[G.R. NO.
155683 : February 16, 2007] (the Makati case)5 holding him liable to Petron (then known as Petrophil Corporation) on a 1972
PETRON CORPORATION, Petitioner, v. NATIONAL COLLEGE OF BUSINESS AND
ARTS, Respondent.
DECISION
CORONA, J.:
The sole question raised in this Petition for Review on Certiorari 1 is whether petitioner Petron
Corporation (Petron) should be held liable to pay attorney's fees and exemplary damages to
respondent National College of Business and Arts (NCBA).
This case, however, is but part of a larger controversy over the lawful ownership of seven
parcels of land2 in the V. Mapa area of Sta. Mesa, Manila (the V. Mapa properties) that arose out
of a series of events that began in 1969.3
Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr.,
were mortgaged to the Development Bank of the Philippines (DBP) as part of the security for
the P5.2 million loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises Co.
MYTC, for its part, mortgaged four parcels of land located in Quiapo, Manila.
On March 31, 1975, however, Felipe's - undivided interest in the V. Mapa properties was levied
upon in execution of a money judgment rendered by the Regional Trial Court (RTC) of Manila
in Filoil Marketing Corporation v. MYTC, Felipe Monserrat, and Rosario Vda. De Monserrat (the
Manila case).4 DBP challenged the levy through a third-party claim asserting that the V. Mapa
properties were mortgaged to it and were, for that reason, exempt from levy or attachment. The
RTC quashed it.
On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago arrangement
whereby MYTC conveyed to the bank the four mortgaged Quiapo properties as full settlement of
their loan obligation. But despite this agreement, DBP did not release the V. Mapa properties
from the mortgage.
On May 21, 1982, Felipe, acting for himself and as Enrique's attorney-in-fact, sold the V. Mapa
properties to respondent NCBA. Part of the agreement was that Felipe and Enrique would
secure the release of the titles to the properties free of all liens and encumbrances including
DBP's mortgage lien and Filoil's levy on or before July 31, 1982. But the Monserrats failed to
comply with this undertaking. Thus, on February 3, 1983, NCBA caused the annotation of an
affidavit of adverse claim on the TCTs covering the V. Mapa properties.
Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance
with an alternative prayer for rescission and damages in the RTC of Manila. The case was
raffled to Branch 30 and docketed as Civil Case No. 83-16617. On March 30, 1983, NCBA had a
notice of lis pendens inscribed on the TCTs of the V. Mapa properties. A little over two years
later, NCBA impleaded DBP as an additional defendant in order to compel it to release the V.
Mapa properties from mortgage.
On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enrique's - undivided
interest in the V. Mapa properties was levied on in execution of a judgment of the RTC of Makati
Page 1 of 139
promissory note. On April 29, 1985, the V. Mapa properties were sold at public auction to satisfy
the judgments in the Manila and Makati cases. Petron, the highest bidder, acquired both Felipe's
and Enrique's undivided interests in the property. The final deeds of sale of Enrique's and
Felipe's shares in the V. Mapa properties were awarded to Petron in 1986. Sometime later, the
Monserrats' TCTs were cancelled and new ones were issued to Petron. Thus it was that,
towards the end of 1987, Petron intervened in NCBA's suit against Felipe, Enrique and DBP
(Civil Case No. 83-16617) to assert its right to the V. Mapa properties.
The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron never
acquired valid title to the V. Mapa properties as the levy and sale thereof were void and that
NCBA was now the lawful owner of the properties. Moreover, the RTC held Petron, DBP, Felipe
and Enrique jointly and severally liable to NCBA for exemplary damages and attorney's fees for
the following reasons:
FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute
Sale "to secure the release of the titles to the properties xxx free from all the liens and
encumbrances, and to cause the lifting of the levy on execution of Commercial Credit
Corporation, Industrial Finance Corporation[,] and Filoil over the V. Mapa [p]roperty. Moreover,
ENRIQUE had no reason to repudiate FELIPE and disavow authority he had [given] the latter to
sell his share in the V. Mapa property.
On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en
pago as early as 18 June 1981 but it unjustifiably and whimsically refused to release the
mortgage and to surrender to the buyer (NCBA) the owner's duplicate copies of Transfer
Certificates of Title No[s]. 83621 to 83627, thereby preventing NCBA from registering the sale in
its favor.
Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown above,
the levy in execution and sale of the shares of FELIPE and ENRIQUE in the V. Mapa property
were null and void.
Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of
the Philippines, [Petron] and DBP attempted to pre-empt this Court's power to adjudicate on the
claim of ownership stipulating that "to facilitate their defenses and cause of action in Civil Case
No. 83-16617," they agreed on the disposition of the V. Mapa property among themselves. For
obvious reasons, this Court refused to give its imprimatur and denied their prayer for dismissal of
the complaint against DBP.
These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless,
oppressive and malevolent conduct in their dealings with NCBA. Furthermore, they acted with
gross and evident bad faith in refusing to satisfy NCBA's plainly valid and demandable claims.
Assessment of exemplary damages and attorney's fees in the amounts of P100,000.00
and P150,000.00, respectively, is therefore in order (Arts. 2208 and 2232, Civil Code). 7
Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as
CA G.R. CV No. 53466. In a decision dated June 21, 2002,8 the CA affirmed the RTC decision in
toto. On motion for reconsideration, Petron and DBP tried to have the award of exemplary
damages and attorney's fees deleted for lack of legal and factual basis. The Philippine National
Oil Company (PNOC), which had been allowed to intervene in the appeal as
transferee pendente lite of Petron's right to the V. Mapa properties, moved for reconsideration of
the ruling on ownership. In a resolution dated October 16, 2002, 9 the CA denied these motions
for lack of merit. Thereupon, Petron and PNOC took separate appeals to this Court.
In this appeal, the only issue is Petron's liability for exemplary damages and attorney's fees. And
on this matter, we reverse the rulings of the trial and appellate courts.
Article 2208 lays down the rule that in the absence of stipulation, attorney's fees cannot be
recovered except in the following instances:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons
or to incur expense to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.10
Here, the RTC held Petron liable to NCBA for attorney's fees under Article 2208(5), which allows
such an award "where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff's plainly valid, just, and demandable claim." However, the only justification given for
this verdict was that Petron had no reason to claim the V. Mapa properties because, in the
RTC's opinion, the levy and sale thereof were void.11 This was sorely inadequate and it was
erroneous for the CA to have upheld that ruling built on such a flimsy foundation.
Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith
to satisfy another's plainly valid, just and demandable claim, compelling the latter needlessly to
seek redress from the courts.12 In such a case, the law allows recovery of money the plaintiff had
to spend for a lawyer's assistance in suing the defendant - expenses the plaintiff would not have
incurred if not for the defendant's refusal to comply with the most basic rules of fair dealing. It
does not mean, however, that the losing party should be made to pay attorney's fees merely
because the court finds his legal position to be erroneous and upholds that of the other party, for
Page 2 of 139
that would be an intolerable transgression of the policy that no one should be penalized for
exercising the right to have contending claims settled by a court of law. 13 In fact, even a clearly
untenable defense does not justify an award of attorney's fees unless it amounts to gross and
evident bad faith.14
Petron's claim to the V. Mapa properties, founded as it was on final deeds of sale on execution,
was far from untenable. No gross and evident bad faith could be imputed to Petron merely for
intervening in NCBA's suit against DBP and the Monserrats in order to assert what it believed
(and had good reason to believe) were its rights and to have the disputed ownership of the V.
Mapa properties settled decisively in a single lawsuit.
With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the court
may even consider the question of whether exemplary damages should be awarded. 15 In other
words, no exemplary damages may be awarded without the plaintiff's right to moral, temperate,
liquidated or compensatory damages having first been established. Therefore, in view of our
ruling that Petron cannot be made liable to NCBA for compensatory damages (i.e., attorney's
fees), Petron cannot be held liable for exemplary damages either.
WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron
Corporation for exemplary damages and attorney's fees is REVOKED. The June 21, 2002
decision and October 16, 2002 resolution of the Court of Appeals in CA G.R. CV No. 53466 and
the March 11, 1996 decision of the Regional Trial Court of Manila in Civil Case No. 83-16617 are
hereby MODIFIED accordingly. SO ORDERED.
G.R. No. 121171. December 29, 1998
ASSET PRIVATIZATION TRUST, Petitioner, v. , COURT OF APPEALS, JESUS S.
CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL
CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M.
ANTONIO, as Minority Stock Holders of Marinduque Mining and Industrial
Corporation, Respondents.
DECISION
KAPUNAN, J.:
The petition for review on certiorari before us seeks us to reverse and set aside the decision of
the Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati
City. The Makati RTCs order upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION
(or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on the Government for exercising its
legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the
latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National
Bank (PNB) and the Development Bank of the Philippines (DBP).
 The antecedent facts of the case
The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No.
2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3,
1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation.1 MMIC is a domestic corporation engaged in mining
with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by purchase of MMIC
debenture and extension of guarantees. Further, the Philippine Government obtained a firm,
commitment from the DBP and/or other government financing institutions to subscribed in MMIC
and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US
Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100
Million.2cräläwvirtualibräry
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were
based on the unutilized portion of the Government commitment. Thereafter, the Government
extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby MMIC,
as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all
MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and
additional assets described and identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in substitution of, in replenishment, or in
addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage
Trust Agreement when due.4cräläwvirtualibräry
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may be declared in
default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during
and after foreclosure, including taking possession of the mortgaged
properties.5cräläwvirtualibräry
In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings,
Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the loans and accommodations
secured from or guaranteed by both DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached
tremendous proportions, and MMIC was having a difficult time meeting its financial obligations.
MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31,
1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a total Government
exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven
Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine
Currency.6 Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense
through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. 7 On
Page 3 of 139
April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.8 However, the
proposed FRP had never been formally adopted, approved or ratified by either PNB or
DBP.9cräläwvirtualibräry
In August and September 1984, as the various loans and advances made by DBP and PNB to
MMIC had become overdue and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and
PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose
the mortgages in accordance with the Mortgage Trust Agreement.10cräläwvirtualibräry
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the
Asset Privatization Trust (APT).11cräläwvirtualibräry
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment
of Foreclosures, Specific Performance and Damages.12 The suit, docketed as Civil Case No.
9900, prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC,
and require the banks to account for their use and operation in the interim; (2) direct the banks to
honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary
damages, attorneys fees, litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as successor of the DBP and
PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a
Compromise and Arbitration Agreement, stipulating, inter alia:
NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual
covenants contain herein, the parties agreed as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims
from the Trial Court and to resolve their dispute through arbitration by praying to the Trial Court
to issue a Compromise Judgment based on this Compromise and Arbitration Agreement.
In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the
parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims; and
(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts,
APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the
controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral
award/order against either PNB and/or DBP shall be the responsibility of, be discharged by and
be enforceable against APT, the partied having agreed to drop PNB and DBP from the
arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be
submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No.
9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement,
be transferred and reduced to pure pecuniary/money claims with the parties waiving and
foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case
No. 9900.13cräläwvirtualibräry
The Compromise and Arbitration Agreement limited the issues to the following:
5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether
PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the
MMIC or its directors; (b) Whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.14cräläwvirtualibräry
This agreement was presented for approval to the trial court. On October 14, 1992, the Makati
RTC, Branch 62, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.
2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as
Annex C of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure
money claims; and
4. The Complaint is hereby DISMISSED.15cräläwvirtualibräry
The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento
as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as
Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee
rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:
Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the
Committee holds and so declares that the loans of PNB and DBP to MMIC, for the payment and
recovery of which the void foreclosure sales were undertaken, continue to remain outstanding
and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is
therefore entitled and retains the right, to collect the same from MMIC pursuant to and based on
the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may
duly and seasonably interpose. Such loans shall, however, be reduced by the amount which
APT may have realized from the sale of the seized assets of MMIC which by agreement should
no longer be returned even if the foreclosure were found to be null and void.
The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100;
and also Exhibit ZZZ) as their exhibits would show that the total outstanding obligation due to
DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC
to PNB and DBP amounting to P22,668.537,770.05, more or less, with interest thereon as
stipulated in the loan documents from the date of foreclosure up to the time they are fully paid
less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under
Page 4 of 139
the FRP. Simply put, DBP shall share in the award of damages to, and in obligations of MMIC in
proportion to its 87% equity in the total capital stock of MMIC.
x x x.
As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So
pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity
of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net
actual damages of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except
the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent
(6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual
damages. Payment of these actual damages shall be offset by APT from the outstanding and
unpaid loans of the MMIC with DBP and PNB, which have not been converted into equity.
Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of Island Cement
Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow
Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except
the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages. Payment of
these moral and exemplary damages shall be offset by APT from the outstanding and unpaid
loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall be satisfied from the funds
representing the purchase price of the sale of the shares of Island Cement Corporation in the
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988
or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9)
of the Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would
supercede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and
for moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.16cräläwvirtualibräry
Motions for reconsiderations were filed by both parties, but the same were denied.
On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an (c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and
Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an Opposition for moral damages; and
and Motion to Vacate Judgment raising the following grounds:
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum
1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering of P1,705,410.22 as arbitration costs.
that the said motion is neither a part nor the continuation of the proceedings in Civil Case No.
9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil
In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the
Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank
Compromise and Arbitration Agreement, and the final edict of the Arbitration Committees
(PNB);
decision, and with this Courts Confirmation, the issuance of the Arbitration Committees Award
shall henceforth be final and executory.
2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be
deemed a special proceedings and a party to the controversy which was arbitrated may apply to
SO ORDERED.18cräläwvirtualibräry
the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming
the award;
On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.
3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs
filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration
award sought to be confirmed herein far exceeded the issues submitted and even granted moral On January 18, 1995, the trial court handed down its order denying APTs motion for
damages to one of the herein plaintiffs; reconsideration for lack of merit and for having been filed out of time. The trial court declared
that considering that the defendant APT through counsel, officially and actually received a copy
of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for
4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where
Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of
the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual final and
21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by
definite award upon the subject matter submitted to them was not made.17cräläwvirtualibräry
law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of
any court in all cases, and by necessary implication for the filling of a motion for reconsideration
Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that thereof.
a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the
submission of the controversy to arbitration, and operated simply as a mere suspension of the
On February 7, 1995, petitioner received private respondents motion for Execution and
proceedings. They denied that the Arbitration Committee had exceeded its powers.
Appointment of Custodian of Proceeds of Execution dated February 6, 1995.

In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with
Committee. The dispositive portion of said order reads:
temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995
WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and for having been issued without or in excess of jurisdiction and/or with grave abuse of
Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee discretion.19 As ground therefor, petitioner alleged that:
promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally
settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member
I
Elma, and the pertinent provisions of RA 876,also known as the Arbitration Law, this Court
GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD,
AND JUDGMENT IS HEREBY RENDERED: THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS,
HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT
THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.
(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC,
except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be
partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant II
to the Escrow Agreement dated April 22, 1988. The Balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED
WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR
and moral and exemplary damages; RECONSIDERATION OF ORDER OF AWARD.

