absurdity. But precisely the
majority, and the faulty reasoning it utilizes, opens itself up to all sorts
of mischief, and certainly, a tax-exempt massage parlor is one of the
lesser evils that could arise from the majority ruling. This is indeed a very
strange and very wrong decision.
I dissent.
DANTE O. TINGA
Associate Justice
Republic of the Philippines
Supreme Court
Manila
EN BANC
DANTE V. LIBAN, REYNALDO M. G. R. No. 175352

BERNARDO and SALVADOR M.
VIARI, Present:
Petitioners,
CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
- versus - BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
RICHARD J. GORDON, MENDOZA, and
Respondent. SERENO, JJ.
PHILIPPINE NATIONAL RED CROSS, Promulgated:

Intervenor.
January 18, 2011
x--------------------------------------------------x
RESOLUTION
LEONARDO-DE CASTRO, J.:
This resolves the Motion for Clarification and/or for

Reconsideration[1] filed on August 10, 2009 by respondent Richard J.
Gordon (respondent) of the Decisionpromulgated by this Court on
July 15, 2009 (the Decision), the Motion for Partial
Reconsideration[2] filed on August 27, 2009 by movant-
intervenor Philippine National Red Cross (PNRC), and the
latters Manifestation and Motion to Admit Attached Position
Paper[3] filed on December 23, 2009.
In the Decision,[4] the Court held that respondent did not forfeit
his seat in the Senate when he accepted the chairmanship of the
PNRC Board of Governors, as the office of the PNRC Chairman is not
a government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in Section 13,
Article VI of the 1987 Constitution.[5] The Decision, however, further
declared void the PNRC Charter insofar as it creates the PNRC as a
private corporation and consequently ruled that the PNRC should
incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private
corporation.[6] The dispositive portion of the Decision reads as follows:
WHEREFORE, we declare that the office of the

Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution. We also
declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and
13 of the Charter of the Philippine National Red Cross, or
Republic Act No. 95, as amended by Presidential Decree
Nos. 1264 and 1643, are VOID because they create the
PNRC as a private corporation or grant it corporate
powers.[7]
In his Motion for Clarification and/or for Reconsideration, respondent
raises the following grounds: (1) as the issue of constitutionality of
Republic Act (R.A.) No. 95 was not raised by the parties, the Court
went beyond the case in deciding such issue; and (2) as the Court
decided that Petitioners did not have standing to file the instant
Petition, the pronouncement of the Court on the validity of R.A. No.
95 should be considered obiter.[8]
Respondent argues that the validity of R.A. No. 95 was a non-

issue; therefore, it was unnecessary for the Court to decide on that
question. Respondent cites Laurel v. Garcia,[9] wherein the Court said
that it will not pass upon a constitutional question although properly
presented by the record if the case can be disposed of on some other
ground and goes on to claim that since this Court, in the Decision,
disposed of the petition on some other ground, i.e., lack of standing
of petitioners, there was no need for it to delve into the validity of R.A.
No. 95, and the rest of the judgment should be deemed obiter.
In its Motion for Partial Reconsideration, PNRC prays that the

Court sustain the constitutionality of its Charter on the following
grounds:
A. THE ASSAILED DECISION DECLARING

UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS
AMENDED DEPRIVED INTERVENOR PNRC OF ITS
CONSTITUTIONAL RIGHT TO DUE PROCESS.
1. INTERVENOR PNRC WAS NEVER A PARTY TO THE
INSTANT CONTROVERSY.
2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95,

AS AMENDED WAS NEVER AN ISSUE IN THIS CASE.
B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL

DECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95.
PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION
OF CONGRESS.
C. PNRCS STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS

OWN. WHILE IT IS PERFORMING HUMANITARIAN
FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A
NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF
GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS
STRICTLY PRIVATE IN CHARACTER.
In his Comment and Manifestation[10] filed on November 9, 2009,

respondent manifests: (1) that he agrees with the position taken by
the PNRC in its Motion for Partial Reconsideration dated August 27,
2009; and (2) as of the writing of said Comment and Manifestation,
there was pending before the Congress of the Philippines a proposed
bill entitled An Act Recognizing the PNRC as an Independent,
Autonomous, Non-Governmental Organization Auxiliary to the
Authorities of the Republic of the Philippines in the Humanitarian Field,
to be Known as The Philippine Red Cross.[11]
After a thorough study of the arguments and points raised by the

respondent as well as those of movant-intervenor in their respective
motions, we have reconsidered our pronouncements in our Decision
dated July 15, 2009 with regard to the nature of the PNRC and the
constitutionality of some provisions of the PNRC Charter, R.A. No. 95,
as amended.
As correctly pointed out in respondents Motion, the issue of

constitutionality of R.A. No. 95 was not raised by the parties, and was
not among the issues defined in the body of the Decision; thus, it was
not the very lis mota of the case. We have reiterated the rule as to
when the Court will consider the issue of constitutionality in Alvarez v.
PICOP Resources, Inc.,[12] thus:
This Court will not touch the issue of unconstitutionality

unless it is the very lis mota. It is a well-established rule that
a court should not pass upon a constitutional question and
decide a law to be unconstitutional or invalid, unless such
question is raised by the parties and that when it is raised,
if the record also presents some other ground upon which
the court may [rest] its judgment, that course will be
adopted and the constitutional question will be left for
consideration until such question will be unavoidable.[13]
Under the rule quoted above, therefore, this Court should not have
declared void certain sections of R.A. No. 95, as amended by
Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC
Charter. Instead, the Court should have exercised judicial restraint on
this matter, especially since there was some other ground upon which
the Court could have based its judgment. Furthermore, the PNRC, the
entity most adversely affected by this declaration of
unconstitutionality, which was not even originally a party to this case,
was being compelled, as a consequence of the Decision, to suddenly
reorganize and incorporate under the Corporation Code, after more
than sixty (60) years of existence in this country.
Its existence as a chartered corporation remained unchallenged on

ground of unconstitutionality notwithstanding that R.A. No. 95 was
enacted on March 22, 1947 during the effectivity of the 1935
Constitution, which provided for a proscription against the creation of
private corporations by special law, to wit:
SEC. 7. The Congress shall not, except by general law,

provide for the formation, organization, or regulation of
private corporations, unless such corporations are owned
and controlled by the Government or any subdivision or
instrumentality thereof. (Art. XIV, 1935 Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973

Constitution and Article XII, Section 16 of the 1987 Constitution. The
latter reads:
SECTION 16. The Congress shall not, except by general

law, provide for the formation, organization, or regulation
of private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject to
the test of economic viability.
Since its enactment, the PNRC Charter was amended several times,
particularly on June 11, 1953, August 16, 1971, December 15, 1977,
and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No.
1264, and P.D. No. 1643, respectively. The passage of several laws
relating to the 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.
The PNRC succeeded the chapter of the American Red Cross

which was in existence in the Philippines since 1917. It was created by
an Act of Congress after the Republic of the Philippines became an
independent nation on July 6, 1946 and proclaimed on February 14,
1947 its adherence to the Convention of Geneva of July 29, 1929 for
the Amelioration of the Condition of the Wounded and Sick of Armies
in the Field (the Geneva Red Cross Convention). By that action the
Philippines indicated its desire to participate with the nations of the
world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose and like other
volunteer organizations established in other countries which have
ratified the Geneva Conventions, to promote the health and welfare
of the people in peace and in war.[14]
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and
6373, and further amended by P.D. Nos. 1264 and 1643, show the
historical background and legal basis of the creation of the PNRC by
legislative fiat, as a voluntary organization impressed with public
interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland,

on 22 August 1894, the nations of the world unanimously
agreed to diminish within their power the evils inherent in
war;
WHEREAS, more than one hundred forty nations of the

world have ratified or adhered to the Geneva Conventions
of August 12, 1949 for the Amelioration of the Condition of
the Wounded and Sick of Armed Forces in the Field and at
Sea, The Prisoners of War, and The Civilian Population in
Time of War referred to in this Charter as the Geneva
Conventions;
WHEREAS, the Republic of the Philippines became an

independent nation on July 4, 1946, and proclaimed on
February 14, 1947 its adherence to the Geneva
Conventions of 1929, and by the action, indicated its desire
to participate with the nations of the world in mitigating the
suffering caused by war and to establish in the Philippines
a voluntary organization for that purpose as contemplated
by the Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a

chapter of the American National Red Cross which was
terminated in view of the independence of the Philippines;
and
WHEREAS, the volunteer organizations established in
other countries which have ratified or adhered to the
Geneva Conventions assist in promoting the health and
welfare of their people in peace and in war, and through
their mutual assistance and cooperation directly and
through their international organizations promote better
understanding and sympathy among the people of the
world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President

of the Philippines, by virtue of the powers vested in me by
the Constitution as Commander-in-Chief of all the Armed
Forces of the Philippines and pursuant to Proclamation No.
1081 dated September 21, 1972, and General Order No. 1
dated September 22, 1972, do hereby decree and order
that Republic Act No. 95, Charter of the Philippine National
Red Cross (PNRC) as amended by Republic Acts No. 855
and 6373, be further amended as follows:
Section 1. There is hereby created in the Republic of