III

Page 5 of 139
THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN
OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR
THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF RECONSIDERATION.21cräläwvirtualibräry
SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A
XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSELS COPY
The petition is impressed with merit.
THEREOF.20cräläwvirtualibräry

I
On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and
dismissed the petition for certiorari.
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following
errors.
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL
COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED CIVIL CASE NO. 9900 HAD
LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL
CASE AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE
BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES
OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS
ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER
QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE
SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT
TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE
RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD
AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE
ARBITRAL AWARD.
The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of
the Order of the trial court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED.22cräläwvirtualibräry
The term dismiss has a precise definition in law. To dispose of an action suit, or motion without
trial on the issues involved. Conclude, discontinue, terminate, quash.23cräläwvirtualibräry
Admittedly the correct procedure was for the parties to go back to the court where the case was
pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake
of issuing a final order dismissing the case. While Branch 62 should have merely suspended the
case and not dismissed it,24 neither of the parties questioned said dismissal. Thus, both parties
as well as said court are bound by such error.
It is erroneous then to argue, as private respondents do, that petitioner APT was charged with
the knowledge that the case was merely stayed until arbitration finished, as again, the order of
Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch
62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the
said case on mere motion of one of the parties. The Rules of Court is specific on how a new
case may be initiated and such is not done by mere motion in a particular branch of the RTC.
Consequently, as there was no pending action to speak of, the petition to confirm the arbitral
award should have been filed as a new case and raffled accordingly to one of the branches of
the Regional Trial Court.
II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the
IV
RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that
the arbitral award be vacated.
THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION
FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE
The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the
AWARD
nature of the action, the invocation of this defense may de done at any time. It is neither for the
courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction, this
V matter being legislative in character.25 As a rule the, neither waiver nor estoppel shall apply to
confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. 26 One
such exception was enunciated in Tijam vs. Sibonghanoy,27 where it was held that after

Page 6 of 139

voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late
for the loser to question the jurisdiction or power of the court."
Petitioners situation is different because from the outset, it has consistently held the position that
the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be
said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the
setting aside of the arbitral award was not inconsistent with its disavowal of the courts
jurisdiction.
III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.
The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of
APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the
ground that said motion was filed beyond the 15-day reglementary period; consequently, the
petition for certiorari could not be resorted to as substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,28 provides that:
x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.
The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award
from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court
where, as in this case, the Regional Trial Court to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions,
has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and
there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the proceedings, as the
law requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the special civil action for certiorari,
it being from the pleadings and the evidence that the trial court lacked jurisdiction and/or
committed grave abuse of discretion in taking cognizance of private respondent motion to
confirm the arbitral award and, worse, in confirming said award which is grossly and patently not
in accord with the arbitration agreement, as will be hereinafter demonstrated.
IV
Page 7 of 139
The nature and limits of the Arbitrators powers.
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to
the law or as to the facts.29 Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators. 30 They will not review
the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation.31 Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly
and honestly made.32 Judicial review of an arbitration is, thus, more limited than judicial review of
a trial.33cräläwvirtualibräry
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement.34 The parties to such an
agreement are bound by the arbitrators award only to the extent and in the manner prescribed
by the contract and only if the award is rendered in conformity thereto. 35 Thus, Sections 24 and
25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration
award. Where the conditions described in Articles 2038,36 203937 and 204038 of the Civil Code
applicable to compromises and arbitration are attendant, the arbitration award may also be
annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,39 we held:
x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators
awards is not absolute and without exceptions. Where the conditions described in Articles 2038,
2039, and 2040 applicable to both compromises and arbitration are obtaining, the arbitrators'
award may be annulled or rescinded. Additionally, under Sections 24 and 25, of the Arbitration
Law, there are grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and
when the factual circumstances referred to in the above-cited provisions are present, judicial
review of the award is properly warranted.
Accordingly, Section 20 of R.A. 876 provides:
SEC. 20. Form and contents of award. The award must be made in writing and signed and
acknowledged by a majority of the arbitrators, if more than one; and by the sole arbitrator, if
there is only one. Each party shall be furnished with a copy of the award. The arbitrators in their
award may grant any remedy or relief which they deem just and equitable and within the scope
of the agreement of the parties, which shall include, but not be limited to, the specific
performance of a contract.
xxx
The arbitrators shall have the power to decide only those matters which have been submitted to
them. The terms of the award shall be confined to such disputes. (Underscoring ours).
xxx.
Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an
order vacating the award upon the petition of any party to the controversy when such party
proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy;
that one or more of the arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made. (Underscoring
ours).
xxx.
Section 25 which enumerates the grounds for modifying the award provides:
SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court
must make an order modifying or correcting the award, upon the application of any party to the
controversy which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy,
and if it had been a commissioners report, the defect could have been amended or disregarded
by the court.
x x x.
Finally, it should be stressed that while a court is precluded from overturning an award for errors
in determination of factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be vacated. 40 In the same
manner, an award must be vacated if it was made in manifest disregard of the law.41
Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came
out with an award in excess of their powers and palpably devoid of factual and legal basis.
V
Page 8 of 139
There was no financial structuring program; foreclosure of mortgage was fully justified.
The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the
mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of
the banks and, therefore, could not be the basis of any award of damages. There was no
financial restructuring agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have become overdue and
remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not
been complying with the terms of the loan agreement. Restructuring simply connotes that the
obligations are past due that is why it is restructurable;
2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means
that MMIC had been informed or notified that its obligations were past due and that foreclosure
is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or
proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC
should have insisted on the FRP. Yet Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with
honest and sincere belief that foreclosure was the only alternative; a decision further explained
by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move
to save MMIC itself.
Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A
for the respondent, may I know from you, Dr. Mapa what you meant by that the decision to
foreclose was neither precipitate nor arbitrary?
A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations
of the information that we have received, and listening to the prospects which reported to us that
we had assumed would be the premises of the financial rehabilitation plan was not materialized
nor expected to materialized.
Q : And this statement that it was premised upon the known fact that means, it was referring to
the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier
approved by the stockholders was no longer feasible, just what is meant by no longer feasible?
A : Because the revenue that they were counting on to make the rehabilitation plan possible,
was not anymore expected to be forthcoming because it will result in a short fall compared to the
prices that were actually taking place in the market.
Q : And I supposed that was you were referring to when you stated that the production targets
and assumed prices of MMICs products, among other projections, used in the financial
reorganization program that will make it viable were not met nor expected to be met?
A : Yes.
xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely
unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in
PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC
adopted a restructuring program for its loan, it only meant that these loans were already due and
unpaid. If these loans were restructurable because they were already due and unpaid, they are
likewise forecloseable. The option is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to
foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with
PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in
all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP
must have to validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing
that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine
of promissory estoppel to support its allegation in this regard. 42cräläwvirtualibräry
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385,
which took effect on January 31, 1974. The decree requires government financial institutions to
foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as follows:
SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60)
days from the issuance of this Decree to foreclose the collaterals and/or securities for any loan,
credit, accommodations, and/or guarantees granted by them whenever the arrearages on such
account, including accrued interest and other charges, amount to at least twenty percent (20%)
of the total outstanding obligations, including interest and other charges, as appearing in the
books of account and/or related records of the financial institutions concerned. This shall be
without prejudice to the exercise by the government financial institutions of such rights and/or
remedies available to them under their respective contracts with their debtor, including the right
to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages
are less than twenty percent (20%).
SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such institution in compliance
with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order,
temporary or permanent injunction is sought by the borrower(s) or any third party or parties,
except after due hearing in which it is established by the borrower and admitted by the
government financial institution concerned that twenty percent (20%) of the outstanding
arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.)
Private respondents thesis that the foreclosure proceedings were null and void because of lack
of publication in the newspaper is nothing more than a mere unsubstantiated allegation not
borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that
official duty has been regularly performed and ordinary course of business has been followed. 43
Page 9 of 139
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of
the case, the arbitrators in making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for
judgment in their favor:
1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC
null and void and directing said defendants to restore the foreclosed assets to the possession of
MMIC, to render an accounting of their use and/or operation of said assets and to indemnify
MMIC for the loss occasioned by its dispossession or the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform their commitments under the
financial reorganization plan which was approved at the annual stockholders meeting of MMIC
on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual
damages consisting of the loss of value of their investment amounting to not less
than P80,000,000.00, the damnum emerges and lucrum cessans in such amount as may be
establish during the trial, moral damages in such amount as this Honorable Court may deem just
and equitable in the premises, exemplary damages in such amount as this Honorable Court may
consider appropriate for the purpose of setting an example for the public good, attorneys fees
and litigation expenses in such amounts as may be proven during the trial, and the costs legally
taxable in this litigation.
Further, Plaintiffs pray for such other reliefs as may be just and equitable in the
premises.44cräläwvirtualibräry
Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties
clearly and explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in
behalf of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC
assets were proper, valid and in good faith.45cräläwvirtualibräry
Item No. 8 of the Agreement provides for the period by which the Committee was to render its
decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later than six (6)
months from the date of its constitution.
In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-
judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the
PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the
evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall
be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award
in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS remedies under
this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all
such remedies being cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to
sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in
favor of APT based on the counterclaims of DBP and PNB in an amount as may be established
or warranted by the evidence. This decision of the arbitration committee in favor of APT shall
likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds
held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of
APT.46cräläwvirtualibräry
The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly
exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the
FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in
awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.
The Arbitration Committee went beyond its mandate and thus acted in excess of its powers
when it ruled on the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the
validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of
the parties thereto.47 The contract must bind both contracting parties.48 Private respondents even
by their own admission recognized that the FRP had yet not been carried out and that the loans
of MMIC had not yet been converted into equity.49cräläwvirtualibräry
However, the arbitration Committee not only declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising the equity of DBP to 87%. 50cräläwvirtualibräry
The Arbitration Committee ruled that there was a commitment to carry out the FRP 51 on the
ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case considering as we
observed, the fact that the government (that is Alfredo Velayo) was the FRPs proponent.
Although the plaintiffs are agreed that the government executed no formal agreement, the fact
remains that the DBP itself which made representations that the FRP constituted a way out for
MMIC. The Committee believes that although the DBP did not formally agree (assuming that the
board and stockholders approvals were not formal enough), it is bound nonetheless if only for its
conspicuous representations.
Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that
time) and as MMICs creditor-the DBP can not validly renege on its commitments simply because
at the same time, it held interest against the MMIC.
Page 10 of 139
The fact, of course, is that as APT itself asserted, the FRP was being carried out although
apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet
its targets, the DBP-and so this Committee holds-can not, in any event, brook any denial that it
was bound to begin with, and the fact is that adequate or not (the FRP), the government is still
bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity
in MMIC to 87%. It is not excuse, however, for the government to deny its
commitments.52cräläwvirtualibräry
Atty. Sison, however, did not agree and correctly observed that:
But the doctrine of promissory estoppel can hardly find application here. The nearest that there
can be said of any estoppel being present in this case is the fact that the board of MMIC was, at
the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with
personalities separate and distinct from the banks they represent. PNB and DBP have different
boards with different members who may have different decisions. It is unfair to impose upon
them the decision of the board of another company and thus pin them down on the equitable
principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to
apply it in this particular situation. Otherwise the rights of entirely separate, distinct and
autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed
and rendered nugatory.53cräläwvirtualibräry
As a rule, a corporation exercises its powers, including the power to enter into contracts, through
its board of directors. While a corporation may appoint agents to enter into a contract in its
behalf, the agent, should not exceed his authority.54 In the case at bar, there was no showing
that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into
a debt-for-equity swap. And if they had such authority, there was no showing that the banks,
through their board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include besmirched reputation which a corporation may
possibly suffer. A corporation whose overdue and unpaid debts to the Government alone
reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business
reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:
Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages.
While the Supreme Court may have awarded moral damages to a corporation for besmirched
reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application in this case. It
must be pointed out that when the supposed wrongful act of foreclosure was done, MMICs credit
reputation was no longer a desirable one. The company then was already suffering from serious
financial crisis which definitely projects an image not compatible with good and wholesome
reputation. So it could not be said that there was a reputation besmirches by the act of
foreclosure.55
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.
Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporations behalf is only nominal party. The corporation
should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest. x x x.56cräläwvirtualibräry
It is a condition sine qua non that the corporation be impleaded as a party because-
x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must
be served with process. The reason given is that the judgment must be made binding upon the
corporation and in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
corporations must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata against it.57cräläwvirtualibräry
The reasons given for not allowing direct individual suit are:
(1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal
or equitable to the corporate property; that both of these are in the corporation itself for the
benefit of the stockholders. In other words, to allow shareholders to sue separately would conflict
with the separate corporate entity principle;
(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in
the case of Evangelista v. Santos, that the stockholders may not directly claim those damages
for themselves for that would result in the appropriation by, and the distribution among them of
part of the corporate assets before the dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally done in view of section 16 of the
Corporation Law xxx;
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act. 58cräläwvirtualibräry
If at all an award was due MMIC, which it was not, the same should have been
given sans deduction, regardless of whether or not the party liable had equity in the corporation,
in view of the doctrine that a corporation has a personality separate and distinct from its
individual stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not
give it ownership over any corporate property, including the monetary award, its right over said
Page 11 of 139
corporate property being a mere expectancy or inchoate right.59Notably, the stipulation even had
the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a
derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC,
and at the same time award moral damages to an individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby rendered:
xxx.
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the
Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would
supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for
moral damages; x x x60cräläwvirtualibräry
The majority decision of the Arbitration Committee sought to justify its award of moral damages
to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the
majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in
the RTC, but that he won no more than actual damages. While the Committee cannot possibly
speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S.
Cabarrus, Sr., may be awarded in this proceeding.61cräläwvirtualibräry
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the RTC,
from which he obtained actual damages, he was barred res judicata from filing a similar case in
another court, this time asking for moral damages which he failed to get from the earlier
case.62 Worse, private respondents violated the rule against non-forum shopping.
It is a basic postulate that s corporation has a personality separate and distinct from its
stockholders.63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the corporation. Another reason is
that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in
the appropriation by, and the distribution to, him part of the corporations assets before the
dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties Compromise and Arbitration
Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated issues,
the parties themselves have agreed that the basic ingredient of the causes of action in this case
is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets.
By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause
of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of
MMIC.
Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders
have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur.
165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373,
the rule has been reiterated that a stockholder is not the co-owner of corporate property. Since
the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done
against the corporation. There is therefore no direct injury or direct violation of the rights of
Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover
damages in their personal capacities even assuming or just because the foreclosure is improper
or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of
Corporation Law say so. Therefore, I am constrained to dissent from the award of moral
damages to Cabarrus.64cräläwvirtualibräry
From the foregoing discussions, it is evident that, not only did the arbitration committee exceed
its powers or so imperfectly execute them, but also, its findings and conclusions are palpably
devoid of any factual basis and in manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings
and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively
discussed the issues on the merits. Such being the case, there is sufficient basis for us to
resolve the controversy between the parties anchored on the records and the pleadings before
us.65cräläwvirtualibräry
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders
of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19,
1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is
hereby VACATED. SO ORDERED
[G.R. No. L-22973. January 30, 1968.]
MAMBULAO LUMBER COMPANY, Plaintiff-Appellant, v. PHILIPPINE NATIONAL BANK
and ANACLETO HERADO, ETC., Defendants-Appellees.
Ernesto P. Villar and Arthur Tordesillas, for Plaintiff-Appellant.
Tomas Besa, and Jose B. Galang for Defendants-Appellees.
SYLLABUS
1. CONTRACTS; LOAN; INTEREST; COMPOUNDED; WHEN SHALL IT BE RECKONED. — In
computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or in default thereof, whenever
the debt is judicially claimed. Interest due shall earn legal interest only from the time it is
judicially demanded. Interest due and unpaid shall not earn interest. The parties may, by
stipulation, capitalize the interest due and unpaid, which as added principal, shall earn new
interest; but such stipulation is nowhere to be found in terms of the promissory note involved in
this case. Clearly, therefore, the trial court fell into error when it awarded interest on accrued
Page 12 of 139
interests, without any agreement to that effect and before they had been judicially demanded.
2. ID.; MORTGAGE; EXTRA-JUDICIAL FORECLOSURE SALE; EXPENSES. — The fees
enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are demandable
only by a sheriff serving processes of the court in connection with judicial foreclosure of
mortgages, under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of
mortgages under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the
officer conducting the sale is entitled to collect a fee of P5.00 for each day of actual work
performed in addition to his expenses in connection with foreclosure sale. The PNB failed to
prove that it actually spent any amount in connection with the said foreclosure sale. In the
absence of evidence to show at least the number of working days the sheriff concerned actually
spent in connection with the extra-judicial foreclosure sale, the most that he may be entitled to,
would be the amount of P10.00 as a reasonable allowance for two day’s work. Obviously,
therefore, the award of amount of P298.54 as expenses of the sale should be set aside.
3. ID.; ID.; ID.; ATTORNEY’S FEES. — Where the contract of mortgage clearly stipulates that
the mortgagor agrees that in all cases (extra- judicial or judicial foreclosure), attorney’s fees is
fixed at ten percent (10%) of the total indebtedness then unpaid, which in no case shall be less
than P100 exclusive of all fees allowed by law, and the expenses of collections shall be the
obligation of the mortgagor and shall with priority, be paid to the mortgagee out of any sums
realized from the proceeds of the sale of said property — the said stipulation to pay attorney’s
fees is clear enough to cover both cases of foreclosure sale, i.e., judicially or extrajudicially.
While the phrase "in all cases" appears to be part of the second sentence, a reading of the
whole context of the stipulation would readily show that it logically refers to extra-judicial
foreclosure found in the first sentence, and to judicial foreclosure mentioned in the next
sentence. The ambiguity by reason of faulty sentence construction should not be made to defeat
the otherwise clear intention of the parties in the agreement.
4. ID.; ID.; EXTENT OF AUTHORITY OF MORTGAGEE TO SELL PROPERTY MORTGAGED.
— While the law grants power and authority to the mortgagee to sell the mortgaged property at a
public place in the municipality where the mortgagor resides, or where the property is situated,
the sale of a mortgaged chattel may be made in a place other than that where it is found,
provided that the owner thereof consents thereto; or that there is an agreement to this effect
between the mortgagor and the mortgagee. But when the parties agreed to have the property
mortgaged sold at the residence of the mortgagor, the mortgagee can not retain that power and
authority to select from among the places provided for in the law and place designated in their
agreement, over the objection of the mortgagor.
5. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY; DUTY OF SHERIFFS. — Section
14, of Act 1508, as amended, provides that the officer making the sale should make a return of
his doings which shall particularly describe the articles sold and the amount received from each
article. From this, it is clear that the law requires that sale be made article by article, otherwise, it
would be impossible for him to state the amount received for each item. This requirement was
totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in
question in bulk, notwithstanding the fact that the said chattels consisted of no less than twenty
different items as shown in the bill of sale. This makes the sale of the chattels manifestly
objectionable. And in the absence of any evidence to show that the mortgagor had agreed or
consented to such sale in gross, the same should be set aside.
6. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY NOT IN ACCORDANCE WITH
TERMS OF CONTRACT; LIABILITY OF MORTGAGEE. — The mortgagee is guilty of
conversion when he sells under the mortgage but not in accordance with its terms, or where the
proceedings as to the sale or foreclosure do not comply with the statute. This rule applies
squarely to the facts of this case where, as earlier shown, herein appellee bank insisted, and the
appellee deputy sheriff of Camarines Norte proceeds with the sale of the mortgaged chattels at
Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor
thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and
the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine,
three GMC 6x6 trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP
Murply Engine, plainer, large circular saws, etc.) as a single lot in violation of the requirement of
the law to sell the same article by article. The PNB has resold the chattels to another buyer with
whom it appears to have actively cooperated in subsequently taking possession of and removing
the chattels from appellant’s compound by force, as shown by the circumstance that they had to
take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief
security officer of the premises in jail to deprive herein appellant of its possession thereof. To
exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to
believe that it was the subsequent buyer alone, who is not a party to this case, that was
responsible for the forcible taking of the property; but assuming this to be so, still PNB cannot
escape liability for the conversion of the mortgaged chattels by parting with its interest in the
property. Neither would its claim that it afterwards gave a chance to herein appellant to
repurchase or redeem the chattels, improve its position, for the mortgagor is not under obligation
to take affirmative steps to repossess the chattels that were converted by the mortgagee. As a
consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte,
therefore, We have to declare that herein appellant is entitled to collect from them jointly and
severally, the full value of the chattels in question at the time they were illegally sold by them. To
this effect was the holding of this Court in a similar situation.
7. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY NOT IN ACCORDANCE WITH
CONTRACT; EXEMPLARY DAMAGES AND ATTORNEY’S FEES. — But for the wrongful acts
of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in
utter disregard of the agreement to have the chattels sold in Manila as provided for in mortgage
contract, to which their attentions were timely called by herein appellant and in disposing of the
chattels in gross for the miserable amount of P4,201.00, herein appellant should be awarded
exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the
award of P3,000.00 as attorney’s fees for herein Appellant.
8. ATTORNEY’S FEES; RULE OF QUANTUM MERUIT. — This Court has invariably fixed
counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive,
unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the
duty of assisting the court in administering impartial justice between the parties. The fees should
be subject to judicial control. Sound public policy demands that courts disregard stipulations for
counsel fees, whenever they appear to be a source of speculative profit at the expense of the
debtor or mortgagor.
9. ID.; CIRCUMSTANCES TO CONSIDER. — In determining the compensation of an attorney,
the following circumstances should be considered: the amount and character of the services
rendered; the responsibility imposed; the amount of money or the value of the property affected
by the controversy or involved in the employment; the skill and experience called for in the
performance of the service; the professional standing of the attorney; the results secured; and
whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may
properly charge a much larger fee when it is to be contingent than when it is not.
10. DAMAGES; MORAL DAMAGES; AWARD OF DAMAGE TO JURIDICAL PERSONS. —
Herein appellant’s claim for moral damages however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are the basis of moral damages. A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages. The same cannot
be considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
Page 13 of 139
chattels, but also for the reason that whatever adverse effect the foreclosure sale of the chattels,
could have upon its reputation or business standing would undoubtedly be the same whether the
sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.
DECISION
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil
case No. 52089, entitled "Mambulao Lumber Company, Plaintiff, v. Philippine National Bank and
Anacleto Heraldo, Defendants," dismissing the complaint against both defendants and
sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum of
P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 until fully
paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief
which may be restated as follows:chanrob1es virtual 1aw library
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and
not P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of
its real property alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it
remitted to the PNB thereafter was more than sufficient to liquidate its obligation, thereby
rendering the subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney’s fees and the additional
sum of P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had
already settled its indebtedness to the PNB at the time the sale was effected, but also for the
reason that the said sale was not conducted in accordance with the provisions of the Chattel
Mortgage Law and the venue agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in utter disregard of
plaintiff’s vigorous opposition thereto, and in taking possession thereof after the sale thru force,
intimidation, coercion, and by detaining its "man-in-charge" of said properties, the PNB is liable
to plaintiff for damages and attorney’s fees.
The antecedent facts of the case, as found by the trial court, are as
follows:jgc:chanrobles.com.ph
"On May 5, 1956, the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of
defendant PNB and the former offered real estate, machinery, logging and transportation
equipments as collaterals. The application, however, was approved for a loan of P100,000 only.
To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land,
together with the buildings and improvements existing thereon, situated in the poblacion of Jose
Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the
aforementioned municipality.

"On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in five
equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31, 1961.
"On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date, the latter executed another promissory note
wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate of
P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.
"The plaintiff failed to pay the amortizations on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise
refused to do so. Upon inspection and verification made by employees of the PNB, it was found
that the plaintiff had already stopped operation about the end of 1957 or early part of 1958.
"On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements existing
thereon, covered by Transfer Certificate of Title No. 381 of the land records of Camarines Norte,
and to sell it at public auction in accordance with the provisions of Act No. 3135, as amended,
for the satisfaction of the unpaid obligation of the plaintiff, which as of September 22, 1961,
amounted to P57,646.59, excluding attorney’s fees. In compliance with the request, on October
16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-
judicial foreclosure sale and sent a copy thereof to the plaintiff. According to the notice, the
mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961, at the
ground floor of the Court House in Daet, Camarines Norte.
"On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them at
public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59, plus
6% annual interest thereon from September 23, 1961, attorney’s fees equivalent to 10% of the
amount due and the costs and expenses of the sale. On the same day, the PNB sent notice to
the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the latter
and that the auction sale thereof would be held on November 21, 1961, between 9:00 and 12:00
a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.
"On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the
chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC
Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the
said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged
chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiffs compound situated in
the municipality of Jose Panganiban, Province of Camarines Norte.
"On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter,
one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte,
protesting against the foreclosure of the real estate and chattel mortgages on the grounds that
they could not be effected unless a Court’s order was issued against it (plaintiff) for said purpose
and that the foreclosure proceedings, according to the terms of the mortgage contracts, should
be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the
public auction sale would be suspended and the plaintiff would be given an extension of ninety
(90) days, its obligation would be settled satisfactorily because an important negotiation was
then going on for the sale of its "whole interest" for an amount more than sufficient to liquidate
said obligation.
"The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
Page 14 of 139
request for extension of the foreclosure sale of the mortgaged chattels and so it advised the
Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A copy
of said advice was sent to the plaintiff for its information and guidance.
"The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21,
1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right
of the plaintiff to redeem the same within a period of one year. On the same date, Deputy
Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof
was sent to the plaintiff.
"In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent
a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the
balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00
representing the proceeds of the foreclosure sale of parcel of land described in Transfer
Certificate of Title No. 881. In the said letter, the plaintiff reiterated its request that the
foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected at a place other than
the City of Manila.
"In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines
Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to
the latter dated December 14, 1961.
"On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the
balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of
guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It was
further explained in said letter that the sum of P57,646.59, which was stated in the request for
the foreclosure of the real estate mortgage, did not include the 10% attorney’s fees and
expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled
on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon
and guarding fees, would be made.
"On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m.
and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was
issued in its favor by Deputy Provincial Sheriff Heraldo.
"In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the
plaintiff giving it priority to repurchase the chattels acquired by the former at public auction. This
offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the
PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that it apply
for the condonation of the attorney’s fees. The plaintiff did not follow the advice but on the
contrary it made known of its intention to file appropriate action or actions for the protection of its
interests.
"On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the
premises, that the properties therein had been auctioned and bought by the PNB, which in turn
sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery of the
things he bought, Salgado was at first reluctant to allow any piece of property to be taken out of
the compound of the plaintiff. The employees of the PNB explained that should Salgado refuse,
he would be exposing himself to a litigation wherein he could be held liable to pay big sum of
money by way of damages. Apprehensive of the risk that he would take, Salgado immediately
sent a wire to the President of the plaintiff in Manila, asking advice as to what he should do. In
the meantime, Mariano Bundok was able to take out from the plaintiffs compound two truck
loads of equipment.
"In the afternoon of the same day, Salgado received a telegram from plaintiffs President
directing him not to deliver the ’chattels’ without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day, May 25,
1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to take
out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of
the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the
properties originally mortgaged by the plaintiff to the PNB, which were bought by it at the
foreclosure sale and subsequently sold to Mariano Bundok."cralaw virtua1aw library
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in
the first paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the
defendant PNB the sum of P3,582.52 with interest thereon at the rate of 6% per annum from
December 22, 1961 (day following the date of the questioned foreclosure of plaintiff’s chattels)
until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.
We shall discuss the various points raised in appellant’s brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is
contended that its obligation under the terms of the two promissory notes it had executed in
favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real
property was effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the
appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00 —
P27,500.00 released on August 2, 1956, as per promissory note of even date (Exhibit C-3), and
P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-
4) — was six per cent (6%) per annum from the respective date of said notes "until paid." In the
statement of account of the appellant as of September 22, 1961, submitted by the PNB, it
appears that in arriving at the total indebtedness of P57,646.59 as of that date, the PNB had
compounded the principal of the loan and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded amounts charged additional
delinquency interest on them up to September 22, 1961; and to this erroneously computed total
of P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to
November 21 of the same year. In effect, the PNB has claimed, and the trial court has
adjudicated to it, interest on accrued interests from the time the various amortizations of the loan
became due until the real estate mortgage executed to secure the loan was extrajudicially
foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides
that in computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or in default thereof, whenever
the debt is judicially claimed. This is also the clear mandate of Article 2212 of the new Civil Code
which provides that interest due shall earn legal interest only from the time it is judicially
demanded, and of Article 1959 of the same code which ordains that interest due and unpaid
shall not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and
unpaid, which as added principal shall earn new interest; but such stipulation is nowhere to be
found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court
fell into error when it awarded interest on accrued interests, without any agreement to that effect
and before they had been judicially demanded.
Appellant next assails the award of attorney’s fees and the expenses of the foreclosure sale in
favor of the PNB. With respect to the amount of P298.54 allowed as expenses of the extra-
judicial sale of the real property, appellant maintains that the same has no basis, factual or legal,
Page 15 of 139
and should not have been awarded. It likewise decries the award of attorney’s fees which,
according to the appellant, should not be deducted from the proceeds of the sale of the real
property, not only because there is no express agreement in the real estate mortgage contract to
pay attorney’s fees in case the same is extra-judicially foreclosed, but also for the reason that
the PNB neither spent nor incurred any obligation to pay attorney’s fees in connection with the
said extra-judicial foreclosure under consideration.
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this
respect, the trial court said:jgc:chanrobles.com.ph
"The parcel of land, together with the buildings and improvements existing thereon covered by
Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence
how much was the expenses of the foreclosure sale although from the pertinent provisions of the
Rules of Court, the Sheriff’s fees would be P1 for advertising the sale (par. k, Sec. 7, Rule 130 of
the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the Old
Rules) or a total of P298.54."cralaw virtua1aw library
There is really no evidence of record to support the conclusion that the PNB is entitled to the
amount awarded as expenses of the extra- judicial foreclosure sale. The court below committed
error in applying the provisions of the Rules of Court for purposes of arriving at the amount
awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section
7, of Rule 130 (now Rule 141) are demandable only by a sheriff serving processes of the court in
connection with judicial foreclosure of mortgages under Rule 68 of the new Rules, and not in
cases of extra-judicial foreclosure of mortgages under Act 3135. The law applicable is Section 4
of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00
for each day of actual work performed in addition to his expenses in connection with the
foreclosure sale. Admittedly, the PNB failed to prove during the trial of the case, that it actually
spent any amount in connection with the said foreclosure sale. Neither may expenses for
publication of the notice be legally allowed in the absence of evidence on record to support it. 1
It is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees
provided for by law which need not be proved; but in the absence of evidence to show at least
the number of working days the sheriff concerned actually spent in connection with the extra-
judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as
a reasonable allowance for two day’s work — one for the preparation of the necessary notices of
sale, and the other for conducting the auction sale and issuance of the corresponding certificate
of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of the sale
should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney’s fees
in case the same is extra-judicially foreclosed, cannot be favorably considered, as would readily
be revealed by an examination of the pertinent provision of the mortgage contract. The parties to
the mortgage appear to have stipulated under paragraph (c) thereof, inter
alia:jgc:chanrobles.com.ph
". . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee
his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all
documents and to perform all acts requisite and necessary to accomplish said purpose and to
appoint its substitute as such attorney-in-fact with the same powers as above specified. In case
of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or
any of its employees as receiver, without any bond, to take charge of the mortgaged property at
once, and to hold possession of the same and the rents, benefits and profits derived from the
mortgaged property before the sale, less the costs and expenses of the receivership; the
Mortgagor hereby agrees further that in all cases, attorney’s fees hereby fixed at Ten Per Cent
(10%) of the total indebtedness then unpaid, which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of the
Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as rents and
profits derived from the mortgaged property or from the proceeds realized from the sale of the
said property and this mortgage shall likewise stand as security therefor . . ."cralaw virtua1aw
library
We find the above stipulation to pay attorney’s fees clear enough to cover both cases of
foreclosure sale mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all
cases" appears to be part of the second sentence, a reading of the whole context of the
stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first
sentence and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the
stipulation suggested and pointed out by the appellant by reason of the faulty sentence
construction should not be made to defeat the otherwise clear intention of the parties in the
agreement.
It is suggested by the appellant, however, that even if the above stipulation to pay attorney’s
fees were applicable to the extra- judicial foreclosure sale of its real properties, still, the award of
P5,821.35 for attorney’s fees has no legal justification, considering the circumstance that the
PNB did not actually spend anything by way of attorney’s fees in connection with the sale. In
support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee
has neither paid nor incurred any obligation to pay an attorney in connection with the foreclosure
sale, the claim for such fees should be denied; 2 and (2) that attorney’s fees will not be allowed
when the attorney conducting the foreclosure proceedings is an officer of the corporation
(mortgagee) who receives a salary for all the legal services performed by him for the
corporation. 3 These authorities are indeed enlightening; but they should not be applied in this
case. The very same authority first cited suggests that said principle is not absolute, for there is
authority to the contrary. As to the fact that the foreclosure proceedings were handled by an
attorney of the legal staff of the PNB, we are reluctant to exonerate herein appellant from the
payment of the stipulated attorney’s fees on this ground alone, considering the express
agreement between the parties in the mortgage contract under which appellant became liable to
pay the same. At any rate, we find merit in the contention of the appellant that the award of
P5,821.35 in favor of the PNB as attorney’s fees is unconscionable and unreasonable,
considering that all that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines
Norte requesting the latter to sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney’s fees whenever it is found under the
circumstances of the case that the same is unreasonable, is now deeply rooted in this
jurisdiction to entertain any serious objection to it. Thus, this Court has
explained:jgc:chanrobles.com.ph
"But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be
enforced in accordance with the terms, no matter how injurious or oppressive they may be. The
lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the
amount due him under his contract without a deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a
source of speculative profit at the expense of the debtor.
"Contracts for attorney’s services in this jurisdiction stands upon an entirely different footing from
contracts for the payment of compensation for any other services. By express provision of
section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express
contract to recover more than a reasonable compensation for his services; and even when an
express contract is made the court can ignore it and limit the recovery to reasonable
compensation of the amount of the stipulated fee is found by the court to be unreasonable. This
is a very different rule from that announced in section 1091 of the Civil Code with reference to
Page 16 of 139
the obligation of contracts in general, where it is said that such obligation has the force of law
between the contracting parties. Had the plaintiff herein made an express contract to pay his
attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note
here in suit to judgment, it would not have been enforced against him had he seen fit to oppose
it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the
work involved and is therefore unreasonable. In order to enable the court to ignore an express
contract for an attorney’s fees, it is not necessary to show, as in other contracts, that it is
contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable." 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the
fees stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is
primarily a court officer charged with the duty of assisting the court in administering impartial
justice between the parties, and hence, the fees should be subject to judicial control. Nor should
it be ignored that sound public policy demands that courts disregard stipulations for counsel
fees, whenever they appear to be a source of speculative profit at the expense of the debtor or
mortgagor. 5 And it is not material that the present action is between the debtor and the creditor,
and not between attorney and client. As courts have power to fix the fee as between attorney
and client, it must necessarily have the right to say whether a stipulation like this, inserted in a
mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be
considered: the amount and character of the services rendered, the responsibility imposed: the
amount of money or the value of the property affected by the controversy, or involved in the
employment: the skill and experience called for in the performance of the service, the
professional standing of the attorney; the results secured; and whether or not the fee is
contingent or absolute, it being a recognized rule that an attorney may properly charge a much
larger fee when it is to be contingent than when it is not. 7 From the stipulation in the mortgage
contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is
perhaps fair enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is
unreasonable when, as in this case, the mortgage was foreclosed extrajudicially, and all that the
attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed
though, that the said branch attorney of the PNB made a study of the case before deciding to file
the petition for foreclosure: but even with this in mind, we believe the amount of P5,821.35 is far
too excessive a fee for such services. Considering the above circumstances mentioned, it is our
considered opinion that the amount of P1,000.00 would be more than sufficient to compensate
the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties
alone together with the amount it remitted to the PNB later was more than sufficient to liquidate
its total obligation to herein appellee bank. Again, we find merit in this claim. From the foregoing
discussion of the first two errors assigned, and for purposes of determining the total obligation of
herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was
foreclosed, we have the following illustration in support of this conclusion:chanrob1es virtual 1aw
library
A. —
I. Principal Loan
(a) Promissory note dated August 2, 1956 P27,500.00
(1) Interest at 6% per annum from
Aug. 2, 1956 to Nov. 21, 1961 8,751.78 Camarines Norte on the same date. These letters were followed by another letter to the appellee
bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its
(b) Promissory note dated October 19, 1956 P15,500.00 objection to the scheduled sale of its chattels on December 21, 1961 at Jose Panganiban,
Camarines Norte for the reasons therein stated that: (1) it had settled in full its total obligation to
(1) Interest at 6% per annum from the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59;
and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied
Oct. 19, 1956 to Nov. 21, 1961 4,734.08 under paragraph (i) in the Chattel Mortgage which provides as follows:jgc:chanrobles.com.ph