the Philippines a body corporate and politic to be the
voluntary organization officially designated to assist the
Republic of the Philippines in discharging the obligations
set forth in the Geneva Conventions and to perform such
other duties as are inherent upon a national Red Cross
Society. The national headquarters of this Corporation shall
be located in Metropolitan Manila. (Emphasis supplied.)
The significant public service rendered by the PNRC can be

gleaned from Section 3 of its Charter, which provides:
Section 3. That the purposes of this Corporation shall
be as follows:
(a) To provide volunteer aid to the sick and wounded

of armed forces in time of war, in accordance with the spirit
of and under the conditions prescribed by the Geneva
Conventions to which the Republic of the Philippines
proclaimed its adherence;
(b) For the purposes mentioned in the preceding sub-

section, to perform all duties devolving upon the
Corporation as a result of the adherence of the Republic
of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in

accordance with the authorities of the armed forces as a
medium of communication between people of the
Republic of the Philippines and their Armed Forces, in time
of peace and in time of war, and to act in such matters
between similar national societies of other governments
and the Governments and people and the Armed Forces
of the Republic of the Philippines;
(d) To establish and maintain a system of national and

international relief in time of peace and in time of war and
apply the same in meeting and emergency needs caused
by typhoons, flood, fires, earthquakes, and other natural
disasters and to devise and carry on measures for
minimizing the suffering caused by such disasters;
(e) To devise and promote such other services in time
of peace and in time of war as may be found desirable in
improving the health, safety and welfare of the Filipino
people;
(f) To devise such means as to make every citizen

and/or resident of the Philippines a member of the Red
Cross.
The PNRC is one of the National Red Cross and Red Crescent
Societies, which, together with the International Committee of the
Red Cross (ICRC) and the IFRC and RCS, make up the International
Red Cross and Red Crescent Movement (the Movement). They
constitute a worldwide humanitarian movement, whose mission is:
[T]o prevent and alleviate human suffering wherever it may

be found, to protect life and health and ensure respect for
the human being, in particular in times of armed conflict
and other emergencies, to work for the prevention of
disease and for the promotion of health and social welfare,
to encourage voluntary service and a constant readiness
to give help by the members of the Movement, and a
universal sense of solidarity towards all those in need of its
protection and assistance.[15]
The PNRC works closely with the ICRC and has been involved in
humanitarian activities in the Philippines since 1982. Among others,
these activities in the country include:
1. Giving protection and assistance to civilians displaced or
otherwise affected by armed clashes between the
government and armed opposition groups, primarily in
Mindanao;
2. Working to minimize the effects of armed hostilities and
violence on the population;
3. Visiting detainees; and
4. Promoting awareness of international humanitarian law in
the public and private sectors.[16]
National Societies such as the PNRC act as auxiliaries to the

public authorities of their own countries in the humanitarian field and
provide a range of services including disaster relief and health and
social programmes.
The International Federation of Red Cross (IFRC) and Red

Crescent Societies (RCS) Position Paper,[17] submitted by the PNRC, is
instructive with regard to the elements of the specific nature of the
National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red

Cross and its sister Red Cross and Red Crescent Societies,
have certain specificities deriving from the 1949 Geneva
Convention and the Statutes of the International Red Cross
and Red Crescent Movement (the Movement). They are
also guided by the seven Fundamental Principles of the
Red Cross and Red Crescent Movement: Humanity,
Impartiality, Neutrality, Independence, Voluntary Service,
Unity and Universality.
A National Society partakes of a sui
generis character. It is a protected component of the Red
Cross movement under Articles 24 and 26 of the First
Geneva Convention, especially in times of armed
conflict. These provisions require that the staff of a National
Society shall be respected and protected in all
circumstances. Such protection is not ordinarily afforded by
an international treaty to ordinary private entities or even
non-governmental organisations (NGOs). This sui
generis character is also emphasized by the Fourth Geneva
Convention which holds that an Occupying Power cannot
require any change in the personnel or structure of
a National Society. National societies are therefore
organizations that are directly regulated by international
humanitarian law, in contrast to other ordinary private
entities, including NGOs.
xxxx
In addition, National Societies are not only officially

recognized by their public authorities as voluntary aid
societies, auxiliary to the public authorities in the
humanitarian field, but also benefit from recognition at the
International level. This is considered to be an element
distinguishing National Societies from other organisations
(mainly NGOs) and other forms of humanitarian response.
x x x. No other organisation belongs to a world-wide

Movement in which all Societies have equal status and
share equal responsibilities and duties in helping each
other. This is considered to be the essence of the
Fundamental Principle of Universality.
Furthermore, the National Societies are considered to

be auxiliaries to the public authorities in the humanitarian
field. x x x.
The auxiliary status of [a] Red Cross Society means that

it is at one and the same time a private institution and a
public service organization because the very nature of its
work implies cooperation with the authorities, a link with the
State. In carrying out their major functions, Red Cross
Societies give their humanitarian support to official bodies,
in general having larger resources than the Societies,
working towards comparable ends in a given sector.
x x x No other organization has a duty to be its

governments humanitarian partner while remaining
independent.[18] (Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No.
95 has remained valid and effective from the time of its enactment in
March 22, 1947 under the 1935 Constitution and during the effectivity
of the 1973 Constitution and the 1987 Constitution.
The PNRC Charter and its amendatory laws have not been
questioned or challenged on constitutional grounds, not even in this
case before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on
Audit,[19] explained that the purpose of the constitutional provision
prohibiting Congress from creating private corporations was to
prevent the granting of special privileges to certain individuals,
families, or groups, which were denied to other groups. Based on the
above discussion, it can be seen that the PNRC Charter does not
come within the spirit of this constitutional provision, as it does not
grant special privileges to a particular individual, family, or group, but
creates an entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII,

Section 16 of the 1987 Constitution will hinder the State in adopting
measures that will serve the public good or national interest. It should
be noted that a special law, R.A. No. 9520, the Philippine Cooperative
Code of 2008, and not the general corporation code, vests corporate
power and capacities upon cooperatives which are private
corporations, in order to implement the States avowed policy.
In the Decision of July 15, 2009, the Court recognized the public
service rendered by the PNRC as the governments partner in the
observance of its international commitments, to wit:
The PNRC is a non-profit, donor-funded, voluntary,

humanitarian organization, whose mission is to bring timely,
effective, and compassionate humanitarian assistance for
the most vulnerable without consideration of nationality,
race, religion, gender, social status, or political affiliation.
The PNRC provides six major services: Blood Services,
Disaster Management, Safety Services, Community Health
and Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the
Geneva Conventions, established the PNRC as a voluntary
organization for the purpose contemplated in the Geneva
Convention of 27 July 1929. x x x.[20] (Citations omitted.)
So must this Court recognize too the 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.[21] Under the Constitution, the Philippines
adopts the generally accepted principles of international law as part
of the law of the land.[22] This constitutional provision must be
reconciled and harmonized with Article XII, Section 16 of the
Constitution, instead of using the latter to negate the former.
By requiring the PNRC to organize under the Corporation Code

just like any other private corporation, the Decision of July 15, 2009 lost
sight of the 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. Although the PNRC is
called to be independent under its Fundamental Principles, it
interprets such independence as inclusive of its duty to be the
governments humanitarian partner. To be recognized in the
International Committee, the PNRC must have an autonomous status,
and carry out its humanitarian mission in a neutral and impartial
manner.
However, in accordance with the Fundamental Principle of

Voluntary Service of National Societies of the Movement, the PNRC
must be distinguished from private and profit-making entities. It is the
main characteristic of National Societies that they are not inspired by
the desire for financial gain but by individual commitment and
devotion to a humanitarian purpose freely chosen or accepted as
part of the service that National Societies through its volunteers and/or
members render to the Community.[23]
The PNRC, as a National Society of the International Red Cross

and Red Crescent Movement, can neither be classified as an
instrumentality of the State, so as not to lose its character of neutrality
as well as its independence, nor strictly as a private corporation since
it is regulated by international humanitarian law and is treated as
an auxiliary of the State.[24]
Based on the above, the sui generis status of the PNRC is now
sufficiently established. Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -
controlled corporation or a subsidiary thereof, as succinctly explained
in the Decision of July 15, 2009, so much so that respondent, under the
Decision, was correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator, such a conclusion
does not ipso facto imply that the PNRC is a private corporation within
the contemplation of the provision of the Constitution, that must be
organized under the Corporation Code. As correctly mentioned by
Justice Roberto A. Abad, the sui generis character of PNRC requires
us to approach controversies involving the PNRC on a case-to-case
basis.
In sum, the PNRC enjoys a special status as an important ally and

auxiliary of the government in the humanitarian field in accordance
with its commitments under international law. This Court cannot all of
a sudden refuse to recognize its existence, especially since the issue
of the constitutionality of the PNRC Charter was never raised by the
parties. It bears emphasizing that the PNRC has responded to almost
all national disasters since 1947, and is widely known to provide a
substantial portion of the 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.
WHEREFORE, premises considered, respondent Richard J.

Gordons Motion for Clarification and/or for Reconsideration and
movant-intervenor PNRCs Motion for Partial
Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009
are GRANTED. The constitutionality of R.A. No. 95, as amended, the
charter of the Philippine National Red Cross, was not raised by the
parties as an issue and should not have been passed upon by this
Court. The structure of the PNRC is sui generis being neither strictly
private nor public in nature. R.A. No. 95 remains valid and
constitutional in its entirety. The dispositive portion of the Decision
should therefore be MODIFIED by deleting the second sentence, to
now read as follows:
WHEREFORE, we declare that the office of the

Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or
controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution.
SO ORDERED.
EN BANC
BOY SCOUTS OF THE PHILIPPINES, G.R. No. 177131

Petitioner,
Present:
CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.
COMMISSION ON AUDIT, Promulgated:

Respondent.
June 7, 2011
x--------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts
of the Philippines (BSP) is the subject matter of this controversy that
reached us via petition for prohibition[1] filed by the BSP under Rule 65
of the 1997 Rules of Court. In this petition, the BSP seeks that the COA
be prohibited from implementing its June 18, 2002 Decision,[2] its
February 21, 2007 Resolution,[3] as well as all other issuances arising
therefrom, and that all of the foregoing be rendered null and void. [4]
Antecedent Facts and Background of

the Case
This case arose when the COA issued Resolution No. 99-011[5] on
August 19, 1999 (the COA Resolution), with the subject Defining the
Commissions policy with respect to the audit of the Boy Scouts of the
Philippines. In its whereas clauses, the COA Resolution stated that the
BSP was created as a public corporation under Commonwealth Act
No. 111, as amended by Presidential Decree No. 460 and Republic
Act No. 7278; that in Boy Scouts of the Philippines v. National Labor
Relations Commission,[6] the Supreme Court ruled that the BSP, as
constituted under its charter, was a government-controlled
corporation within the meaning of Article IX(B)(2)(1) of the
Constitution; and that the BSP is appropriately regarded as a
government instrumentality under the 1987 Administrative
Code.[7] The COA Resolution also cited its constitutional mandate
under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing

premises, the COMMISSION PROPER HAS RESOLVED, AS IT
DOES HEREBY RESOLVE, to conduct an annual financial
audit of the Boy Scouts of the Philippines in accordance
with generally accepted auditing standards, and express
an opinion on whether the financial statements which
include the Balance Sheet, the Income Statement and the
Statement of Cash Flows present fairly its financial position
and results of operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of

audit supervision, the Boy Scouts of the Philippines shall be
classified among the government corporations belonging
to the Educational, Social, Scientific, Civic and Research
Sector under the Corporate Audit Office I, to be audited,
similar to the subsidiary corporations, by employing the
team audit approach.[8] (Emphases supplied.)
The BSP sought reconsideration of the COA Resolution in

a letter[9] dated November 26, 1999 signed by the BSP National
President Jejomar C. Binay, who is now the Vice President of the
Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not
subject to the Commissions jurisdiction on the following
grounds:
1. We reckon that the ruling in the case of Boy Scouts of

the Philippines vs. National Labor Relations Commission, et
al. (G.R. No. 80767) classifying the BSP as a government-
controlled corporation is anchored on the substantial
Government participation in the National Executive Board
of the BSP. It is to be noted that the case was decided
when the BSP Charter is defined by Commonwealth Act
No. 111 as amended by Presidential Decree 460.
However, may we humbly refer you to Republic Act No.

7278 which amended the BSPs charter after the cited case
was decided. The most salient of all amendments in RA
No. 7278 is the alteration of the composition of the
National Executive Board of the BSP.
The said RA virtually eliminated the substantial

government participation in the National Executive Board
by removing: (i) the President of the Philippines and
executive secretaries, with the exception of the Secretary
of Education, as members thereof; and (ii) the
appointment and confirmation power of the President of
the Philippines, as Chief Scout, over the members of the
said Board.
The BSP believes that the cited case has been superseded
by RA 7278. Thereby weakening the cases conclusion that
the BSP is a government-controlled corporation (sic). The
1987 Administrative Code itself, of which the BSP vs. NLRC
relied on for some terms, defines government-owned and
controlled corporations as agencies organized as stock or
non-stock corporations which the BSP, under its present
charter, is not.
Also, the Government, like in other GOCCs, does not have

funds invested in the BSP. What RA 7278 only provides is
that the Government or any of its subdivisions, branches,
offices, agencies and instrumentalities can from time to
time donate and contribute funds to the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not

appropriately regarded as a government instrumentality
under the 1987 Administrative Code as stated in the COA
resolution. As defined by Section 2(10) of the said code,
instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter.
The BSP is not an entity administering special funds. It is not

even included in the DECS National Budget. x x x
It may be argued also that the BSP is not an agency of the

Government. The 1987 Administrative Code, merely
referred the BSP as an attached agency of the DECS as
distinguished from an actual line agency of departments
that are included in the National Budget. The BSP believes
that an attached agency is different from an agency.
Agency, as defined in Section 2(4) of the Administrative
Code, is defined as any of the various units of the
Government including a department, bureau, office,
instrumentality, government-owned or controlled
corporation or local government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the
Government; a department which refers to an executive
department as created by law (Section 2[7] of the
Administrative Code); nor a bureau which refers to any
principal subdivision or unit of any department (Section
2[8], Administrative Code).[10]
Subsequently, requests for reconsideration of the COA Resolution

were also made separately by Robert P. Valdellon, Regional Scout
Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso,
Council Scout Executive of Calbayog City.[11]
In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico,

Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a
copy of the Memorandum[13]dated June 20, 2000 of Atty. Santos M.
Alquizalas, the COA General Counsel. In said Memorandum, the COA
General Counsel opined that Republic Act No. 7278 did not
supersede the Courts ruling in Boy Scouts of the Philippines v. National
Labor Relations Commission, even though said law eliminated the
substantial government participation in the selection of members of
the National Executive Board of the BSP. The Memorandum further
provides:
Analysis of the said case disclosed that the substantial

government participation is only one (1) of the three (3)
grounds relied upon by the Court in the resolution of the
case. Other considerations include the character of the
BSPs purposes and functions which has a public aspect
and the statutory designation of the BSP as a public
corporation. These grounds have not been deleted by R.A.
No. 7278. On the contrary, these were strengthened as
evidenced by the amendment made relative to BSPs
purposes stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately

regarded as a government instrumentality and agency of
the government, such has already been answered and
clarified. The Supreme Court has elucidated this matter in
the BSP case when it declared that BSP is regarded as, both
a government-controlled corporation with an original
charter and as an instrumentality of the Government.
Likewise, it is not disputed that the Administrative Code of
1987 designated the BSP as one of the attached agencies
of DECS. Being an attached agency, however, it does not
change its nature as a government-controlled corporation
with original charter and, necessarily, subject to COA audit
jurisdiction. Besides, Section 2(1), Article IX-D of the
Constitution provides that COA shall have the power,
authority, and duty to examine, audit and settle all
accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with
original charters.[14]
Based on the Memorandum of the COA General Counsel,

Director Sunico wrote:
In view of the points clarified by said Memorandum
upholding COA Resolution No. 99-011, we have to comply
with the provisions of the latter, among which is to conduct
an annual financial audit of the Boy Scouts of the
Philippines.[15]
In a letter dated November 20, 2000 signed by Director

Amorsonia B. Escarda, CAO I, the COA informed the BSP that a
preliminary survey of its organizational structure, operations and
accounting system/records shall be conducted on November 21 to
22, 2000.[16]
Upon the BSPs request, the audit was deferred for thirty (30) days.
The BSP then filed a Petition for Review with Prayer for Preliminary
Injunction and/or Temporary Restraining Order before the COA. This
was denied by the COA in its questioned Decision, which held that
the BSP is under its audit jurisdiction. The BSP moved for reconsideration
but this was likewise denied under its questioned Resolution.[17]
This led to the filing by the BSP of this petition for prohibition with
preliminary injunction and temporary restraining order against the
COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is

whether the BSP falls under the COAs audit jurisdiction.
The Parties Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National