II. Sheriff’s fees [for two [2]day’s work] 10.00 "(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
parties hereto agree that the corresponding complaint for foreclosure or the petition for sale
III. Attorney’s fees 1,000.00 should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that
the Mortgagor shall pay attorney’s fees hereby fixed at ten per cent (10%) of the total
———— indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and
fees allowed by law and of other expenses incurred in connection with the said foreclosure."
Total obligation as of Nov. 21, 1961 P57,495.86 [Emphasis supplied]

B. — Notwithstanding the above-quoted agreement in the chattel mortgage contract, and in utter
disregard of the objection of herein appellant to the sale of its chattels at Jose Panganiban,
I. Proceeds of the foreclosure sale of Camarines Norte and not in the City of Manila as agreed upon, the PNB proceeded with the
foreclosure sale of said chattels. The trial court, however justified said action of the PNB in the
the real estate mortgage on Nov. 21, 1961 56,908.00. decision appealed from in the following rationale:jgc:chanrobles.com.ph

II. Additional amount remitted to the "While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-
judicial foreclosure thereof should be filed with the Sheriff of the City of Mania, nevertheless, the
PNB on Dec. 18, 1961 738.59 effect thereof was merely to provide another place where the mortgage chattel could be sold, in
addition to those specified in the Chattel Mortgage Law. Indeed, a stipulation in a contract
———— cannot abrogate much less impliedly repeal a specific provision of the statute. Considering that
Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should
Total amount of Payment made to be held, hence, in the case under consideration, the PNB has three places from which to select,
namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels
PNB as of Dec. 18, 1961 P57,646.59 were situated; and (3) the place stipulated in the contract. The PNB selected the second and,
accordingly, the foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and
———— valid."cralaw virtua1aw library

Deduct: Total obligation to the PNB P57,495.86
————
Excess Payment to the PNB P150.73
=======
From the foregoing illustration or computation, it is clear that there was no further necessity to
foreclose the mortgage of herein appellant’s chattels on December 21, 1961; and on this ground
alone, we may declare the sale of appellant’s chattels on the said date, illegal and void. But we
take into consideration the fact that the PNB must have been led to believe that the stipulated
10% of the unpaid loan for attorney’s fees in the real estate mortgage was legally maintainable,
and in accordance with such belief, herein appellee bank insisted that the proceeds of the sale
of appellant’s real property was deficient to liquidate the latter’s total indebtedness. Be that as it
may, however, we still find the subsequent sale of herein appellant’s chattels illegal and
objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure
of its real estate mortgage on November 21, 1961, cannot be doubted, as shown not only by its
letter to the PNB on November 19, 1961, but also in its letter to the provincial sheriff of
To the foregoing conclusion, We disagree. While the law grants power and authority to the
mortgagee to sell the mortgaged property at a public place in the municipality where the
mortgagor resides, or where the property is situated, 8 this Court has said that the sale of a
mortgaged chattel may be made in a place other than that where it is found, provided that the
owner thereof consents thereto; or that there is an agreement to this effect between the
mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to have the sale of
the mortgaged chattels in the City of Manila, which, any way, is the residence of the mortgagor,
it cannot be rightly said that the mortgagee still retained the power and authority to select from
among the places provided for in the law and the place designated in their agreement, over the
objection of the mortgagor. In providing that the mortgaged chattel may be sold at the place of
residence of the mortgagor or the place where it is situated, at the option of the mortgagee, the
law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their
rights arising thereunder, however, are personal to them; they do not affect either public policy or
the rights of third persons. They may validly be waived. So, when herein mortgagor and
mortgagee agreed in the mortgage contract that in cases of both judicial and extra-judicial
foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the Sheriff of Manila, as the case may be, they
waived their corresponding rights under the law. The correlative obligation arising from that
agreement have the force of law between them and should be complied with in good faith. 10
"By said agreement the parties waived the legal venue, and such waiver is valid and legally

Page 17 of 139
effective, because it was merely a personal privilege they waived, which is not contrary to public
policy or to the prejudice of third persons. It is a general principle that a person may renounce
any right which the law gives unless such renunciation is expressly prohibited or the right
conferred is of such nature that its renunciation would be against public policy." 11
"On the other hand, if a place of sale is specified in the mortgage and statutory requirements in
regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the
absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in
the mortgage is invalid, unless the mortgagor consents to such sale." 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should
make a return of his doings which shall particularly describe the articles sold and the amount
received from each article. From this, it is clear that the law requires that sale be made article by
article, otherwise, it would be impossible for him to state the amount received for each item. This
requirement was totally disregarded by the Deputy Sheriff of Camarines Norte which he sold the
chattels in question in bulk, notwithstanding the fact that the said chattels consisted of no less
than twenty different items as shown in the bill of sale. 13 This makes the sale of the chattels
manifestly objectionable. And in the absence of any evidence to show that the mortgagor had
agreed or consented to such sale in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in
accordance with its terms, or where the proceedings as to the sale or foreclosure do not comply
with the statute. 14 This rule applies squarely to the facts of this case where, as earlier shown,
herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded
with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard
of the valid objection of the mortgagor thereto for the reason that it is not the place of sale
agreed upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among
which were a skagit with caterpillar engine, three GMC 6x6 trucks, a Herring Hall Safe, and
Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws, etc.) as a
single lot in violation of the requirement of the law to sell the same article by article. The PNB
has resold the chattels to another buyer with whom it appears to have actively cooperated in
subsequently taking possession of and removing the chattels from appellant’s compound by
force, as shown by the circumstance that they had to take along PC soldiers and municipal
policemen of Jose Panganiban who placed the chief security officer of the premises in jail to
deprive herein appellant of its possession thereof. To exonerate itself of any liability for the
breach of peace thus committed, the PNB would want us to believe that it was the subsequent
buyer alone, who is not a party to this case, that was responsible for the forcible taking of the
property; but assuming this to be so, still the PNB cannot escape liability for the conversion of
the mortgaged chattels by parting with its interest in the property. Neither would its claim that it
afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its
position, for the mortgagor is not under obligation to take affirmative steps to repossess the
chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts
of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein
appellant is entitled to collect from them, jointly and severally, the full value of the chattels in
question at the time they were illegally sold by them. To this effect was the holding of this Court
in a similar situation. 16
"The effect of this irregularity was in our opinion to make the plaintiff liable to the defendant for
the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the
burden is on the defendant to prove the damage to which he was thus subjected. . . ."cralaw
virtua1aw library
This brings us to the problem of determining the value of the mortgaged chattels at the time of
their sale in 1961. The that court did not make any finding on the value of the chattels in the
decision appealed from and denied altogether the right of the appellant to recover the same. We
Page 18 of 139
find enough evidence of record, however, which may be used as a guide to ascertain their value.
The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for
which the chattels in question were mortgaged as part of the security therefor, herein appellant
submitted a list of the chattels together with its application for the loan with a stated value of
P107,115.85. An official of the PNB made an inspection of the chattels in the same year giving it
an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with
some additional equipment acquired by herein appellant with part of the proceeds of the loan
were reappraised in a reinspection conducted by the same official in 1958, in the report of which
he gave all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18
Another reinspection report in 1959 gave the appraised value as P19,400.00 and the market
value of P25,600.00. 19 The said official of the PNB who made the foregoing reports of
inspection and reinspections testified in court that in giving the values appearing in the reports,
he used a conservative method of appraisal which, of course, is to be expected of an official of
the appellee bank. And it appears that the values were considerably reduced in all the
reinspection reports for the reason that when he went to herein appellant’s premises at the time,
he found the chattels no longer in use with some of the heavier equipment dismantled with parts
thereof kept in the bodega; and finding it difficult to ascertain the value of the dismantled chattels
in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact,
however, that in the last reinspection report he made of the chattels in 1961, just a few months
before the foreclosure sale, the same inspector of the PNB reported that the heavy equipments
of herein appellant were "lying idle and rusty," but were "with a shed, free from rains," 20
showing that although they were no longer in use at the time, they were kept in a proper place
and not exposed to the elements. The President of the appellant company, on the other hand,
testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of
its two trucks acquired by it with part of the proceeds of the loan and included as additional items
in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth
of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy
equipment he mentioned, the sawmill itself and all other equipment forming part of the chattels
under consideration, and bearing in mind the current cost of equipment these days which he
alleged to have increased by about five (5) times, could safely be estimated at P120,000.00.
This testimony, except for the appraised and market values appearing in the inspection and
reinspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but
We are not inclined to accept such testimony at its par value, knowing that the equipment of
herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to
the time of the sale of the chattels in 1961. We have no doubt that the value of the chattels was
depreciated after all those years of inoperation, although from the evidence aforementioned, We
may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the
foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts
that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by
the PNB official were admittedly conservative; that two 6x6 trucks subsequently bought by the
appellant company had thereafter been added to the chattels; and that the real value thereof,
although depreciated after several years of inoperation, was in a way maintained because the
depreciation is off-set by the marked increase in the cost of heavy equipment in the market, it is
our opinion that the market value of the chattels at the time of the sale should be fixed at the
original appraised value of P42,850.00.
Herein appellant’s claim for moral damages, however, seems to have no legal or factual basis.
Obviously, an artificial person like herein appellant corporation cannot experience physical
sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are the basis of moral damages. 21 A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages. The same cannot
be considered under the facts of this case, however, not only because it is admitted that herein
appellant had already ceased in its business operation at the time of the foreclosure sale of the
chattels, but also for the reason that whatever adverse effect the foreclosure sale of the chattels
could have upon its reputation or business standing would undoubtedly be the same whether the
sale was conducted at Jose Panganiban. Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in
proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila
as provided for in the mortgage contract, to which their attentions were timely called by herein
appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances
of the case also warrant the award of P3,000.00 as attorney’s fees for herein Appellant.
Wherefore and considering all the foregoing, the decision appealed from should be, as hereby, it
is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines
Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount
of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the
value of the chattels at the time of the sale with interest at the rate of 6% per annum from
December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as
attorney’s fees. Costs against both appellees.
G.R. No. L-49407 August 19, 1988
NATIONAL DEVELOPMENT COMPANY, petitioner-appellant, vs. THE COURT OF APPEALS
and DEVELOPMENT INSURANCE & SURETY CORPORATION, Respondents-Appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant, vs. THE COURT OF
APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.
Balgos & Perez Law Office for private respondent in both cases.
PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L-
46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime
Company of the Philippines and National Development Company defendant-appellants,"
affirming in toto the decision ** in Civil Case No. 60641 of the then Court of First Instance of
Manila, Sixth Judicial District, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development
Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff
Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR
THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April 22, 1965
until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as and for
attorney's fee.chanroblesvirtualawlibrary chanrobles virtual law library
Page 19 of 139
On defendant Maritime Company of the Philippines' cross-claim against the defendant National
Development Company, judgment is hereby rendered, ordering the National Development
Company to pay the cross-claimant Maritime Company of the Philippines the total amount that
the Maritime Company of the Philippines may voluntarily or by compliance to a writ of execution
pay to the plaintiff pursuant to the judgment rendered in this
case.chanroblesvirtualawlibrary chanrobles virtual law library
With costs against the defendant Maritime Company of the
Philippines.chanroblesvirtualawlibrary chanrobles virtual law library
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered into
between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf
and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200 bales of
American raw cotton consigned to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A & L-2 to L-7-A).
Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa, Ltd.,
consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium lauryl
sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to Manila the vessel Dofia Nati
figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese vessel 'SS
Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw cotton were
lost and/or destroyed, of which 535 bales as damaged were landed and sold on the authority of
the General Average Surveyor for Yen 6,045,-500 and 15 bales were not landed and deemed
lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the plaintiff
as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of lading duly
endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered
totally lost were the aforesaid shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of
Manila Banking Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00
which the plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits
M-1 and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the
consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence, plaintiff
filed this complaint to recover said amount from the defendants-NDC and MCP as owner and
ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal), pp. 1-
6).chanroblesvirtualawlibrary chanrobles virtual law library
Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-
14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965
(Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the
motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965,
MCP filed its answer with counterclaim and cross-claim against
NDC.chanroblesvirtualawlibrary chanrobles virtual law library
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp.
22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-
40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off from the
record for its failure to answer DISC's written interrogatories and to comply with the trial court's
order dated August 14, 1965 allowing the inspection or photographing of the memorandum of
agreement it executed with MCP. Said order of October 16, 1965 likewise declared NDC in
default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set aside the
order of October 16, 1965, but the trial court denied it in its order dated September 21,
1966.chanroblesvirtualawlibrary chanrobles virtual law library
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court
rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC
the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of the
complaint on April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in said
decision, the trial court granted MCP's crossclaim against
NDC.chanroblesvirtualawlibrary chanrobles virtual law library
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17,
1970 after its motion to set aside the decision was denied by the trial court in its order dated
February 13,1970.chanroblesvirtualawlibrary chanrobles virtual law library
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the
decision of the trial court.chanroblesvirtualawlibrary chanrobles virtual law library
Hence these appeals by certiorari.chanroblesvirtualawlibrary chanrobles virtual law library
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103).
On August 27,1979, these consolidated cases were given due course (Rollo, p. 108) and
submitted for decision on February 29, 1980 (Rollo, p.
136).chanroblesvirtualawlibrary chanrobles virtual law library
In its brief, NDC cited the following assignments of error: chanrobles virtual law library
Ichanrobles virtual law library
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF
COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE
KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE LIABILITY
FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS VESSEL "DONA
NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE
TERRITORIAL JURISDICTION OF THE PHILIPPINES.chanroblesvirtualawlibrary chanrobles
virtual law library
II chanrobles virtual law library
Page 20 of 139
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR
REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE,
AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2, Brief for Petitioner-
Appellant National Development Company; p. 96, Rollo).chanroblesvirtualawlibrary chanrobles
virtual law library
On its part, MCP assigned the following alleged errors: chanrobles virtual law library
Ichanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION
AS AGAINST PETITIONER MARITIME COMPANY OF THE PHILIPPINES AND IN NOT
DISMISSING THE COMPLAINT.chanroblesvirtualawlibrary chanrobles virtual law library
IIchanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF
ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF
ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME COMPANY OF THE
PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND HAS ALREADY
PRESCRIBED.chanroblesvirtualawlibrary chanrobles virtual law library
IIIchanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE
RESPONDENTS EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE
COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS DUE TO THE
FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE COLLISION WAS CAUSED BY
THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE
YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF
THE SS DONA NATI chanrobles virtual law library
IVchanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE
OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS
A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-PETITIONER APPELLANT
NATIONAL DEVELOPMENT COMPANY AND THAT SAID PETITIONER-APPELLANT IS
SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO CARGO
RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA
MARU.chanroblesvirtualawlibrary chanrobles virtual law library
Vchanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR
DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES
WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT P200.00
PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN HOLDING THAT
PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE
THERE BEING NO GENERAL AVERAGE TO SPEAK OF.chanroblesvirtualawlibrary chanrobles
virtual law library
VIchanrobles virtual law library
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS
NATIONAL DEVELOPMENT COMPANY AND COMPANY OF THE PHILIPPINES TO PAY
JOINTLY AND SEVERALLY TO HEREIN RESPONDENT DEVELOPMENT INSURANCE AND
SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST FROM THE
FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR
ATTORNEYS FEES INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY
HEREIN PETITIONERS ITS COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF
ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the Maritime Company of the
Philippines; p. 121, Rollo) chanrobles virtual law library
The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of
liability as well as the rules of prescription provided
thereunder.chanroblesvirtualawlibrary chanrobles virtual law library
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should
apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of
said Act, the carrier is not responsible for the loss or damage resulting from the "act, neglect or
default of the master, mariner, pilot or the servants of the carrier in the navigation or in the
management of the ship." Thus, NDC insists that based on the findings of the trial court which
were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault and
negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act.
Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were
ordered to reimburse the insurance company for the amount the latter paid to the consignee as
earlier stated.chanroblesvirtualawlibrary chanrobles virtual law library
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50
SCRA 469-470 [1987]) where it was held under similar circumstance "that the law of the country
to which the goods are to be transported governs the liability of the common carrier in case of
their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was specifically
laid down that for cargoes transported from Japan to the Philippines, the liability of the carrier is
governed primarily by the Civil Code and in all matters not regulated by said Code, the rights
and obligations of common carrier shall be governed by the Code of commerce and by laws
(Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is merely
suppletory to the provision of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual law
library
In the case at bar, it has been established that the goods in question are transported from San
Francisco, California and Tokyo, Japan to the Philippines and that they were lost or due to a
collision which was found to have been caused by the negligence or fault of both captains of the
colliding vessels. Under the above ruling, it is evident that the laws of the Philippines will apply,
and it is immaterial that the collision actually occurred in foreign waters, such as Ise Bay,
Japan.chanroblesvirtualawlibrarychanrobles virtual law library
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them according to all circumstances
Page 21 of 139
of each case. Accordingly, under Article 1735 of the same Code, in all other than those
mentioned is Article 1734 thereof, the common carrier shall be presumed to have been at fault or
to have acted negigently, unless it proves that it has observed the extraordinary diligence
required by law.chanroblesvirtualawlibrary chanrobles virtual law library
It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in respondent courses application to the case at
bar of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with
collision of vessels.chanroblesvirtualawlibrarychanrobles virtual law library
More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the
losses and damages incurred after an expert appraisal. But more in point to the instant case is
Article 827 of the same Code, which provides that if the collision is imputable to both vessels,
each one shall suffer its own damages and both shall be solidarily responsible for the losses and
damages suffered by their cargoes.chanroblesvirtualawlibrary chanrobles virtual law library
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the
shipowner or carrier, is not exempt from liability for damages arising from collision due to the
fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in
recognition of the universally accepted doctrine that the shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the conduct of the
voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751
[1909]).chanroblesvirtualawlibrary chanrobles virtual law library
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply
only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods by
Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act in no
uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to and
from Philippine ports in foreign trade." Under Section I thereof, it is explicitly provided that
"nothing in this Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application." By such incorporation, it is
obvious that said law not only recognizes the existence of the Code of Commerce, but more
importantly does not repeal nor limit its application.chanroblesvirtualawlibrary chanrobles virtual
law library
On the other hand, Maritime Company of the Philippines claims that Development Insurance and
Surety Corporation, has no cause of action against it because the latter did not prove that its
alleged subrogers have either the ownership or special property right or beneficial interest in the
cargo in question; neither was it proved that the bills of lading were transferred or assigned to
the alleged subrogers; thus, they could not possibly have transferred any right of action to said
plaintiff- appellee in this case. (Brief for the Maritime Company of the Philippines, p.
16).chanroblesvirtualawlibrarychanrobles virtual law library
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the
duly endorsed bills of lading covering the shipments in question and an examination of the
invoices in particular, shows that the actual consignees of the said goods are the
aforementioned companies. Moreover, no less than MCP itself issued a certification attesting to
this fact. Accordingly, as it is undisputed that the insurer, plaintiff appellee paid the total amount
of P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that
said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-
appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p.
43).chanroblesvirtualawlibrary chanrobles virtual law library
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager
and operator of the vessel Dona Nati not a ship agent. As the general managing agent,
according to MCP, it can only be liable if it acted in excess of its
authority.chanroblesvirtualawlibrary chanrobles virtual law library
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the name
of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.chanroblesvirtualawlibrary chanrobles virtual law
library
It is well settled that both the owner and agent of the offending vessel are liable for the damage
done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]);
that in case of collision, both the owner and the agent are civilly responsible for the acts of the
captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article 586 of the
Code of Commerce; Standard Oil Co. of New York v. Lopez Castelo, 42 Phil. 256, 262 [1921]);
that while it is true that the liability of the naviero in the sense of charterer or agent, is not
expressly provided in Article 826 of the Code of Commerce, it is clearly deducible from the
general doctrine of jurisprudence under the Civil Code but more specially as regards contractual
obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the
owner and agent (Naviero) should be declared jointly and severally liable, since the obligation
which is the subject of the action had its origin in a tortious act and did not arise from contract
(Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the agent,
even though he may not be the owner of the vessel, is liable to the shippers and owners of the
cargo transported by it, for losses and damages occasioned to such cargo, without prejudice,
however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276
[1908]).chanroblesvirtualawlibrary chanrobles virtual law library
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per
package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP
argues that the law on averages should be applied in determining their
liability.chanroblesvirtualawlibrary chanrobles virtual law library
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of
lading and corroborated no less by invoices offered as evidence ' during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51
Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss was
caused by its own negligence." Negligence of the captains of the colliding vessel being the
cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the
vessel, the trial court and the Court of Appeals acted correctly in not applying the law on
averages (Articles 806 to 818, Code of Commerce).chanroblesvirtualawlibrary chanrobles virtual
law library
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati need not
be discussed lengthily as said claim is not only at variance with NDC's posture, but also contrary
Page 22 of 139
to the factual findings of the trial court affirmed no less by the Court of Appeals, that both pilots
were at fault for not changing their excessive speed despite the thick fog obstructing their
visibility.chanroblesvirtualawlibrary chanrobles virtual law library
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued
allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona
Nati on April 18,1964 was merely tentative to give allowances for such contingencies that said
vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-
shipment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision,
the cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13,
18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they
could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the
instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the
date the lost or damaged cargo "should have been delivered" in the light of Section 3, sub-
paragraph (6) of the Carriage of Goods by Sea Act.chanroblesvirtualawlibrary chanrobles virtual
law library
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed
decision of the respondent Appellate Court is AFFIRMED.chanroblesvirtualawlibrary chanrobles
virtual law librarySO ORDERED.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE
VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR
DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista,
Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of
preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a
corporation duly organized and existing under the laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70
issued by respondent Judge on February 25, 1970; to order respondents to desist from
enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof,
as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to
have been made on the basis of the said documents, papers and effects, and to order the return
of the latter to petitioners. We gave due course to the petition but did not issue the writ of
preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw
library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a
letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search
warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code,
in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209,
and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and
file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness,
respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them
the following papers: respondent Vera’s aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent
Logronio subscribed before respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet subscribed; and a search warrant
already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed
his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After
the session had adjourned, respondent Judge was informed that the depositions had already
been taken. The stenographer, upon request of respondent Judge, read to him her stenographic
notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and
warned him that if his deposition was found to be false and without legal basis, he could be
charged for perjury. Respondent Judge signed respondent de Leon’s application for search
warrant and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by
respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the
search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal.
Petitioners’ lawyers protested the search on the ground that no formal complaint or transcript of
testimony was attached to the warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that
the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory
writs of injunction be issued, that the search warrant be declared null and void, and that the
respondents be ordered to pay petitioners, jointly and severally, damages and attorney’s fees.
On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition.
After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order
dismissing the petition for dissolution of the search warrant. In the meantime, or on April 16,
1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation in the
total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized.
Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.
The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers and effects against
unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon
probable cause, to be determined by the judge after examination under oath or affirmation of the
complainant and the witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized." (Art. III, Sec. 1, Constitution.)
Page 23 of 139
"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon
probable cause in connection with one specific offense to be determined by the judge or justice
of the peace after examination under oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be searched and the persons or things to
be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing
the warrant, personally examine on oath or affirmation the complainant and any witnesses he
may produce and take their depositions in writing, and attach them to the record, in addition to
any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III, Sec.
1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court,
should be conducted by the judge himself and not by others. The phrase "which shall be
determined by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce," appearing in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven.
The following discussion in the Constitutional Convention (Laurel, Proceedings of the Philippine
Constitutional Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la
justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Señoria
que causaria cierta demora el procedimiento apuntado en su enmienda en tal forma que podria
frustrar los fines de la justicia o si Su Señoria encuentra un remedio para esto casos con el fin
de compaginar los fines de la justicia con los derechos del individuo en su persona, bienes
etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Señoria pregunta por la
siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese
escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o
peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o
alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion
sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito
siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo
posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro.
Creo que entre dos males debemos escoger. el menor.
x x x
"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are
incorporating in our constitution something of a fundamental character. Now, before a judge
could issue a search warrant, he must be under the obligation to examine personally under oath
the complainant and if he has any witness, the witnesses that he may produce . . ."cralaw
virtua1aw library