Labor Relations Commission is inapplicable for purposes of
determining the audit jurisdiction of the COA as the issue therein was
the jurisdiction of the National Labor Relations Commission over a
case for illegal dismissal and unfair labor practice filed by certain BSP
employees.[18]
While the BSP concedes that its functions do relate to those that
the government might otherwise completely assume on its own, it
avers that this alone was not determinative of the COAs audit
jurisdiction over it. The BSP further avers that the Court in Boy Scouts of
the Philippines v. National Labor Relations Commission simply stated x
x x that in respect of functions, the BSP is akin to a public corporation
but this was not synonymous to holding that the BSP is a government
corporation or entity subject to audit by the COA. [19]
The BSP contends that Republic Act No. 7278 introduced crucial
amendments to its charter; hence, the findings of the Court in Boy
Scouts of the Philippines v. National Labor Relations Commission are
no longer valid as the government has ceased to play a controlling
influence in it. The BSP claims that the pronouncements of the Court
therein must be taken only within the context of that case; that the
Court had categorically found that its assets were acquired from the
Boy Scouts of America and not from the Philippine government, and
that its operations are financed chiefly from membership dues of the
Boy Scouts themselves as well as from property rentals; and that the
BSP may correctly be characterized as non-governmental, and
hence, beyond the audit jurisdiction of the COA. It further claims that
the designation by the Court of the BSP as a government agency or
instrumentality is mere obiter dictum.[20]
The BSP maintains that the provisions of Republic Act No. 7278
suggest that governance of BSP has come to be overwhelmingly a
private affair or nature, with government participation restricted to
the seat of the Secretary of Education, Culture and Sports.[21] It
cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the
Court declared that, PAL, having ceased to be a government-owned
or controlled corporation is no longer under the audit jurisdiction of
the COA.[23] Claiming that the amendments introduced by Republic
Act No. 7278 constituted a supervening event that changed the BSPs
corporate identity in the same way that the governments privatization
program changed PALs, the BSP makes the case that the government
no longer has control over it; thus, the COA cannot use the Boy Scouts
of the Philippines v. National Labor Relations Commission as its basis
for the exercise of its jurisdiction and the issuance of COA Resolution
No. 99-011.[24] The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSPs funds

and assets are private in character. Unlike ordinary public
corporations, such as provinces, cities, and municipalities, or
government-owned and controlled corporations, such as
Land Bank of the Philippines and the Development Bank of
the Philippines, the assets and funds of BSP are not derived
from any government grant. For its operations, BSP is not
dependent in any way on any government appropriation; as
a matter of fact, it has not even been included in any
appropriations for the government. To be sure, COA has not
alleged, in its Resolution No. 99-011 or in the Memorandum of
its General Counsel, that BSP received, receives or continues
to receive assets and funds from any agency of the
government. The foregoing simply point to the private nature
of the funds and assets of petitioner BSP.
xxxx
As stated in petitioners third argument, BSPs assets and

funds were never acquired from the government. Its
operations are not in any way financed by the government,
as BSP has never been included in any appropriations act for
the government. Neither has the government invested funds
with BSP. BSP, has not been, at any time, a user of government
property or funds; nor have properties of the government
been held in trust by BSP. This is precisely the reason why, until
this time, the COA has not attempted to subject BSP to its
audit jurisdiction. x x x.[25]
To summarize its other arguments, the BSP contends that it is not

a government-owned or controlled corporation; neither is it an
instrumentality, agency, or subdivision of the government.
In its Comment,[26] the COA argues as follows:
1. The BSP is a public corporation created under

Commonwealth Act No. 111 dated October 31, 1936,
and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general
improvement of the moral spirit and fiber of the youth.
The manner of creation and the purpose for which the
BSP was created indubitably prove that it is a
government agency.
2. Being a government agency, the funds and property

owned or held in trust by the BSP are subject to the audit
authority of respondent Commission on Audit pursuant to
Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character

of the BSP as a government-owned or controlled
corporation and government instrumentality.[27]
The COA maintains that the functions of the BSP that include,
among others, the teaching to the youth of patriotism, courage, self-
reliance, and kindred virtues, are undeniably sovereign functions
enshrined under the Constitution and discussed by the Court in Boy
Scouts of the Philippines v. National Labor Relations Commission. The
COA contends that any attempt to classify the BSP as a private
corporation would be incomprehensible since no less than the law
which created it had designated it as a public corporation and its
statutory mandate embraces performance of sovereign
functions.[28]
The COA claims that the only reason why the BSP employees fell
within the scope of the Civil Service Commission even before the 1987
Constitution was the fact that it was a government-owned or
controlled corporation; that as an attached agency of the
Department of Education, Culture and Sports (DECS), the BSP is an
agency of the government; and that the BSP is a chartered institution
under Section 1(12) of the Revised Administrative Code of 1987,
embraced under the term government instrumentality.[29]
The COA concludes that being a government agency, the funds

and property owned or held by the BSP are subject to the audit
authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987
Constitution.
In support of its arguments, the COA cites The Veterans

Federation of the Philippines (VFP) v. Reyes,[30] wherein the Court
held that among the reasons why the VFP is a public corporation is
that its charter, Republic Act No. 2640, designates it as
one. Furthermore, the COA quotes the Court as saying in that case:
In several cases, we have dealt with the issue of whether

certain specific activities can be classified as sovereign
functions. These cases, which deal with activities not
immediately apparent to be sovereign functions, upheld the
public sovereign nature of operations needed either to
promote social justice or to stimulate patriotic sentiments and
love of country.
xxxx
Petitioner claims that its funds are not public funds

because no budgetary appropriations or government funds
have been released to the VFP directly or indirectly from the
DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government
lands reserved for the VFP.
The fact that no budgetary appropriations have been
released to the VFP does not prove that it is a private
corporation. The DBM indeed did not see it fit to propose
budgetary appropriations to the VFP, having itself believed
that the VFP is a private corporation. If the DBM, however, is
mistaken as to its conclusion regarding the nature of VFP's
incorporation, its previous assertions will not prevent future
budgetary appropriations to the VFP. The erroneous
application of the law by public officers does not bar a
subsequent correct application of the law.[31] (Citations
omitted.)
The COA points out that the government is not precluded by law
from extending financial support to the BSP and adding to its funds,
and that as a government instrumentality which continues to perform
a vital function imbued with public interest and reflective of the
governments policy to stimulate patriotic sentiments and love of
country, the BSPs funds from whatever source are public funds, and
can be used solely for public purpose in pursuance of the provisions
of Republic Act No. [7278].[32]
The COA claims that the fact that it has not yet audited the BSPs
funds may not bar the subsequent exercise of its audit jurisdiction.
The BSP filed its Reply[33] on August 29, 2007 maintaining that its
statutory designation as a public corporation and the public
character of its purpose and functions are not determinative of the
COAs audit jurisdiction; reiterating its stand that Boy Scouts of the
Philippines v. National Labor Relations Commission is not applicable
anymore because the aspect of government ownership and control
has been removed by Republic Act No. 7278; and concluding that
the funds and property that it either owned or held in trust are not
public funds and are not subject to the COAs audit jurisdiction.
Thereafter, considering the BSPs claim that it is a private

corporation, this Court, in a Resolution[34] dated July 20, 2010,
required the parties to file, within a period of twenty (20) days from
receipt of said Resolution, their respective comments on the issue of
whether Commonwealth Act No. 111, as amended by Republic Act
No. 7278, is constitutional.
In compliance with the Courts resolution, the parties filed their

respective Comments.
In its Comment[35] dated October 22, 2010, the COA argues that
the constitutionality of Commonwealth Act No. 111, as amended, is
not determinative of the resolution of the present controversy on the
COAs audit jurisdiction over petitioner, and in fact, the controversy
may be resolved on other grounds; thus, the requisites before a
judicial inquiry may be made, as set forth in Commissioner of Internal
Revenue v. Court of Tax Appeals,[36] have not been fully
met.[37] Moreover, the COA maintains that behind every law lies the
presumption of constitutionality.[38] The COA likewise argues that
contrary to the BSPs position, repeal of a law by implication is not
favored.[39] Lastly, the COA claims that there was no violation of
Section 16, Article XII of the 1987 Constitution with the creation or
declaration of the BSP as a government corporation. Citing Philippine
Society for the Prevention of Cruelty to Animals v. Commission on
Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a
corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is
created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental
functions, then that corporation is considered public;
otherwise, it is private. x x x.[41]
For its part, in its Comment[42] filed on December 3, 2010, the BSP
submits that its charter, Commonwealth Act No. 111, as amended by
Republic Act No. 7278, is constitutional as it does not violate Section
16, Article XII of the Constitution. The BSP alleges that while [it] is not a
public corporation within the purview of COAs audit jurisdiction,
neither is it a private corporation created by special law falling within
the ambit of the constitutional prohibition x x x.[43] The BSP further
alleges:
Petitioners purpose is embodied in Section 3 of C.A. No.

111, as amended by Section 1 of R.A. No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner

was created to advance the interest of the youth, specifically
of young boys, and to mold them into becoming good
citizens. Ultimately, the creation of petitioner redounds to the
benefit, not only of those boys, but of the public good or
welfare. Hence, it can be said that petitioners purpose and
functions are more of a public rather than a private
character. Petitioner caters to all boys who wish to join the
organization without any distinction. It does not limit its
membership to a particular class of boys. Petitioners members
are trained in scoutcraft and taught patriotism, civic
consciousness and responsibility, courage, self-reliance,
discipline and kindred virtues, and moral values, preparing
them to become model citizens and outstanding leaders of
the country.[44]
The BSP reiterates its stand that the public character of its
purpose and functions do not place it within the ambit of the audit
jurisdiction of the COA as it lacks the government ownership or control
that the Constitution requires before an entity may be subject of said
jurisdiction.[45] It avers that it merely stated in its Reply that the
withdrawal of government control is akin to privatization, but it does
not necessarily mean that petitioner is a private corporation.[46] The
BSP claims that it has a unique characteristic which neither classifies it
as a purely public nor a purely private corporation;[47] that it is not a
quasi-public corporation; and that it may belong to a different class
altogether.[48]
The BSP claims that assuming arguendo that it is a private

corporation, its creation is not contrary to the purpose of Section 16,
Article XII of the Constitution; and that the evil sought to be avoided
by said provision is inexistent in the enactment of the BSPs
charter,[49] as, (i) it was not created for any pecuniary purpose; (ii)
those who will primarily benefit from its creation are not its officers but
its entire membership consisting of boys being trained in scoutcraft all
over the country; (iii) it caters to all boys who wish to join the
organization without any distinction; and (iv) it does not limit its
membership to a particular class or group of boys. Thus, the
enactment of its charter confers no special privilege to particular
individuals, families, or groups; nor does it bring about the danger of
granting undue favors to certain groups to the prejudice of others or
of the interest of the country, which are the evils sought to be
prevented by the constitutional provision involved.[50]
Finally, the BSP states that the presumption of constitutionality of

a legislative enactment prevails absent any clear showing of its
repugnancy to the Constitution.[51]
The Ruling of the Court
After looking at the legislative history of its amended charter and

carefully studying the applicable laws and the arguments of both
parties, we find that the BSP is a public corporation and its funds are
subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on

October 31, 1936), entitled An Act to Create a Public Corporation to
be Known as the Boy Scouts of the Philippines, and to Define its Powers
and Purposes created the BSP as a public corporation to serve the
following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to

promote through organization and cooperation with other
agencies, the ability of boys to do useful things for
themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in
common use by boy scouts.
Presidential Decree No. 460, approved on May 17, 1974,
amended Commonwealth Act No. 111 and provided substantial
changes in the BSP organizational structure. Pertinent provisions are
quoted below:
Section II. Section 5 of the said Act is also amended

to read as follows:
The governing body of the said corporation shall

consist of a National Executive Board composed of (a) the
President of the Philippines or his representative; (b) the
charter and life members of the Boy Scouts of the
Philippines; (c) the Chairman of the Board of Trustees of the
Philippine Scouting Foundation; (d) the Regional Chairman
of the Scout Regions of the Philippines; (e) the Secretary of
Education and Culture, the Secretary of Social Welfare, the
Secretary of National Defense, the Secretary of Labor, the
Secretary of Finance, the Secretary of Youth and Sports,
and the Secretary of Local Government and Community
Development; (f) an equal number of individuals from the
private sector; (g) the National President of the Girl Scouts
of the Philippines; (h) one Scout of Senior age from each
Scout Region to represent the boy membership; and (i)
three representatives of the cultural minorities. Except for
the Regional Chairman who shall be elected by the
Regional Scout Councils during their annual meetings, and
the Scouts of their respective regions, all members of the
National Executive Board shall be either by appointment or
cooption, subject to ratification and confirmation by the
Chief Scout, who shall be the Head of State. Vacancies in
the Executive Board shall be filled by a majority vote of the
remaining members, subject to ratification and
confirmation by the Chief Scout. The by-laws may prescribe
the number of members of the National Executive Board
necessary to constitute a quorum of the board, which
number may be less than a majority of the whole number
of the board. The National Executive Board shall have
power to make and to amend the by-laws, and, by a two-
thirds vote of the whole board at a meeting called for this
purpose, may authorize and cause to be executed
mortgages and liens upon the property of the corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further

amended Commonwealth Act No. 111 by strengthening
the volunteer and democratic character of the BSP and reducing
government representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act.

No. 111, as amended, is hereby amended to read as
follows:
"Sec. 2. The said corporation shall have the powers of

perpetual succession, to sue and be sued; to enter into
contracts; to acquire, own, lease, convey and dispose of
such real and personal estate, land grants, rights and
choses in action as shall be necessary for corporate
purposes, and to accept and receive funds, real and
personal property by gift, devise, bequest or other means,
to conduct fund-raising activities; to adopt and use a seal,
and the same to alter and destroy; to have offices and
conduct its business and affairs in Metropolitan Manila and
in the regions, provinces, cities, municipalities, and
barangays of the Philippines, to make and adopt by-laws,
rules and regulations not inconsistent with this Act and the
laws of the Philippines, and generally to do all such acts
and things, including the establishment of regulations for
the election of associates and successors, as may be
necessary to carry into effect the provisions of this Act and
promote the purposes of said corporation: Provided, That
said corporation shall have no power to issue certificates of
stock or to declare or pay dividends, its objectives and
purposes being solely of benevolent character and not for
pecuniary profit of its members.
"Sec. 3. The purpose of this corporation shall be to

promote through organization and cooperation with other
agencies, the ability of boys to do useful things for
themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and
kindred virtues, and moral values, using the method which
are in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as

amended, is hereby repealed and in lieu thereof, Section 4
shall read as follows:
"Sec. 4. The President of the Philippines shall be the

Chief Scout of the Boy Scouts of the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act
No. 111, as amended, are hereby amended to read as
follows:
"Sec. 5. The governing body of the said corporation

shall consist of a National Executive Board, the members of
which shall be Filipino citizens of good moral character. The
Board shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the

Philippines who shall be elected by the members of the
National Council at its meeting called for this purpose;
"(b) The regional chairmen of the scout regions who

shall be elected by the representatives of all the local scout
councils of the region during its meeting called for this
purpose: Provided, That a candidate for regional chairman
need not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the

Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas

and Mindanao areas, to be elected by the senior scout
delegates of the local scout councils to the scout youth
forums in their respective areas, in its meeting called for this
purpose, to represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the
members of the National Council in its meeting called for
this purpose;
"(g) At least ten (10) but not more than fifteen (15)
additional members from the private sector who shall be
elected by the members of the National Executive Board
referred to in the immediately preceding paragraphs (a),
(b), (c), (d), (e) and (f) at the organizational meeting of the
newly reconstituted National Executive Board which shall
be held immediately after the meeting of the National
Council wherein the twelve (12) regular members and the
one (1) charter member were elected.
xxxx
"Sec. 8. Any donation or contribution which from time

to time may be made to the Boy Scouts of the Philippines
by the Government or any of its subdivisions, branches,
offices, agencies or instrumentalities or by a foreign
government or by private, entities and individuals shall be
expended by the National Executive Board in pursuance
of this Act.
The BSP as a Public Corporation under Par.

2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the

Civil Code and the BSP, as presently constituted under Republic Act
No. 7278, falls under the second classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for
public interest or purpose created by law; their personality
begins as soon as they have been constituted according
to law;
(3) Corporations, partnerships and associations
for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of
each shareholder, partner or member. (Emphases
supplied.)
The BSP, which is a corporation created for a public interest or

purpose, is subject to the law creating it under Article 45 of the Civil
Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of

the preceding article are governed by the laws creating or
recognizing them.
Private corporations are regulated by laws of general
application on the subject.
Partnerships and associations for private interest or
purpose are governed by the provisions of this Code
concerning partnerships. (Emphasis and underscoring
supplied.)
The purpose of the BSP as stated in its amended charter shows
that it was created in order to implement a State policy declared in
Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE

POLICIES
Section 13. The State recognizes the vital role of the

youth in nation-building and shall promote and protect
their physical, moral, spiritual, intellectual, and social well-
being. It shall inculcate in the youth patriotism and
nationalism, and encourage their involvement in public
and civic affairs.
Evidently, the BSP, which was created by a special law to serve

a public purpose in pursuit of a constitutional mandate, comes within
the class of public corporations defined by paragraph 2, Article 44 of
the Civil Code and governed by the law which creates it, pursuant to
Article 45 of the same Code.
The BSPs Classification Under the

Administrative Code of 1987
The public, rather than private, character of the BSP is

recognized by the fact that, along with the Girl Scouts of the
Philippines, it is classified as an attached agency of the DECS under
Executive Order No. 292, or the Administrative Code of 1987, which
states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies

are hereby attached to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the

department is defined in the Administrative Code of 1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship.