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and
candid, for it requires the judge, before issuing a search warrant, to "personally examine on oath
or affirmation the complainant and any witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to enable
him to determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1,
par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which
prohibit the issuance of warrants except "upon probable cause." The determination of whether or
not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts
and should not be allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the
complainant (respondent De Leon) and his witness (respondent Logronio). While it is true that
the complainant’s application for search warrant and the witness’ printed-form deposition were
subscribed and sworn to before respondent Judge, the latter did not ask either of the two any
question the answer to which could possibly be the basis for determining whether or not there
was probable cause against herein petitioners. Indeed, the participants seem to have attached
so little significance to the matter that notes of the proceedings before respondent Judge were
not even taken. At this juncture it may be well to recall the salient facts. The transcript of
stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of
this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V.
Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time
respondent Judge was at the sala hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judge’s chamber and informed the Judge that they had finished
the depositions. Respondent Judge then requested the stenographer to read to him her
stenographic notes. Special Deputy Clerk Gonzales testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable Judge requested or
instructed them, requested Mr. Logronio to raise his hand and warned him if his deposition will
be found to be false and without legal basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the facts contained in his deposition and
the affidavit executed before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search
Warrant No. 2-M-70 was thus limited to listening to the stenographer’s readings of her notes, to
a few words of warning against the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a personal examination. If there was an
examination at all of the complainant and his witness, it was the one conducted by the Deputy
Page 24 of 139
Clerk of Court. But, as stated, the Constitution and the rules require a personal examination by
the judge. It was precisely on account of the intention of the delegates to the Constitutional
Convention to make it a duty of the issuing judge to personally examine the complainant and his
witnesses that the question of how much time would be consumed by the judge in examining
them came up before the Convention, as can be seen from the record of the proceedings quoted
above. The reading of the stenographic notes to respondent Judge did not constitute sufficient
compliance with the constitutional mandate and the rule; for by that manner respondent Judge
did not have the opportunity to observe the demeanor of the complainant and his witness, and to
propound initial and follow-up questions which the judicial mind, on account of its training, was in
the best position to conceive. These were important in arriving at a sound inference on the all-
important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal
Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73,
208 and 209." The question is: Was the said search warrant issued "in connection with one
specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code
referred to above. Thus we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and
fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the
information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures
any article subject to a specific tax, without having paid the privilege tax therefore, or who aids or
abets in the conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article
subject to specific tax . . .," and provides that in the case of a corporation, partnership, or
association, the official and/or employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of
output removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code.
The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns),
which are interrelated. The second is the violation of Sec. 53 (withholding of income taxes at
source). The third is the violation of Sec. 208 (unlawful pursuit of business or occupation); and
the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or
gross value of output actually removed or to pay the tax due thereon). Even in their classification
the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and
73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on
Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA
383), is not applicable, because there the search warrants were issued for "violation of Central
Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant
No 2-M-70 was issued for violation of only one code, i.e., the National Internal Revenue Code.
The distinction more apparent than real, because it was precisely on account of the Stonehill
incident, which occurred sometime before the present Rules of Court took effect on January 1,
1964, that this Court amended the former rule by inserting therein the phrase "in connection with
one specific offense," and adding the sentence "No search warrant shall issue for more than one
specific offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed search
warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of
Court that ‘a search warrant shall not issue but upon probable cause in connection with one
specific offense.’ Not satisfied with this qualification, the Court added thereto a paragraph,
directing that ‘no search warrant shall issue for more than one specific offense.’"
3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-
M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates of stocks
and securities; contracts, promissory notes and deeds of sale; telex and coded messages;
business communications, accounting and business records; checks and check stubs; records
of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966
to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec.
3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the
things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for and
seized, to wit:chanrob1es virtual 1aw library
‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers,
portfolios, credit journals, typewriters, and other documents and/or paper showing all business
transactions including disbursement receipts, balance sheets and related profit and loss
statements.’
"Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal.
The warrants sanctioned the seizure of all records of the petitioners and the aforementioned
corporations, whatever their nature, thus openly contravening the explicit command of our Bill of
Rights — that the things to be seized be particularly described — as well as tending to defeat its
major objective: the elimination of general warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the
said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the
elimination of general warrants, for the language used therein is so all-embracing as to include
all conceivable records of petitioner corporation, which, if seized, could possibly render its
business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to
Page 25 of 139
explain the purpose of the requirement that the warrant should particularly describe the place to
be searched and the things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a
search warrant should particularly describe the place to be searched and the things to be seized.
The evident purpose and intent of this requirement is to limit the things to be seized to those,
and only those, particularly described in the search warrant — to leave the officers of the law
with no discretion regarding what articles they shall seize, to the end that ‘unreasonable
searches and seizures’ may not be made, — that abuses may not be committed. That this is the
correct interpretation of this constitutional provision is borne out by American authorities."cralaw
virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search
warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow (People v. Rubio; 57
Phil. 384); or when the description expresses a conclusion of fact — not of law — by which the
warrant officer may be guided in making the search and seizure (idem., dissent of Abad
Santos, J.,); or when the things described are limited to those which bear direct relation to the
offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The
herein search warrant does not conform to any of the foregoing tests. If the articles desired to be
seized have any direct relation to an offense committed, the applicant must necessarily have
some evidence, other than those articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to strengthen such evidence. In this event, the
description contained in the herein disputed warrant should have mentioned, at least, the dates,
amounts, persons, and other pertinent data regarding the receipts of payments, certificates of
stocks and securities, contracts, promissory notes, deeds of sale, messages and
communications, checks, bank deposits and withdrawals, records of foreign remittances, among
others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion for
reconsideration of respondent Judge’s order of July 29, 1970. The contention is without merit. In
the first place, when the questions raised before this Court are the same as those which were
squarely raised in and passed upon by the court below, the filing of a motion for reconsideration
in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo,
etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the filing of a
motion for reconsideration before an application for a writ of certiorari can be entertained was
never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et Al.,
109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought
to be enforced by respondent officers of the Bureau of Internal Revenue against petitioner
corporation, On account of which immediate and more direct action becomes necessary.
(Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in
this case, the deprivation of petitioners’ fundamental right to due process taints the proceeding
against them in the court below not only with irregularity but also with nullity. (Matute v. Court of
Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against
unreasonable search and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation
which is charged with a violation of a statute of the state of its creation, or of an act of Congress
passed in the exercise of its constitutional powers, cannot refuse to produce the books and
papers of such corporation, we do not wish to be understood as holding that a corporation is not
entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals under an assumed name and with a
distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities
appropriate to such body. Its property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected, under the 14th Amendment, against
unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule
applied to a corporation, the ground that it was not privileged from producing its books and
papers. But the rights of a corporation against unlawful search and seizure are to be protected
even if the same result might have been achieved in a lawful way." (Silverthorne Lumber
Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a
corporation to object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail the
legality of the contested warrants and of the seizures made in pursuance thereof, for the simple
reason that said corporations have their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of stock or the interest of
each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is
well settled that the legality of a seizure can be contested only by the party whose rights have
been impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. Consequently, petitioners herein may not
validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporations adverted to above, since the right to object to
the admission of said papers in evidence belongs exclusively to the corporations, to whom the
seized effects belong, and may not be invoked by the corporate officers in proceedings against
them in their individual capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents,
papers and effects were searched and seized were the petitioners. In the case at bar, the
corporation to whom the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different
footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by
petitioners — at least partly — as in effect admitted by respondents — based on the documents
seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were
made some one and one-half months after the search and seizure on February 25, 1970, is a
strong indication that the documents thus seized served as basis for the assessments. Those
assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70
issued by respondent Judge is declared null and void; respondents are permanently enjoined
from enforcing the said search warrant; the documents, papers and effects seized thereunder
are ordered to be returned to petitioners; and respondent officials the Bureau of Internal
Revenue and their representatives are permanently enjoined from enforcing the assessments
mentioned in Annex "G" of the present petition, as well as other assessments based on the
documents, papers and effects seized under the search warrant herein nullified, and from using
the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.
G.R. No. L-31061 August 17, 1976
Page 26 of 139
SULO NG BAYAN INC., Plaintiff-Appellant, v. GREGORIO ARANETA, INC., PARADISE
FARMS, INC., NATIONAL WATERWORKS & SEWERAGE AUTHORITY, HACIENDA
CARETAS, INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees.
Hill & Associates Law Offices for appellant.chanrobles virtual law library
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.chanrobles virtual law library
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.chanrobles virtual law library
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government
Corporate Counsel for appellee National Waterworks & Sewerage Authority.chanrobles virtual
law library
Candido G. del Rosario for appellee Hacienda Caretas, Inc.
ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an
action in behalf of its individual members for the recovery of certain parcels of land allegedly
owned by said members; for the nullification of the transfer certificates of title issued in favor of
defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's
members as absolute owners of the property" and the issuance of the corresponding certificate
of title; and for damages.chanroblesvirtualawlibrarychanrobles virtual law library
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the
Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against
defendants-appellees to recover the ownership and possession of a large tract of land in San
Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less,
registered under the Torrens System in the name of defendants-appellees' predecessors-in-
interest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a
corporation organized and existing under the laws of the Philippines, with its principal office and
place of business at San Jose del Monte, Bulacan; that its membership is composed of natural
persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation,
through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-
mentioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against the
whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through
force and intimidation, ejected the members of the plaintiff corporation fro their possession of the
aforementioned vast tract of land; that upon investigation conducted by the members and
officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in
question "had been either fraudelently or erroneously included, by direct or constructive fraud, in
Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on
May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact
that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof
and that the Court of First Instance of Bulacan which issued the decree of registration did not
acquire jurisdiction over the land registration case because no notice of such proceeding was
given to the members of the plaintiff corporation who were then in actual possession of said
properties; that as a consequence of the nullity of the original title, all subsequent titles derived
therefrom, such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and
Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in
the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of,
the National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986
issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name
of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived
therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common
of said property and that the corresponding certificate of title be issued to plaintiff; and (3) that
defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein
specified.chanroblesvirtualawlibrarychanrobles virtual law library
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the
amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National
Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its
answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and
the barring of such action by prescription and laches.chanroblesvirtualawlibrarychanrobles
virtual law library
During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7,
1966, praying that the case be transferred to another branch of the Court of First Instance sitting
at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said
motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant
to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's
motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack
of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966.
Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation
information the court that it also did not receive a copy of the afore-mentioned of appellant. On
January 24, 1967, the trial court issued an Order dismissing the amended
complaint.chanroblesvirtualawlibrarychanrobles virtual law library
On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the
grounds that the court had no jurisdiction to issue the Order of dismissal, because its request for
the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos
Branch of the said court has been approved by the Department of Justice; that the complaint
states a sufficient cause of action because the subject matter of the controversy in one of
common interest to the members of the corporation who are so numerous that the present
complaint should be treated as a class suit; and that the action is not barred by the statute of
limitations because (a) an action for the reconveyance of property registered through fraud does
not prescribe, and (b) an action to impugn a void judgment may be brought any time. This
motion was denied by the trial court in its Order dated February 22, 1967. From the afore-
mentioned Order of dismissal and the Order denying its motion for reconsideration, plaintiff-
appellant appealed to the Court of Appeals.chanroblesvirtualawlibrarychanrobles virtual law
library
On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved
in the appeal but only questions of law and jurisdiction, certified this case to this Court for
resolution of the legal issues involved in the controversy.chanroblesvirtualawlibrarychanrobles
virtual law library
Ichanrobles virtual law library
Page 27 of 139
Appellant contends, as a first assignment of error, that the trial court acted without authority and
jurisdiction in dismissing the amended complaint when the Secretary of Justice had already
approved the transfer of the case to any one of the two branches of the Court of First Instance of
Malolos, Bulacan.chanroblesvirtualawlibrarychanrobles virtual law library
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of
cases in the different branches of the same Court of First Instance. Jurisdiction implies the
power of the court to decide a case, while venue the place of action. There is no question that
respondent court has jurisdiction over the case. The venue of actions in the Court of First
Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is
not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the
rules. 2 The mere fact that a request for the transfer of a case to another branch of the same
court has been approved by the Secretary of Justice does not divest the court originally taking
cognizance thereof of its jurisdiction, much less does it change the venue of the action. As
correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not
order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but
only "authorized" it for the reason given by plaintiff's counsel that the transfer would be
convenient for the parties. The trial court is not without power to either grant or deny the motion,
especially in the light of a strong opposition thereto filed by the defendant. We hold that the
court a quo acted within its authority in denying the motion for the transfer the case to Malolos
notwithstanding the authorization" of the same by the Secretary of
Justice.chanroblesvirtualawlibrarychanrobles virtual law library
II chanrobles virtual law library
Let us now consider the substantive aspect of the Order of
dismissal.chanroblesvirtualawlibrarychanrobles virtual law library
In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions to dismiss refer to the lack of
personality of plaintiff to file the instant action. Essentially, the term 'cause of action' is composed
of two elements: (1) the right of the plaintiff and (2) the violation of such right by the defendant.
(Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be
prosecuted and defended in the name of the real party in interest and that all persons having an
interest in the subject of the action and in obtaining the relief demanded shall be joined as
plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to
have been violated by being deprived and dispossessed of their land are the members of the
corporation and not the corporation itself. The corporation has a separate. and distinct
personality from its members, and this is not a mere technicality but a matter of substantive law.
There is no allegation that the members have assigned their rights to the corporation or any
showing that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for which it could seek
redress. Even if the Court should find against the defendants, therefore, the plaintiff corporation
would not be entitled to the reliefs prayed for, which are recoveries of ownership and possession
of the land, issuance of the corresponding title in its name, and payment of damages. Neither
can such reliefs be awarded to the members allegedly deprived of their land, since they are not
parties to the suit. It appearing clearly that the action has not been filed in the names of the real
parties in interest, the complaint must be dismissed on the ground of lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial court correctly
dismissed the amended complaint.chanroblesvirtualawlibrarychanrobles virtual law library
It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. 4 The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it. Properties registered in
the name of the corporation are owned by it as an entity separate and distinct from its
members. 5 Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man
corporation. 6 The mere fact that one is president of a corporation does not render the property
which he owns or possesses the property of the corporation, since the president, as individual,
and the corporation are separate similarities. 7 Similarly, stockholders in a corporation engaged
in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an
allotment in the distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or interest in the land, as
would support a suit for title, especially against parties other than the corporation. 8 chanrobles
virtual law library
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. 9 This separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak
or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve
equity. 10 chanrobles virtual law library
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in
the case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no
business purpose and is intended only as a blind, or an alter ego or business conduit for the sole
benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity is used for
the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of
employer-employee relationship, 14 or when necessary for the protection of creditors, in which
case the veil of corporate fiction may be pierced and the funds of the corporation may be
garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to
by the courts as a measure protection for third parties to prevent fraud, illegality or
injustice. 16 chanrobles virtual law library
It has not been claimed that the members have assigned or transferred whatever rights they
may have on the land in question to the plaintiff corporation. Absent any showing of interest,
therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for
and in behalf of its stockholders or members for the purpose of recovering property which
belongs to said stockholders or members in their personal
capacities.chanroblesvirtualawlibrarychanrobles virtual law library
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal
right conferred' by law upon a person. 17 Evidently, there can be no wrong without a
corresponding right, and no breach of duty by one person without a corresponding right
belonging to some other person. 18 Thus, the essential elements of a cause of action are legal
right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in
violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff
corporation, for as shown heretofore it does not have any interest in the subject matter of the
Page 28 of 139
case which is material and, direct so as to entitle it to file the suit as a real party in
interest.chanroblesvirtualawlibrarychanrobles virtual law library
IIIchanrobles virtual law library
Appellant maintains, however, that the amended complaint may be treated as a class suit,
pursuant to Section 12 of Rule 3 of the Revised Rules of
Court.chanroblesvirtualawlibrarychanrobles virtual law library
In order that a class suit may prosper, the following requisites must be present: (1) that the
subject matter of the controversy is one of common or general interest to many persons; and (2)
that the parties are so numerous that it is impracticable to bring them all before the
court. 20 chanrobles virtual law library
Under the first requisite, the person who sues must have an interest in the controversy, common
with those for whom he sues, and there must be that unity of interest between him and all such
other persons which would entitle them to maintain the action if suit was brought by them
jointly. 21 chanrobles virtual law library
As to what constitutes common interest in the subject matter of the controversy, it has been
explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of complaint, or that will enable the court to
dispense with the presence of all the parties, when numerous, except a determinate number, is
not only an interest in the question, but one in common in the subject Matter of the suit; ... a
community of interest growing out of the nature and condition of the right in dispute; for, although
there may not be any privity between the numerous parties, there is a common title out of which
the question arises, and which lies at the foundation of the proceedings ... [here] the only matter
in common among the plaintiffs, or between them and the defendants, is an interest in the
Question involved which alone cannot lay a foundation for the joinder of parties. There is
scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given state
of facts, or in which a general statute is interpreted, that does not involved a Question in which
other parties are interested. ... (Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest
in the subject matter of the controversy, and cannot, therefore, represent its members or
stockholders who claim to own in their individual capacities ownership of the said property.
Moreover, as correctly stated by the appellees, a class suit does not lie in actions for the
recovery of property where several persons claim Partnership of their respective portions of the
property, as each one could alleged and prove his respective right in a different way for each
portion of the land, so that they cannot all be held to have Identical title through acquisition
prescription. 23 chanrobles virtual law library
Having shown that no cause of action in favor of the plaintiff exists and that the action in the
lower court cannot be considered as a class suit, it would be unnecessary and an Idle exercise
for this Court to resolve the remaining issue of whether or not the plaintiffs action for
reconveyance of real property based upon constructive or implied trust had already
prescribed.chanroblesvirtualawlibrarychanrobles virtual law library
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-
appellant.
 [G.R. NO. 164317 : February 6, 2006]
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles
calorized lance pipes [)]
ALFREDO CHING, Petitioner, v. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR
ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, 1895 12-17-80 03-17-81 P67,652.04 Spare parts for
Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE Spectrophotometer
PHILIPPINES, Respondents.
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

DECISION 2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for

CALLEJO, SR., J.:
rolling mills

Before the Court is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals 2100 02-10-81 05-12-81 P210,748.00 Spare parts for
(CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition Lacolaboratory
and mandamus filed by petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 Equipment5
denying the motion for reconsideration thereof.

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold,
September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial to turn over the proceeds thereof as soon as received, to apply against the relative acceptances
Banking Corporation (respondent bank) for the issuance of commercial letters of credit to and payment of other indebtedness to respondent bank. In case the goods remained unsold
finance its importation of assorted goods.3 within the specified period, the goods were to be returned to respondent bank without any need
of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of money or bills, receivables, or accounts separate and capable of identification" were
of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 respondent bank's property.
trust receipts4 as surety, acknowledging delivery of the following goods:
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to
return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal
T/R Date Maturity Principal Description of Goods complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila.
Nos. Granted Date

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" After the requisite preliminary investigation, the City Prosecutor found probable cause estafa
Brand Synthetic under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree
Graphite Electrode (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were
filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were
1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles) docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court.
Calorized Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The
Refractory Tundish appeal was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its
Bricks reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against petitioner.8 The City Prosecutor
1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for was ordered to move for the withdrawal of the Informations.
CCM
This time, respondent bank filed a motion for reconsideration, which, however, was denied on
1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds
February 24, 1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by
2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory petitioner on the ground that the material allegations therein did not amount to estafa. 10
Nozzle Bricks
In the meantime, the Court rendered judgment in Allied Banking Corporation v.
1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Ordoñez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative of an
Electrode [with] tapered obligation covered by the trust receipt; it is not limited to transactions involving goods which are
pitch filed nipples to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold.
The Court also ruled that "the non-payment of the amount covered by a trust receipt is an act
violative of the obligation of the entrustee to pay."12
Page 29 of 139
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against
petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No.
95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there
was no probable cause to charge petitioner with violating P.D. No. 115, as petitioner's liability
was only civil, not criminal, having signed the trust receipts as surety.13 Respondent bank
appealed the resolution to the Department of Justice (DOJ) via Petition for Review, alleging that
the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the
goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; andcralawlibrary
14
3. That the liability of the respondent is only civil in nature.
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and
reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, the
petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was
the one responsible for the offense. Thus, the execution of said receipts is enough to indict the
petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also
declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately
destined for sale, as this issue had already been settled in Allied Banking Corporation v.
Ordoñez,16 where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which
are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately
sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said
goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the
trust receipts not only as a corporate official of PBMI but also as its surety; hence, he could be
proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its
decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and second, as the
corporate official responsible for the offense under P.D. No. 115, via criminal prosecution.
Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice
to the civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary,
following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate
and distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases
were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before
Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of
Justice denied in a Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the
resolutions of the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION
Page 30 of 139
DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS
PARTICIPATION IN THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE
OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED
PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE
TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE
DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR
ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF
JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONER
DESPITE LACK OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is
concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different
divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that
a similar action or proceeding has been filed or is pending before the Supreme Court, the Court
of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to
notify this Honorable Court within five (5) days from such notice." 20
In its Comment on the petition, the Office of the Solicitor General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER
ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND
THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.]
115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER'S CONTENTION THAT EXCESSIVE DELAY HAS
MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE,
JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS
IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT
OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on
procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum
shopping executed by petitioner and incorporated in the petition was defective for failure to
comply with the first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the
Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition
and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of
Justice were correctly issued for the following reasons: (a) petitioner, being the Senior Vice-
President of PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D.
No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his
actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoñez;22 and (c) petitioner was estopped from raising the
City Prosecutor's delay in the final disposition of the preliminary investigation because he failed
to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I theretofore commenced any other action involving the same issues in the Supreme Court, the
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND
THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS
DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY
THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims
that the rules of procedure should be used to promote, not frustrate, substantial justice. He
insists that the Rules of Court should be construed liberally especially when, as in this case, his
substantial rights are adversely affected; hence, the deficiency in his certification of non-forum
shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably,
the certificate of non-forum shopping incorporated in the petition before the CA is defective
because it failed to disclose essential facts about pending actions concerning similar issues and
parties. It asserts that petitioner's failure to comply with the Rules of Court is fatal to his petition.
The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of
Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner
incorporated in his petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the
Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been
filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof,
of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5)
days from such notice.25
Page 31 of 139
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should
be accompanied by a sworn certification of non-forum shopping, as provided in the third
paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. - The petition
shall contain the full names and actual addresses of all the petitioners and respondents, a
concise statement of the matters involved, the factual background of the case and the grounds
relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not
Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such
other action or proceeding, he must state the status of the same; and if he should thereafter
learn that a similar action or proceeding has been filed or is pending before the Supreme Court,
the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within
five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of
the avoidance of forum shopping itself. The requirement is mandatory. The failure of the
petitioner to comply with the foregoing requirement shall be sufficient ground for the dismissal of
the petition without prejudice, unless otherwise provided.26
Indubitably, the first paragraph of petitioner's certification is incomplete and unintelligible.
Petitioner failed to certify that he "had not heretofore commenced any other action involving the
same issues in the Supreme Court, the Court of Appeals or the different divisions thereof or any
other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules of
Court.
We agree with petitioner's contention that the certification is designed to promote and facilitate
the orderly administration of justice, and therefore, should not be interpreted with absolute
literalness. In his works on the Revised Rules of Civil Procedure, former Supreme Court Justice
Florenz Regalado states that, with respect to the contents of the certification which the pleader
may prepare, the rule of substantial compliance may be availed of. 27 However, there must be a
special circumstance or compelling reason which makes the strict application of the requirement
clearly unjustified. The instant petition has not alleged any such extraneous circumstance.
Moreover, as worded, the certification cannot even be regarded as substantial compliance with
the procedural requirement. Thus, the CA was not informed whether, aside from the petition
before it, petitioner had commenced any other action involving the same issues in other
tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary
of Justice committed grave abuse of discretion in finding probable cause against the petitioner
for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to
P.D. No. 115. Thus, the appellate court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not
persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely
abused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except
for his being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a
participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely
civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee.
These assertions are, however, too dull that they cannot even just dent the findings of the
respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
'xxx If the violation or offense is committed by a corporation, partnership, association or other
judicial entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.'
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed
the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the
offense. Since a corporation cannot be proceeded against criminally because it cannot commit
crime in which personal violence or malicious intent is required, criminal action is limited to the
corporate agents guilty of an act amounting to a crime and never against the corporation itself
(West Coast Life Ins. Co. v. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the
execution by respondent of said receipts is enough to indict him as the official responsible for
violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which
are ultimately destined for sale and not goods, like those imported by PBM, for use in
manufacture. This issue has already been settled in the Allied Banking Corporation case, supra,
where he was also a party, when the Supreme Court ruled that PD 115 is 'not limited to
transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component or a product ultimately sold' but 'covers failure to turn over the proceeds of the sale
of entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms
of the trust receipts.'
"In regard to the other assigned errors, we note that the respondent bound himself under the
terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is
evident that these are two (2) capacities which do not exclude the other. Logically, he can be
proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its
decision in RCBC v. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official
responsible for the offense under PD 115, the present case is an appropriate remedy under our
penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers 'without prejudice to the
civil liabilities arising from the criminal offense' thus, the civil liability imposed on respondent in
RCBC v. Court of Appeals case is clearly separate and distinct from his criminal liability under
PD 115.' "28
Petitioner asserts that the appellate court's ruling is erroneous because (a) the transaction
between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the
transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never received
the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or abused
the confidence of respondent bank; and (d) PBMI acquired the goods and used the same in
operating its machineries and equipment and not for resale.
Page 32 of 139
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because
"[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner
cannot be held criminally liable as the transactions sued upon were clearly entered into in his
capacity as an officer of the corporation" and that [h]e never received the goods as an entrustee
for PBM as he never had or took possession of the goods nor did he commit dishonesty nor
"abuse of confidence in transacting with RCBC." Such argument is bereft of merit.
35. Petitioner's being a Senior Vice-President of the Philippine Blooming Mills does not
exculpate him from any liability. Petitioner's responsibility as the corporate official of PBM who
received the goods in trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed
by a corporation, partnership, association or other juridical entities, the penalty provided for in
this Decree shall be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising from the
criminal offense. (Emphasis supplied)cralawlibrary
36. Petitioner having participated in the negotiations for the trust receipts and having received
the goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be
proceeded against by virtue of the PBM's violation of P.D. No. 115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a
quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and
enjoined (a) when necessary to afford adequate protection to the constitutional rights of the
accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the
officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against
the accused.31 The Court also declared that, if the officer conducting a preliminary investigation
(in that case, the Office of the Ombudsman) acts without or in excess of his authority and
resolves to file an Information despite the absence of probable cause, such act may be nullified
by a writ of certiorari .32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information
shall be prepared by the Investigating Prosecutor against the respondent only if he or she finds
probable cause to hold such respondent for trial. The Investigating Prosecutor acts without or in
excess of his authority under the Rule if the Information is filed against the respondent despite
absence of evidence showing probable cause therefor.34 If the Secretary of Justice reverses the
Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable
cause, the Secretary of Justice acts contrary to law, without authority and/or in excess of
authority. Such resolution may likewise be nullified in a petition for certiorari under Rule 65 of the
Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and
oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and
(b) whether there is probable cause to believe that the accused is guilty thereof. It is a means of
discovering the person or persons who may be reasonably charged with a crime. Probable
cause need not be based on clear and convincing evidence of guilt, as the investigating officer
acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A
finding of probable cause needs only to rest on evidence showing that more likely than not, a
crime has been committed by the suspect.36
However, while probable cause should be determined in a summary manner, there is a need to
examine the evidence with care to prevent material damage to a potential accused's
constitutional right to liberty and the guarantees of freedom and fair play37 and to protect the
State from the burden of unnecessary expenses in prosecuting alleged offenses and holding
trials arising from false, fraudulent or groundless charges.38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of
discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the
evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this Decree as
the entruster, and another person referred to in this Decree as entrustee, whereby the entruster,
who owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latter's execution
and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trust receipt, or for other purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the case
of goods delivered under trust receipt for the purpose of manufacturing or processing before its
ultimate sale, the entruster shall retain its title over the goods whether in its original or processed
form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to
load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale;
or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to
a principal; or c) to effect the consummation of some transactions involving delivery to a
depository or register; or d) to effect their presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the
buyer, general property rights in such goods, documents or instruments, or who sells the same
to the buyer on credit, retaining title or other interest as security for the payment of the purchase
Page 33 of 139
price, does not constitute a trust receipt transaction and is outside the purview and coverage of
this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a
trust receipt transaction, and any successor in interest of such person for the purpose of
payment specified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust for the entruster and shall dispose of them strictly in
accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for
the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss
from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as property of the entruster; (5)
return the goods, documents or instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the
provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount owing to
the entruster or as appears in the trust receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of all other rights conferred on him in
the trust receipt; provided, such are not contrary to the provisions of the document. 41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust
receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and
entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the
bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as
its property with liberty to sell the same within ____days from the date of the execution of this
Trust Receipt and for the Bank's account, but without authority to make any other disposition
whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional
sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage
or other casualties as directed by the BANK, the sum insured to be payable in case of loss to the
BANK, with the understanding that the BANK is, not to be chargeable with the storage premium
or insurance or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the
BANK, to apply against the relative acceptances (as described above) and for the payment of
any other indebtedness of mine/ours to the BANK. In case of non-sale within the period specified
herein, I/we agree to return the goods under this Trust Receipt to the BANK without any need of
demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the
form of money or bills, receivables, or accounts separate and capable of identification as
property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of
public policy, the failure of person to turn over the proceeds of the sale of the goods covered by
a trust receipt or to return said goods, if not sold, is a public nuisance to be abated by the
imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions
involving goods procured as a component of a product ultimately sold has been resolved in the
affirmative in Allied Banking Corporation v. Ordoñez.44 The law applies to goods used by the
entrustee in the operation of its machineries and equipment. The non-payment of the amount
covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or
otherwise not disposed of, violate the entrustee's obligation to pay the amount or to return the
goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a
trust receipt transaction. The first is covered by the provision which refers to money received
under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise
sold. The second is covered by the provision which refers to merchandise received under the
obligation to return it (devolvera) to the owner.46 Thus, failure of the entrustee to turn over the
proceeds of the sale of the goods covered by the trust receipts to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the trust receipt is a crime
under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and
abuse of confidence in the handling of money or goods to the prejudice of the entruster,
regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the
sale of the goods, if not sold, constitutes a criminal offense that causes prejudice, not only to
another, but more to the public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-
President of PBMI and had no physical possession of the goods, he cannot avoid prosecution
for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
If the violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It
may be committed by a corporation or other juridical entity or by natural persons. However, the
penalty for the crime is imprisonment for the periods provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). - Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
Page 34 of 139
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if
such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional 10,000 pesos; but the total penalty
which may be imposed shall not exceed twenty years. In such cases, and in connection with the
accessory penalties which may be imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the
fraud is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum
period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200
pesos, provided that in the four cases mentioned, the fraud be committed by any of the following
means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the civil
liabilities of such corporation and/or board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such officers or employees are vested with the
authority and responsibility to devise means necessary to ensure compliance with the law and, if
they fail to do so, are held criminally accountable; thus, they have a responsible share in the
violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized
for the crime, precisely because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment
as penalty, a corporation may be prosecuted and, if found guilty, may be fined. 50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every crime is the designation of the author of
the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of
a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which,
otherwise, would not exist and such can be committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does not create an offense for which a
corporation may be punished. On the other hand, if the State, by statute, defines a crime that
may be committed by a corporation but prescribes the penalty therefor to be suffered by the
officers, directors, or employees of such corporation or other persons responsible for the
offense, only such individuals will suffer such penalty. 51 Corporate officers or employees, through
whose act, default or omission the corporation commits a crime, are themselves individually
guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit the crime and to those, who, by virtue
of their managerial positions or other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their relationship to the corporation, they had the
power to prevent the act.53 Moreover, all parties active in promoting a crime, whether agents or
not, are principals.54 Whether such officers or employees are benefited by their delictual acts is
not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a
corporate officer cannot protect himself behind a corporation where he is the actual, present and
efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioner. SO ORDERED.
[G.R. NO. 141994 - January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., Petitioner, v. AGO MEDICAL AND
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, Respondents.
DECISION
CARPIO, J.:
The Case
This Petition for Review 1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution
of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with
modification the 14 December 1992 Decision3 of the Regional Trial Court of Legazpi City,
Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network,
Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered
them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine
moral damages, attorney's fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary4 program hosted by Carmelo 'Mel' Rima ("Rima") and
Hermogenes 'Jun' Alegre ("Alegre").5 Exposé is aired every morning over DZRC-AM which is
owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Exposé" is heard over Legazpi City, the
Albay municipalities and other Bicol areas.6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents against Ago Medical and Educational Center-
Bicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the
broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of
Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990.
Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-
BCCM, advise them to pass all subjects because if they fail in any subject they will repeat
Page 35 of 139
their year level, taking up all subjects including those they have passed already. Several
students had approached me stating that they had consulted with the DECS which told them that
there is no such regulation. If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not
have an instructor - such greed for money on the part of AMEC's administration. Take the
subject Anatomy: students would pay for the subject upon enrolment because it is offered by the
school. However there would be no instructor for such subject. Students would be informed that
course would be moved to a later date because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been
surviving for the past few years since its inception because of funds support from foreign
foundations. If you will take a look at the AMEC premises you ll find out that the names of the
buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign
foundations for AMEC is substantial, isn't it? With the report which is the basis of the expose in
DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow
of support of foreign foundations who assist the medical school on the basis of the latter's
purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with
its reason for being it is possible for these foreign foundations to lift or suspend their donations
temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and
the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms
of salary are absorbing or continues to accept "rejects". For example how many teachers in
AMEC are former teachers of Aquinas University but were removed because of immorality?
Does it mean that the present administration of AMEC have the total definite moral foundation
from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a
dumping ground, garbage, not merely of moral and physical misfits. Probably they only
qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family
name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting
the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just
patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation -
zero visibility - the plane cannot land, meaning she is very old, low pay follows. By the way,
Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had
retired from Bicol University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit In absolving Rima from the charge, the trial court ruled that Rima's only participation was when
people. What does this mean? Immoral and physically misfits as teachers. he agreed with Alegre's exposé. The trial court found Rima's statement within the "bounds of
freedom of speech, expression, and of the press." The dispositive portion of the decision reads:
May I say I m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no
longer fit to teach. You are too old. As an aviation, your case is zero visibility. Don't insist. WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree
of damages caused by the controversial utterances, which are not found by this court to
be really very serious and damaging, and there being no showing that indeed the
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship
enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr. and
committee at that. The reason is practical cost saving in salaries, because an old person is not
Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and
fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by
severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of
- that's why she (Lola) was taken in as Dean.
Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00
reimbursement of attorney's fees, and to pay the costs of suit.
xxx
SO ORDERED.13 (Emphasis supplied)ςrαlαωlιbrαrÿ
xxx On our end our task is to attend to the interests of students. It is likely that the students
would be influenced by evil. When they become members of society outside of campus will
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other,
be liabilities rather than assets. What do you expect from a doctor who while studying at
appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial court's
AMEC is so much burdened with unreasonable imposition? What do you expect from a student
judgment with modification. The appellate court made Rima solidarily liable with FBNI and
who aside from peculiar problems - because not all students are rich - in their struggle to
Alegre. The appellate court denied Ago's claim for damages and attorney's fees because the
improve their social status are even more burdened with false regulations. xxx9 (Emphasis
broadcasts were directed against AMEC, and not against her. The dispositive portion of the
supplied)ςrαlαωlιbrαrÿ
Court of Appeals' decision reads:

The complaint further alleged that AMEC is a reputable learning institution. With the supposed
exposés, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed
plaintiffs' (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly
failing to exercise due diligence in the selection and supervision of its employees, particularly
Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an
Answer10 alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre
claimed that they were plainly impelled by a sense of public duty to report the "goings-on in
AMEC, [which is] an institution imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo
Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNI's behalf. The
trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming
that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI
claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program after passing the interview.
FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness and
objectivity in their broadcasts and to refrain from using libelous and indecent language."
Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa
Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for
libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court
rejected the broadcasters' claim that their utterances were the result of straight reporting
because it had no factual basis. The broadcasters did not even verify their reports before airing
them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to
exercise diligence in the selection and supervision of its employees.
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification
that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes
Alegre.
SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in
its 26 January 2000 Resolution.
Hence, FBNI filed this petition.15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's ruling that the questioned broadcasts are
libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of
malice. The Court of Appeals found Rima and Alegre's claim that they were actuated by their
moral and social duty to inform the public of the students' gripes as insufficient to justify the
utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMEC's administrators, the Court of Appeals
ruled that the broadcasts were made "with reckless disregard as to whether they were true or
false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any
of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single
name when asked to identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters' claim that they were "impelled by
their moral and social duty to inform the public about the students' gripes."