Unless otherwise expressly stated in the Code or in other
laws defining the special relationships of particular
agencies, administrative relationships shall be categorized
and defined as follows:
xxxx
(3) Attachment. (a) This refers to the lateral

relationship between the department or its equivalent and
the attached agency or corporation for purposes of policy
and program coordination. The coordination may be
accomplished by having the department represented in
the governing board of the attached agency or
corporation, either as chairman or as a member, with or
without voting rights, if this is permitted by the
charter; having the attached corporation or agency
comply with a system of periodic reporting which shall
reflect the progress of programs and projects; and having
the department or its equivalent provide general policies
through its representative in the board, which shall serve as
the framework for the internal policies of the attached
corporation or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as

long as policy and program coordination is achieved by having at
least one representative of government in its governing board, which
in the case of the BSP is the DECS Secretary. In this sense, the BSP is not
under government control or supervision and control. Still this
characteristic does not make the attached chartered agency a
private corporation covered by the constitutional proscription in
question.
Art. XII, Sec. 16 of the Constitution refers to

private corporations created by
government for proprietary or
economic/business purposes
At the outset, it should be noted that the provision of Section 16
in issue is found in Article XII of the Constitution, entitled National
Economy and Patrimony. Section 1 of Article XII is quoted as follows:
SECTION 1. The goals of the national economy are a

more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the
people; and an expanding productivity as the key to
raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full

employment based on sound agricultural development
and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets.
However, the State shall protect Filipino enterprises against
unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the

economy and all regions of the country shall be given
optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of
their ownership.
The scope and coverage of Section 16, Article XII of the

Constitution can be seen from the aforementioned declaration of
state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic
development.
Section 16, Article XII deals with the formation, organization, or

regulation of private corporations,[52] which should be done through
a general law enacted by Congress, provides for an exception, that
is: if the corporation is government owned or controlled; its creation is
in the interest of the common good; and it meets the test of economic
viability. The rationale behind Article XII, Section 16 of the 1987
Constitution was explained in Feliciano v. Commission on Audit,[53] in
the following manner:
The Constitution emphatically prohibits the creation
of private corporations except by a general law
applicable to all citizens. The purpose of this constitutional
provision is to ban private corporations created by special
charters, which historically gave certain individuals,
families or groups special privileges denied to other
citizens.[54] (Emphasis added.)
It may be gleaned from the above discussion that Article XII,

Section 16 bans the creation of private corporations by
special law. The said constitutional provision should not be construed
so as to prohibit the creation of public corporations or a corporate
agency or instrumentality of the government intended to serve a
public interest or purpose, which should not be measured on the basis
of economic viability, but according to the public interest or purpose
it serves as envisioned by paragraph (2), of Article 44 of the Civil
Code and the pertinent provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not Subject
to the Test of Government Ownership or
Control and Economic Viability
The BSP is a public corporation or a government agency or

instrumentality with juridical personality, which does not fall within the
constitutional prohibition in Article XII, Section 16, notwithstanding the
amendments to its charter. Not all corporations, which
are not government owned or controlled, are ipso facto to be
considered private corporations as there exists another distinct class
of corporations or chartered institutions which are otherwise known as
public corporations. These corporations are treated by law as
agencies or instrumentalities of the government which are not subject
to the tests of ownership or control and economic viability but to
different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative
relationship to the government or any of its Departments or Offices.
Classification of Corporations Under

Section 16, Article XII of the Constitution on
National Economy and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a

line of cases, insists that the Constitution recognizes only two classes
of corporations: private corporations under a general law,
and government-owned or controlled corporations created
by special charters.
We strongly disagree. Section 16, Article XII should not be

construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws creating
public corporations or government agencies or instrumentalities
vested with corporate powers. Moreover, Section 16, Article XII, which
relates to National Economy and Patrimony, could not have tied the
hands of Congress in creating public corporations to serve any of the
constitutional policies or objectives.
In his dissent, Justice Carpio contends that
this ponente introduces a totally different species of corporation,
which is neither a private corporation nor a government owned or
controlled corporation and, in so doing, is missing the fact that the
BSP, which was created as a non-stock, non-profit corporation, can
only be either a private corporation or a government owned or
controlled corporation.
Note that in Boy Scouts of the Philippines v. National Labor

Relations Commission, the BSP, under its former charter, was regarded
as both a government owned or controlled corporation with original
charter and a public corporation. The said case pertinently stated:
While the BSP may be seen to be a mixed type of

entity, combining aspects of both public and private
entities, we believe that considering the character of its
purposes and its functions, the statutory designation of the
BSP as "a public corporation" and the substantial
participation of the Government in the selection of
members of the National Executive Board of the BSP, the
BSP, as presently constituted under its charter, is a
government-controlled corporation within the meaning of
Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that
the Administrative Code of 1987 designates the BSP as one
of the attached agencies of the Department of Education,
Culture and Sports ("DECS"). An "agency of the
Government" is defined as referring to any of the various
units of the Government including a department, bureau,
office, instrumentality, government-owned or -controlled
corporation, or local government or distinct unit
therein. "Government instrumentality" is in turn defined in
the 1987 Administrative Code in the following manner:
Instrumentality - refers to any agency of the

National Government, not integrated within the
department framework, vested with special
functions or jurisdiction by law, endowed with
some if not all corporate powers, administering
special funds, and enjoying operational
autonomy usually through a charter. This term
includes regulatory agencies, chartered
institutions and government-owned or
controlled corporations.
The same Code describes a "chartered institution" in

the following terms:
Chartered institution - refers to any agency

organized or operating under a special charter,
and vested by law with functions relating to
specific constitutional policies or objectives. This
term includes the state universities and colleges,
and the monetary authority of the State.
We believe that the BSP is appropriately regarded as
"a government instrumentality" under the 1987
Administrative Code.
It thus appears that the BSP may be regarded as both

a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government
within the meaning of Article IX (B) (2) (1) of the
Constitution. x x x.[55] (Emphases supplied.)
The existence of public or government corporate or juridical

entities or chartered institutions by legislative fiat distinct from private
corporations and government owned or controlled corporation is
best exemplified by the 1987 Administrative Code cited above,
which we quote in part:
Sec. 2. General Terms Defined. Unless the specific

words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:
xxxx
(10) "Instrumentality" refers to any agency of the

National Government, not integrated within the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term
includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.  
xxxx
(12) "Chartered institution" refers to any agency

organized or operating under a special charter, and
vested by law with functions relating to specific
constitutional policies or objectives. This term includes the
state universities and colleges and the monetary authority
of the State.
(13) "Government-owned or controlled corporation"

refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs
whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) per cent
of its capital stock: Provided, That government-owned or
controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission,
and the Commission on Audit for purposes of the exercise
and discharge of their respective powers, functions and
responsibilities with respect to such corporations.
Assuming for the sake of argument that the BSP ceases to be

owned or controlled by the government because of reduction of the
number of representatives of the government in the BSP Board, it does
not follow that it also ceases to be a government instrumentality as it
still retains all the characteristics of the latter as an attached agency
of the DECS under the Administrative Code. Vesting corporate powers
to an attached agency or instrumentality of the government is not
constitutionally prohibited and is allowed by the above-mentioned
provisions of the Civil Code and the 1987 Administrative Code.
Economic Viability and Ownership and

Control Tests Inapplicable to Public
Corporations
As presently constituted, the BSP still remains an instrumentality of

the national government. It is a public corporation created by law for
a public purpose, attached to the DECS pursuant to its Charter and
the Administrative Code of 1987. It is not a private corporation which
is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law.
The dissent of Justice Carpio also submits that by recognizing a

new class of public corporation(s) created by special charter that will
not be subject to the test of economic viability, the constitutional
provision will be circumvented.
However, a review of the Record of the 1986 Constitutional

Convention reveals the intent of the framers of the highest law of our
land to distinguish between government corporations performing
governmental functions and corporations involved in business or
proprietary functions:
THE PRESIDENT. Commissioner Foz is recognized.
MR. FOZ. Madam President, I support the proposal to
insert ECONOMIC VIABILITY as one of the grounds for
organizing government corporations. x x x.
MR. OPLE. Madam President, the reason for this

concern is really that when the government creates a
corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance.
We know what happened in the past. If a government
corporation loses, then it makes its claim upon the
taxpayers money through new equity infusions from the
government and what is always invoked is the common
good. x x x
Therefore, when we insert the phrase ECONOMIC

VIABILITY together with the common good, this becomes a
restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market
test so that they become viable. x x x.
xxxx
THE PRESIDENT. Commissioner Quesada is recognized.
MS. QUESADA. Madam President, may we be clarified

by the committee on what is meant by economic viability?
THE PRESIDENT. Please proceed.
MR. MONSOD. Economic viability normally is

determined by cost-benefit ratio that takes into
consideration all benefits, including economic external as
well as internal benefits. These are what they call
externalities in economics, so that these are not strictly
financial criteria. Economic viability involves what we call
economic returns or benefits of the country that are not
quantifiable in financial terms. x x x.
xxxx
MS. QUESADA. So, would this particular formulation

now really limit the entry of government corporations into
activities engaged in by corporations?
MR. MONSOD. Yes, because it is also consistent with

the economic philosophy that this Commission approved
that there should be minimum government participation
and intervention in the economy.
MS. QUESDA. Sometimes this Commission would just

refer to Congress to provide the particular requirements
when the government would get into corporations. But this
time around, we specifically mentioned economic viability.
x x x.
MR. VILLEGAS. Commissioner Ople will restate the

reason for his introducing that amendment.
MR. OPLE. I am obliged to repeat what I said earlier in

moving for this particular amendment jointly with
Commissioner Foz. During the past three decades, there
had been a proliferation of government corporations, very
few of which have succeeded, and many of which are
now earmarked by the Presidential Reorganization
Commission for liquidation because they failed the
economic test. x x x.
xxxx
MS. QUESADA. But would not the Commissioner say

that the reason why many of the government-owned or
controlled corporations failed to come up with the
economic test is due to the management of these
corporations, and not the idea itself of government
corporations? It is a problem of efficiency and
effectiveness of management of these corporations which
could be remedied, not by eliminating government
corporations or the idea of getting into state-owned
corporations, but improving management which our
technocrats should be able to do, given the training and
the experience.
MR. OPLE. That is part of the economic viability,