Page 36 of 139
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM
is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services
of Dean Justita Lola to minimize expenses on its employees' salaries; and (3) AMEC burdened
the students with unreasonable imposition and false regulations." 16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and
supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without
the proper KBP accreditation. The Court of Appeals denied Ago's claim for damages and
attorney's fees because the libelous remarks were directed against AMEC, and not against her.
The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral
damages, attorney's fees and costs of suit.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY'S FEES IS PROPER; andcralawlibrary
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF
MORAL DAMAGES, ATTORNEY'S FEES AND COSTS OF SUIT.
The Court's Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and
Alegre against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a
reading of the complaint reveals that AMEC's cause of action is based on Articles 30 and 33 of
the Civil Code. Article 3018 authorizes a separate civil action to recover civil liability arising from a
criminal offense. On the other hand, Article 3319 particularly provides that the injured party may
bring a separate civil action for damages in cases of defamation, fraud, and physical injuries.
AMEC also invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites
Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary,
or any act or omission, condition, status, or circumstance tending to cause the dishonor,
discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is
dead.24
Page 37 of 139
There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegre's remarks
such as "greed for money on the part of AMEC's administrators"; "AMEC is a dumping ground,
garbage of xxx moral and physical misfits"; and AMEC students who graduate "will be liabilities
rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest
that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and
Alegre were plainly impelled by their civic duty to air the students' gripes. FBNI alleges that there
is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI
further points out that Rima and Alegre exerted efforts to obtain AMEC's side and gave Ago the
opportunity to defend AMEC and its administrators. FBNI concludes that since there is no
malice, there is no libel.
FBNI's contentions are untenable.
Every defamatory imputation is presumed malicious.25 Rima and Alegre failed to show
adequately their good intention and justifiable motive in airing the supposed gripes of the
students. As hosts of a documentary or public affairs program, Rima and Alegre should have
presented the public issues "free from inaccurate and misleading information."26 Hearing the
students' alleged complaints a month before the exposé,27 they had sufficient time to verify their
sources and information. However, Rima and Alegre hardly made a thorough investigation of the
students' alleged gripes. Neither did they inquire about nor confirm the purported irregularities in
AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely
went to AMEC to verify his report from an alleged AMEC official who refused to disclose any
information. Alegre simply relied on the words of the students "because they were many and not
because there is proof that what they are saying is true."28 This plainly shows Rima and Alegre's
reckless disregard of whether their report was true or not.
Contrary to FBNI's claim, the broadcasts were not "the result of straight reporting." Significantly,
some courts in the United States apply the privilege of "neutral reportage" in libel cases involving
matters of public interest or public figures. Under this privilege, a republisher who accurately and
disinterestedly reports certain defamatory statements made against public figures is shielded
from liability, regardless of the republisher's subjective awareness of the truth or falsity of the
accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because
unfounded comments abound in the broadcasts. Moreover, there is no existing controversy
involving AMEC when the broadcasts were made. The privilege of neutral reportage applies
where the defamed person is a public figure who is involved in an existing controversy, and a
party to that controversy makes the defamatory statement.30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v.
Court of Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly
privileged communications" for being commentaries on matters of public interest. Such being the
case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove
actual malice, there is no libel.
FBNI's reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair
comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in
an action for libel or slander. The doctrine of fair comment means that while in general every
discreditable imputation publicly made is deemed false, because every man is presumed
innocent until his guilt is judicially proved, and every false imputation is deemed malicious,
nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a
public official may be actionable, it must either be a false allegation of fact or a comment
based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as long as it
might reasonably be inferred from the facts.32 (Emphasis supplied)ςrαlαωlιbrαrÿ
True, AMEC is a private learning institution whose business of educating students is "genuinely
imbued with public interest." The welfare of the youth in general and AMEC's students in
particular is a matter which the public has the right to know. Thus, similar to the newspaper
articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike
in Borjal, the questioned broadcasts are not based on established facts. The record supports
the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and
parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a
single student who made the complaint to them, much less present written complaint or petition
to that effect. To accept this defense of defendants is too dangerous because it could easily give
license to the media to malign people and establishments based on flimsy excuses that there
were reports to them although they could not satisfactorily establish it. Such laxity would
encourage careless and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates
of their duties, did not verify and analyze the truth of the reports before they aired it, in order to
prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical
Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22,
1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical
Therapy course had already been given the plaintiff, which certificate is signed by no less than
the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal).
Defendants could have easily known this were they careful enough to verify. And yet,
defendants were very categorical and sounded too positive when they made the erroneous
report that plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing.
Although a big building of plaintiff school was given the name Mcdonald building, that was only
in order to honor the first missionary in Bicol of plaintiffs' religion, as explained by Dr. Lita Ago.
Contrary to the claim of defendants over the air, not a single centavo appears to be received by
plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when
medical students fail in one subject, they are made to repeat all the other subject[s], even those
they have already passed, nor their claim that the school charges laboratory fees even if there
are no laboratories in the school. No evidence was presented to prove the bases for these
claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers,
defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already.
Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older
Page 38 of 139
people prove to be effective teachers like Supreme Court Justices who are still very much in
demand as law professors in their late years. Counsel for defendants is past 75 but is found by
this court to be still very sharp and effective.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
So is plaintiffs' counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is
still alert and docile.
The contention that plaintiffs' graduates become liabilities rather than assets of our society is a
mere conclusion. Being from the place himself, this court is aware that majority of the medical
graduates of plaintiffs pass the board examination easily and become prosperous and
responsible professionals.33
Had the comments been an expression of opinion based on established facts, it is immaterial
that the opinion happens to be mistaken, as long as it might reasonably be inferred from the
facts.34 However, the comments of Rima and Alegre were not backed up by facts. Therefore, the
broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. ("Radio Code"). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues
and commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect
public interest, general welfare and good order in the presentation of public affairs and public
issues.36 (Emphasis supplied)ςrαlαωlιbrαrÿ
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the
code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code
is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The
Radio Code is a public warranty by the radio broadcast industry that radio broadcast
practitioners are subject to a code by which their conduct are measured for lapses, liability and
sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the
code of conduct of their profession, just like other professionals. A professional code of conduct
provides the standards for determining whether a person has acted justly, honestly and with
good faith in the exercise of his rights and performance of his duties as required by Article
1937 of the Civil Code. A professional code of conduct also provides the standards for
determining whether a person who willfully causes loss or injury to another has acted in a
manner contrary to morals or good customs under Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it
cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et
al.41 to justify the award of moral damages. However, the Court's statement in Mambulao that "a
corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages" is an obiter dictum.42
43
Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 of the Civil
Code. This provision expressly authorizes the recovery of moral damages in cases of libel,
slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case,
evidence of an honest mistake or the want of character or reputation of the party libeled goes
only in mitigation of damages.46 Neither in such a case is the plaintiff required to introduce
evidence of actual damages as a condition precedent to the recovery of some damages. 47 In this
case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that
even though the broadcasts were libelous per se, AMEC has not suffered any substantial or
material damage to its reputation. Therefore, we reduce the award of moral damages
from P300,000 to P150,000.
III.
Whether the award of attorney's fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award
of attorney's fees. FBNI adds that the instant case does not fall under the enumeration in Article
220848 of the Civil Code.
The award of attorney's fees is not proper because AMEC failed to justify satisfactorily its claim
for attorney's fees. AMEC did not adduce evidence to warrant the award of attorney's fees.
Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions
the rationale for the award of attorney's fees.49 In Inter-Asia Investment Industries, Inc. v.
Court of Appeals ,50 we held that:
Page 39 of 139
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather
than the rule, and counsel's fees are not to be awarded every time a party wins a suit. The
power of the court to award attorney's fees under Article 2208 of the Civil Code demands
factual, legal and equitable justification, without which the award is a conclusion without
a premise, its basis being improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof,
the legal reason for the award of attorney's fees.51 (Emphasis supplied)ςrαlαωlιbrαrÿ
While it mentioned about the award of attorney's fees by stating that it "lies within the discretion
of the court and depends upon the circumstances of each case," the Court of Appeals failed to
point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney's fees and
costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages
and attorney's fees because it exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima
and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those
who apply for broadcaster are subjected to interviews, examinations and an apprenticeship
program."
FBNI further argues that Alegre's age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and
Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a
family in selecting and supervising them." Rima's accreditation lapsed due to his non-payment of
the KBP annual fees while Alegre's accreditation card was delayed allegedly for reasons
attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely
voluntary and not required by any law or government regulation.
FBNI's arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the
tort which they commit.52 Joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit.53 Thus, AMEC correctly anchored its cause
of action against FBNI on Articles 2176 and 2180 of the Civil Code.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for
damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for
defamatory statements published by radio or television may be had from the owner of the
station, a licensee, the operator of the station, or a person who procures, or participates in,
the making of the defamatory statements."54 An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of his or her employment, at
least when the employer authorizes or ratifies the defamation. 55 In this case, Rima and Alegre
were clearly performing their official duties as hosts of FBNI's radio program Exposé when they
aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the
scope of their work at that time. There was likewise no showing that FBNI did not authorize and
ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely
showed that it exercised diligence in the selection of its broadcasters without introducing any
evidence to prove that it observed the same diligence in the supervision of Rima and Alegre.
FBNI did not show how it exercised diligence in supervising its broadcasters. FBNI's alleged
constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain
from using libelous and indecent language" is not enough to prove due diligence in the
supervision of its broadcasters. Adequate training of the broadcasters on the industry's code of
conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters'
performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as
broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence
shows that Rima and Alegre underwent FBNI's "regimented process" of application.
Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,56 which is one of FBNI's requirements before it hires a broadcaster. Significantly,
membership in the KBP, while voluntary, indicates the broadcaster's strong commitment to
observe the broadcast industry's rules and regulations. Clearly, these circumstances show
FBNI's lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily
liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and
the award of attorney's fees is deleted. Costs against petitioner. SO ORDERED.