Madam President.
MS. QUESADA. So, is the Commissioner saying then

that the Filipinos will benefit more if these government-
controlled corporations were given to private hands, and
that there will be more goods and services that will be
affordable and within the reach of the ordinary citizens?
MR. OPLE. Yes. There is nothing here, Madam

President, that will prevent the formation of a government
corporation in accordance with a special charter given by
Congress. However, we are raising the standard a little bit
so that, in the future, corporations established by the
government will meet the test of the common good but
within that framework we should also build a certain
standard of economic viability.
xxxx
THE PRESIDENT. Commissioner Padilla is recognized.
MR. PADILLA. This is an inquiry to the committee. With

regard to corporations created by a special charter for
government-owned or controlled corporations, will these
be in the pioneer fields or in places where the private
enterprise does not or cannot enter? Or is this so general
that these government corporations can compete with
private corporations organized under a general law?
MR. MONSOD. Madam President, x x x. There are two

types of government corporations those that are involved
in performing governmental functions, like garbage
disposal, Manila waterworks, and so on; and those
government corporations that are involved in business
functions. As we said earlier, there are two criteria that
should be followed for corporations that want to go into
business. First is for government corporations to first prove
that they can be efficient in the areas of their proper
functions. This is one of the problems now because they go
into all kinds of activities but are not even efficient in their
proper functions. Secondly, they should not go into
activities that the private sector can do better.
MR. PADILLA. There is no question about corporations

performing governmental functions or functions that are
impressed with public interest. But the question is with
regard to matters that are covered, perhaps not
exhaustively, by private enterprise. It seems that under this
provision the only qualification is economic viability and
common good, but shall government, through
government-controlled corporations, compete with
private enterprise?
MR. MONSOD. No, Madam President. As we said, the

government should not engage in activities that private
enterprise is engaged in and can do better. x x
x.[56] (Emphases supplied.)
Thus, the test of economic viability clearly does not apply to public
corporations dealing with governmental functions, to which category
the BSP belongs. The discussion above conveys the constitutional
intent not to apply this constitutional ban on the creation of public
corporations where the economic viability test would be
irrelevant. The said test would only apply if the corporation is engaged
in some economic activity or business function for the government.
It is undisputed that the BSP performs functions that are impressed with
public interest. In fact, during the consideration of the Senate Bill that
eventually became Republic Act No. 7278, which amended the BSP
Charter, one of the bills sponsors, Senator Joey Lina, described the BSP
as follows:
Senator Lina. Yes, I can only think of two organizations

involving the masses of our youth, Mr. President, that should
be given this kind of a privilege the Boy Scouts of the
Philippines and the Girl Scouts of the Philippines. Outside of
these two groups, I do not think there are other groups
similarly situated.
The Boy Scouts of the Philippines has a long history of

providing value formation to our young, and considering
how huge the population of the young people is, at this
point in time, and also considering the importance of
having an organization such as this that will inculcate moral
uprightness among the young people, and further
considering that the development of these young people
at that tender age of seven to sixteen is vital in the
development of the country producing good citizens, I
believe that we can make an exception of the Boy
Scouting movement of the Philippines from this general
prohibition against providing tax exemption and
privileges.[57]
Furthermore, this Court cannot agree with the dissenting opinion

which equates the changes introduced by Republic Act No. 7278 to
the BSP Charter as clear manifestation of the intent of Congress to
return the BSP to the private sector. It was not the intent of Congress
in enacting Republic Act No. 7278 to give up all interests in this basic
youth organization, which has been its partner in forming responsible
citizens for decades.
In fact, as may be seen in the deliberation of the House Bills that

eventually resulted to Republic Act No. 7278, Congress worked closely
with the BSP to rejuvenate the organization, to bring it back to its
former glory reached under its original charter, Commonwealth Act
No. 111, and to correct the perceived ills introduced by the
amendments to its Charter under Presidential Decree No. 460. The BSP
suffered from low morale and decrease in number because the
Secretaries of the different departments in government who were too
busy to attend the meetings of the BSPs National Executive Board (the
Board) sent representatives who, as it turned out, changed from
meeting to meeting. Thus, the Scouting Councils established in the
provinces and cities were not in touch with what was happening on
the national level, but they were left to implement what was decided
by the Board.[58]
A portion of the legislators discussion is quoted below to clearly show

their intent:
HON. DEL MAR. x x x I need not mention to you the

value and the tremendous good that the Boy Scout
Movement has done not only for the youth in particular but
for the country in general. And that is why, if we look
around, our past and present national leaders, prominent
men in the various fields of endeavor, public servants in
government offices, and civic leaders in the communities
all over the land, and not only in our country but all over the
world many if not most of them have at one time or another
been beneficiaries of the Scouting Movement. And so, it is
along this line, Mr. Chairman, that we would like to have
the early approval of this measure if only to pay back what
we owe much to the Scouting Movement. Now, going to
the meat of the matter, Mr. Chairman, if I may just the
Scouting Movement was enacted into law in October 31,
1936 under Commonwealth Act No. 111. x x x [W]e were
acknowledged as the third biggest scouting organization
in the world x x x. And to our mind, Mr. Chairman, this erratic
growth and this decrease in membership [number] is
because of the bad policy measures that were enunciated
with the enactment or promulgation by the President
before of Presidential Decree No. 460 which we feel is the
culprit of the ills that is flagging the Boy Scout Movement
today. And so, this is specifically what we are attacking, Mr.
Chairman, the disenfranchisement of the National Council
in the election of the national board. x x x. And so, this is
what we would like to be appraised of by the officers of the
Boy [Scouts] of the Philippines whom we are also confident,
have the best interest of the Boy Scout Movement at heart
and it is in this spirit, Mr. Chairman, that we see no
impediment towards working together, the Boy Scout of
the Philippines officers working together with the House of
Representatives in coming out with a measure that will put
back the vigor and enthusiasm of the Boy Scout
Movement. x x x.[59] (Emphasis ours.)
The following is another excerpt from the discussion on the House

version of the bill, in the Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as
well as the previous laws that have created the Boy Scouts
of the Philippines did not provide for any direct government
support by way of appropriation from the national budget
to support the activities of this organization. The point here
is, and at the same time they have been subjected to a
governmental intervention, which to their mind has been
inimical to the objectives and to the institution per se, that
is why they are seeking legislative fiat to restore back the
original mandate that they had under Commonwealth Act
111. Such having been the experience in the hands of
government, meaning, there has been negative
interference on their part and inasmuch as their mandate
is coming from a legislative fiat, then shouldnt it be, this
rhetorical question, shouldnt it be better for this
organization to seek a mandate from, lets say, the
government the Corporation Code of the Philippines and
register with the SEC as non-profit non-stock corporation so
that government intervention could be very very
minimal. Maybe thats a rhetorical question, they may or
they may not answer, ano. I dont know what would be the
benefit of a charter or a mandate being provided for by
way of legislation versus a registration with the SEC under
the Corporation Code of the Philippines inasmuch as they
dont get anything from the government anyway insofar as
direct funding. In fact, the only thing that they got from
government was intervention in their affairs. Maybe we can
solicit some commentary comments from the resource
persons. Incidentally, dont take that as an objection, Im not
objecting. Im all for the objectives of these two bills. It just
occurred to me that since you have had very bad
experience in the hands of government and you will always
be open to such possible intervention even in the future as
long as you have a legislative mandate or your mandate
or your charter coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a

disadvantage if the Boy Scouts of the Philippines will be
required to register with the SEC. If we are registered with
the SEC, there could be a danger of proliferation of scout
organization. Anybody can organize and then register with
the SEC. If there will be a proliferation of this, then the
organization will lose control of the entire organization.
Another disadvantage, Mr. Chairman, anybody can file a
complaint in the SEC against the Boy Scouts of the
Philippines and the SEC may suspend the operation or
freeze the assets of the organization and hamper the
operation of the organization. I dont know, Mr. Chairman,
how you look at it but there could be a danger for anybody
filing a complaint against the organization in the SEC and
the SEC might suspend the registration permit of the
organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem

that will not be exclusive to corporations registered with the
SEC because even if you are government corporation,
court action may be taken against you in other judicial
bodies because the SEC is simply another quasi-judicial
body. But, I think, the first point would be very interesting,
the first point that you raised. In effect, what you are saying
is that with the legislative mandate creating your charter, in
effect, you have been given some sort of a franchise with
this movement.
MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, thats very well taken so I will proceed
with other issues, Mr. Chairman. x x x.[60] (Emphases
added.)
Therefore, even though the amended BSP charter did away with
most of the governmental presence in the BSP Board, this was done
to more strongly promote the BSPs objectives, which were not
supported under Presidential Decree No. 460. The BSP objectives, as
pointed out earlier, are consistent with the public purpose of the
promotion of the well-being of the youth, the future leaders of the
country. The amendments were not done with the view of changing
the character of the BSP into a privatized corporation.The BSP remains
an agency attached to a department of the government, the DECS,
and it was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public

corporation like the BSP. To reiterate, the relationship of the BSP, an
attached agency, to the government, through the DECS, is defined in
the Revised Administrative Code of 1987. The BSP meets the minimum
statutory requirement of an attached government agency as the
DECS Secretary sits at the BSP Board ex officio, thus facilitating the
policy and program coordination between the BSP and the DECS.
Requisites for Declaration of
Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of

unconstitutionality of certain provisions of the BSP Charter. Even if the
parties were asked to Comment on the validity of the BSP charter by
the Court, this alone does not comply with the requisites for judicial
review, which were clearly set forth in a recent case:
When questions of constitutional significance are

raised, the Court can exercise its power of judicial review
only if the following requisites are present: (1) the existence
of an actual and appropriate case; (2) the existence of
personal and substantial interest on the part of the party
raising the constitutional question; (3) recourse to judicial
review is made at the earliest opportunity; and (4) the
constitutional question is the lis mota of the
case.[61] (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review,

the constitutional issue should be the very lis mota, or threshold issue,
of the case, and that it should be raised by either of the parties. These
requirements would be ignored under the dissents rather
overreaching view of how this case should have been decided. True,
it was the Court that asked the parties to comment, but the Court
cannot be the one to raise a constitutional issue. Thus, the Court
chooses to once more exhibit restraint in the exercise of its power to
pass upon the validity of a law.
Re: the COAs Jurisdiction
Regarding the COAs jurisdiction over the BSP, Section 8 of its
amended charter allows the BSP to receive contributions or donations
from the government. Section 8 reads:
Section 8. Any donation or contribution which from
time to time may be made to the Boy Scouts of the
Philippines by the Government or any of its subdivisions,
branches, offices, agencies or instrumentalities shall be
expended by the Executive Board in pursuance of this Act.
The sources of funds to maintain the BSP were identified before

the House Committee on Government Enterprises while the bill was
being deliberated, and the pertinent portion of the discussion is
quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the

sources of funds of the organization. First, Mr. Chairman, the
Boy Scouts of the Philippines do not receive annual
allotment from the government. The organization has to
raise its own funds through fund drives and fund campaigns
or fund raising activities. Aside from this, we have some
revenue producing projects in the organization that gives
us funds to support the operation. x x x From time to time,
Mr. Chairman, when we have special activities we request
for assistance or financial assistance from government
agencies, from private business and corporations, but this
is only during special activities that the Boy Scouts of the
Philippines would conduct during the year. Otherwise, we
have to raise our own funds to support the organization.[62]
The nature of the funds of the BSP and the COAs audit jurisdiction
were likewise brought up in said congressional deliberations, to wit:
HON. AQUINO: x x x Insofar as this organization being a

government created organization, in fact, a government
corporation classified as such, are your funds or your
finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not

subjected. We dont fall under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder,
Commonwealth Act 111 was written by then Secretary
Jorge Vargas and before and up to the middle of the
Martial Law years, the BSP was receiving a subsidy in the
form of an annual a one draw from the Sweepstakes. And,
this was the case also with the Girl Scouts at the Anti-TB, but
then this was and the Boy Scouts then because of this
funding partly from government was being subjected to
audit in the contributions being made in the part of the
Sweepstakes. But this was removed later during the Martial
Law years with the creation of the Human Settlements
Commission. So the situation right now is that the Boy Scouts
does not receive any funding from government, but then
in the case of the local councils and this legislative charter,
so to speak, enables the local councils even the national
headquarters in view of the provisions in the existing law to
receive donations from the government or any of its
instrumentalities, which would be difficult if the Boy Scouts
is registered as a private corporation with the Securities and
Exchange Commission. Government bodies would be
estopped from making donations to the Boy Scouts, which
at present is not the case because there is the Boy Scouts
charter, this Commonwealth Act 111 as amended by PD
463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made

because theres no money put in the organization, but how
about donated funds to this organization? What are the
remedies of the donors of how will they know how their
money are being spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an

external auditor and by the charter we are required to
submit a financial report at the end of each year to the
National Executive Board. So all the funds donated or
otherwise is accounted for at the end of the year by our
external auditor. In this case the SGV.[63]
Historically, therefore, the BSP had been subjected to
government audit in so far as public funds had been infused
thereto. However, this practice should not preclude the exercise of
the audit jurisdiction of COA, clearly set forth under the Constitution,
which pertinently provides:
Section 2. (1) The Commission on Audit shall have the

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

public corporation or a government instrumentality, we come to the
inevitable conclusion that it is subject to the exercise by the COA of
its audit jurisdiction in the manner consistent with the provisions of the
BSP Charter.
WHEREFORE, premises considered, the instant petition for
prohibition is DISMISSED.
SO ORDERED.

F. National Economy and Patrimony

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F. National Economy and Patrimony

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EN BANC

WILSON P. GAMBOA, G.R. No. 176579

FINANCE SECRETARY CARPIO,

CHAIRMAN ANTHONI SALIM OF DEL CASTILLO,

PABLITO V. SANIDAD and Promulgated:

Petitioners-in-Intervention. June 28, 2011

Political Law Review. F. National Econ and Patrimony Page 2 of 278

This is an original petition for prohibition, injunction, declaratory relief and

The facts, according to petitioner Wilson P. Gamboa, a stockholder of

On 28 November 1928, the Philippine Legislature enacted Act No. 3436

Political Law Review. F. National Econ and Patrimony Page 3 of 278

In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment

Political Law Review. F. National Econ and Patrimony Page 4 of 278

On the other hand, public respondents Finance

On 9 November 1967, PTIC was incorporated and had since engaged in

Political Law Review. F. National Econ and Patrimony Page 5 of 278

During the 8 December 2006 bidding, Parallax Capital Management LP

On 31 January 2007, the House of Representatives (HR) Committee on

Political Law Review. F. National Econ and Patrimony Page 6 of 278

On 28 February 2007, petitioner filed the instant petition for prohibition,

Political Law Review. F. National Econ and Patrimony Page 7 of 278

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a

Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking,

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

At the outset, petitioner is faced with a procedural barrier. Among the

In Salvacion v. Central Bank of the Philippines,13 the Court treated the

Political Law Review. F. National Econ and Patrimony Page 10 of 278

In Alliance of Government Workers v. Minister of Labor,14 the Court

The Court has no original and exclusive jurisdiction over a petition

Political Law Review. F. National Econ and Patrimony Page 11 of 278

Political Law Review. F. National Econ and Patrimony Page 12 of 278

Despite its far-reaching implications to the national economy, this purely

Petitioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has

Political Law Review. F. National Econ and Patrimony Page 13 of 278

More importantly, there is no question that the instant petition raises

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a

In Taada v. Tuvera, the Court asserted that when the issue

Legaspi v. Civil Service Commission, while reiterating Taada,

Further, in Albano v. Reyes, we said that while expenditure of

Clearly, since the instant petition, brought by a citizen, involves matters of

Definition of the Term Capital in

Section 11. No franchise, certificate, or any other form of

Political Law Review. F. National Econ and Patrimony Page 15 of 278

The above provision substantially reiterates Section 5, Article XIV of the

Section 5. No franchise, certificate, or any other form of

Political Law Review. F. National Econ and Patrimony Page 16 of 278

Section 8. No franchise, certificate, or any other form of

Father Joaquin G. Bernas, S.J., a leading member of the 1986

Any citizen or juridical entity desiring to operate a public utility must

Petitioner submits that the 40 percent foreign equity limitation in domestic

Political Law Review. F. National Econ and Patrimony Page 18 of 278

Petitioners-in-intervention basically reiterate petitioners arguments and

In particular, respondent Nazarenos Memorandum, consisting of 73

Political Law Review. F. National Econ and Patrimony Page 19 of 278

Similarly, respondent Manuel V. Pangilinan does not define the term

Political Law Review. F. National Econ and Patrimony Page 20 of 278

The OSG, representing public respondents Secretary Margarito Teves,

Respondent Francisco Ed Lim, impleaded as President and Chief

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who

Political Law Review. F. National Econ and Patrimony Page 21 of 278

Obviously, the intent of the framers of the Constitution in imposing