G.R. No. 212398, November 25, 2014
EMILIO RAMON “E.R.” P. EJERCITO, Petitioner, v. HON. COMMISSION ON ELECTIONS
AND EDGAR “EGAY” S. SAN LUIS, Respondents.
DECISION
PERALTA, J.:
Contested in this petition for certiorari under Rule 64, in relation to Rule 65 of the Rules of Court
(Rules), is the May 21, 2014 Resolution1 of the Commission on Elections (COMELEC) En
Banc in SPA No. 13-306 (DC), which affirmed the September 26, 2013 Resolution2 of the
COMELEC First Division granting the petition for disqualification filed by private respondent
Edgar “Egay” S. San Luis (San Luis) against petitioner Emilio Ramon “E.R.” P. Ejercito
(Ejercito).
Three days prior to the May 13, 2013 National and Local Elections, a petition for disqualification
was filed by San Luis before the Office of the COMELEC Clerk in Manila against Ejercito, who
was a fellow gubernatorial candidate and, at the time, the incumbent Governor of the Province of
Laguna.3 Alleged in his Petition are as follows:
FIRST CAUSE OF ACTION
5. [Ejercito], during the campaign period for 2013 local election, distributed to the electorates of
the province of Laguna the so-called “Orange Card” with an intent to influence, induce or corrupt
the voters in voting for his favor. Copy thereof is hereto attached and marked as Annex “C” and
Page 40 of 139
made as an integral part hereof;
6. In furtherance of his candidacy for the position of Provincial Governor of Laguna, [Ejercito]
and his cohorts claimed that the said “Orange Card” could be used in any public hospital within
the Province of Laguna for their medical needs as declared by the statements of witnesses
which are hereto attached and marked as Annex “D” as integral part hereof;
7. The so-called “Orange Card” is considered a material consideration in convincing the voters to
cast their votes for [Ejercito’s] favor in clear violation of the provision of the Omnibus Election
Code which provides and I quote:
“Sec. 68. Disqualifications. – Any candidate who, in an action or protest in which he is a party is
declared by final decision by a competent court guilty of, or found by the Commission of having
(a) given money or other material consideration to influence, induce or corrupt the voters or
public officials performing electoral functions; (b) committed acts of terrorism to enhance his
candidacy; (c) spent in his election campaign an amount in excess of that allowed by this Code;
(d) solicited, received or made any contribution prohibited under Sections 89, 95, 96, 97 and
104; or (e) violated any of Sections 80, 83, 85, 86, and 261, paragraphs d, e, k, v, and cc,
subparagraph 6, shall be disqualified from continuing as a candidate, or if he has been elected,
from holding the office. Any person who is a permanent resident of or an immigrant to a foreign
country shall not be qualified to run for any elective office under this Code, unless said person
has waived his status as permanent resident or immigrant of a foreign country in accordance
with the residence requirement provided for in the election laws.” (emphasis ours)
8. Thus, pursuant to the mandate of the aforesaid law, [Ejercito] should be disqualified;
SECOND CAUSE OF ACTION
9. Based on the records of the Provincial COMELEC, the Province of Laguna has a total of
1,525,522 registered electorate. A certification issued by the Provincial Election Supervisor is
hereto attached and marked as Annex “E” as an integral part hereof;
10. In this regard, par. (a), Section 5 of COMELEC Resolution No. 9615, otherwise known as the
Rules and Regulations Implementing FAIR ELECTION ACT provides and I quote:
“Authorized Expenses of Candidates and Parties. – The aggregate amount that a candidate or
party may spent for election campaign shall be as follows:
a. For candidates – Three pesos (P3.00) for every voter currently
registered in the constituency where the candidate filed his
certificate of candidacy.
b. For other candidates without any political party and without any
support from any political party – Five pesos (P5.00) for every
voter currently registered in the constituency where the candidate
filed his certificate of candidacy.
c. For Political Parties and party-list groups – Five pesos (P5.00) for
every voter currently registered in the constituency or
constituencies where it has official candidates. (underscoring
mine for emphasis)
11. Accordingly, a candidate for the position of Provincial Governor of Laguna is only authorized
to incur an election expense amounting to FOUR MILLION FIVE HUNDRED SEVENTY-SIX
THOUSAND FIVE HUNDRED SIXTY-SIX (P4,576,566.00) PESOS.
12. However, in total disregard and violation of the afore-quoted provision of law, [Ejercito] reason a candidate is not declared by final judgment before an election to be disqualified and he
exceeded his expenditures in relation to his campaign for the 2013 election. For television is voted for and receives the winning number of votes in such election, the Court or Commission
campaign commercials alone, [Ejercito] already spent the sum of PhP23,730.784 based on our shall continue with the trial and hearing of the action, inquiry or protest and, upon motion of the
party’s official monitoring on the following dates[:] April 28, May 4 & May 5, 2013. complainant or any intervenor, may during the pendency thereof order the suspension of the
proclamation of such candidate whenever the evidence of [his] guilt is strong.” (emphasis mine)
Network Date Program Time Duration Amount*
4 minutes PRAYER
ABS-CBN April 28, 2013 TV Patrol 5:58 p.m. P3,297,496
(approximately)
WHEREFORE, premises considered, it is respectfully prayed that:chanroblesvirtuallawlibrary
Sundays Best 4 minutes
ABS-CBN April 28, 2013 10:40 p.m. P3,297,496
(local specials) (approximately)
1. Upon filing of this petition, a declaration by the Honorable Commission of the existence of
Sunday Night 3 minutes probable cause be made against [Ejercito] for violating the afore-quoted provisions of laws;
GMA April 28, 2013 10:46 p.m. P2,635,200
Box Office (approximately)
Sunday Night 4 minutes 2. In the event that [Ejercito] will be able to get a majority vote of the electorate of the Province of
GMA April 28, 2013 11:06 p.m. P2,635,200
Box Office (approximately) Laguna on May 13, 2013, his proclamation be suspended until further order of the Honorable
Sunday Night 4 minutes Commission pursuant to Sec. 6 of Republic Act No. 6646;
GMA April 28, 2013 11:18 p.m. P2,635,200
Box Office (approximately)
Sunday Night 4 minutes 3. Lastly, a criminal case for VIOLATION OF ELECTION LAWS be filed against [Ejercito] before
GMA April 28, 2013 11:47 p.m. P2,635,200 the proper court[;] [and]
Box Office (approximately)
4 minutes
ABS-CBN May 4, 2013 TODA MAX 11:26 p.m. P3,297,496 4. Other relief, just and equitable under the premises, are also prayed for. 4
(approximately)
4 minutes Subsequently, on May 16, 2013, San Luis filed a Very Urgent Ex-Parte Motion to Issue
ABS-CBN May 5, 2013 Rated K 8:06 p.m. P3,297,496
(approximately) Suspension of Possible Proclamation of Respondent and Supplemental to the Very Urgent Ex-
Total P23,730.784 Parte Motion to Issue Suspension of Possible Proclamation of Respondent.5 However, these
* Total cost based on published rate card; were not acted upon by the COMELEC. The next day, Ejercito and Ramil L. Hernandez were
proclaimed by the Provincial Board of Canvassers as the duly-elected Governor and Vice-
13. Even assuming that [Ejercito] was given 30% discount as prescribed under the Fair Election Governor, respectively, of Laguna.6 Based on the Provincial/District Certificate of Canvass,
Act, he still exceeded in the total allowable expenditures for which he paid the sum of Ejercito obtained 549,310 votes compared with San Luis’ 471,209 votes. 7chanrobleslaw
P16,611,549;
The COMELEC First Division issued a Summons with Notice of Conference on June 4,
14. In view of the foregoing disquisitions, it is evident that [Ejercito] committed an election 2013.8 Ejercito then filed his Verified Answer on June 13, 2013 that prayed for the dismissal of
offense as provided for under Section 35 of COMELEC Resolution No. 9615, which provides the petition due to procedural and substantive irregularities and taking into account his
and I quote: proclamation as Provincial Governor.9 He countered that the petition was improperly filed
“Election Offense. – Any violation of R.A. No. 9006 and these Rules shall constitute an election because, based on the averments and relief prayed for, it is in reality a complaint for election
offense punishable under the first and second paragraph of Section 264 of the Omnibus Election offenses; thus, the case should have been filed before the COMELEC Law Department, or the
Code in addition to administrative liability, whenever applicable. x x x” election registrar, provincial election supervisor or regional election director, or the state,
provincial or city prosecutor in accordance with Laurel v. Presiding Judge, RTC, Manila, Br.
15. Moreover, it is crystal clear that [Ejercito] violated Sec. 68 of the Omnibus Election Code 10.10 Assuming that the petition could be given due course, Ejercito argued that San Luis failed
which provides and I quote: to show, conformably with Codilla, Sr. v. Hon. De Venecia,11 that he (Ejercito) was previously
“Sec. 68. Disqualifications. – Any candidate who, in an action or protest in which he is a party is convicted or declared by final judgment of a competent court for being guilty of, or found by the
declared by final decision by a competent court guilty of, or found by the Commission of having COMELEC of having committed, the punishable acts under Section 68 of Batas Pambansa
(a) given money or other material consideration to influence, induce or corrupt the voters or (B.P.) Bilang 881, or the Omnibus Election Code of the Philippines, as amended
public officials performing electoral functions; (b) committed acts of terrorism to enhance his (OEC).12chanrobleslaw
candidacy; (c) spent in his election campaign an amount in excess of that allowed by this Code;
(d) solicited, received or made any contribution prohibited under Sections 89, 95, 96, 97 and As to the acts he allegedly committed, Ejercito claimed that the same are baseless, unfounded,
104; or (e) violated any of Sections 80, 83, 85, 86, and 261, paragraphs d, e, k, v, and cc, and totally speculative. He stated that the Health Access Program or the E.R. “Orange Card”
subparagraph 6, shall be disqualified from continuing as a candidate, or if he has been elected, was a priority project of his administration as incumbent Governor of Laguna and was never
from holding the office. Any person who is a permanent resident of or an immigrant to a foreign intended to influence the electorate during the May 2013 elections. He added that the “Orange
country shall not be qualified to run for any elective office under this Code, unless said person Card,” which addressed the increasing need for and the high cost of quality health services,
has waived his status as permanent resident or immigrant of a foreign country in accordance provides the Laguneños not only access to medical services but also the privilege to avail free
with the residence requirement provided for in the election laws.” (emphasis ours) livelihood seminars to help them find alternative sources of income. With respect to the charge
16. On the other hand, the effect of disqualification is provided under Sec. 6 of Republic Act No. of having exceeded the total allowable election expenditures, Ejercito submitted that the
6646, which states and I quote: accusation deserves no consideration for being speculative, self-serving, and uncorroborated by
“Effect of Disqualification Case. – Any candidate who has been declared by final judgment to be any other substantial evidence.
disqualified shall not be voted for, and the votes cast for him shall not be counted. If for any
Page 41 of 139
Citing Sinaca v. Mula,13 Ejercito asserted that the petition questioning his qualification was
rendered moot and academic by his proclamation as the duly-elected Provincial Governor of
Laguna for the term 2013-2016. He perceived that his successful electoral bid substantiates the
fact that he was an eligible candidate and that his victory is a testament that he is more than
qualified and competent to hold public office.
Lastly, Ejercito considered San Luis’ petition for disqualification as purely frivolous and with no
plain and clear purpose but to harass and cause undue hardship. According to him, the fact that
it was filed only a few days before the May 13, 2013 elections evidently shows that it was lodged
as a last-ditch effort to baselessly derail and obstruct his assumption of office and function as the
duly-elected Laguna Governor.
The scheduled case conference between the parties on June 13, 2013 was reset to June 27,
2013.14 In the latter date, all the documentary exhibits were marked in evidence and the parties
agreed to file their respective memorandum within ten (10) days. 15chanrobleslaw
San Luis substantially reiterated the content of the Petition in his Memorandum.16 Additionally,
he alleged that:
15. After the election, [San Luis] was able to secure documents from the Information and
Education Department of the Commission on Elections showing that [Ejercito] have incurred
advertising expenses with ABS-CBN in the amount of [P20,197,170.25] not to mention his
advertisement with GMA 7. Copies of the summary report, media purchase order, advertising
contract[,] and official receipt are marked as EXHS. “B-1”, “B-2”, “B-3”, and “B-4” (Annexes
“A”, “B”, “C”, and “D”, supplemental to the very urgent ex-parte motion)[.]17
It was stressed that the case is a “Special Action for Disqualification” seeking to disqualify
Ejercito as gubernatorial candidate for violation of Section 68 (a) (c) of the OEC. He prayed that
“[t]he Petition BE GRANTED [and] x x x [Ejercito] BE DISQUALIFIED, and PREVENTED from
further holding office as Governor of Laguna.”18 In refutation of Ejercito’s defenses, San Luis
argued that it is precisely because of the commission of the election offenses under Section 68
of the OEC that he (Ejercito) should be disqualified. Also, citing Section 6 of Republic Act (R.A.)
No. 6646,19 San Luis contended that Ejercito’s proclamation and assumption of office do not
affect the COMELEC’s jurisdiction to continue with the trial and hearing of the action until it is
finally resolved.
For his part, Ejercito filed a Manifestation (In Lieu of Memorandum)20 restating all the arguments
set forth in his Verified Answer.
On September 26, 2013, the COMELEC First Division promulgated a Resolution, the dispositive
portion of which reads:
WHEREFORE, premises considered, the Commission (First Division) RESOLVED, as it
hereby RESOLVES, to:chanroblesvirtuallawlibrary
(1) GRANT the Petition for Disqualification filed against respondent Emilio Ramon “E.R.” P.
Ejercito;
(2) DISQUALIFY respondent Ejercito from holding the Office of the Provincial Governor of
Laguna, pursuant to Section 68 of the Omnibus Election Code;
(3) ORDER respondent Ejercito to CEASE and DESIST from performing the functions of the
Office of the Provincial Governor of Laguna;
(4) DECLARE a permanent VACANCY in the Office of the Provincial Governor of Laguna;
Page 42 of 139
(5) DIRECT the duly elected Vice Governor of Laguna to assume the Office of the Provincial
Governor by virtue of succession as provided in Section 44 of the Local Government Code;
and
(6) DIRECT the Campaign Finance Unit to coordinate with the Law Department of this
Commission for the conduct of a preliminary investigation into the alleged violations of
campaign finance laws, rules and regulations committed by respondent Ejercito.
SO ORDERED.21
On procedural matters, the COMELEC First Division held that the title of San Luis’ petition and
its reliance on Section 68 (a) (c) of the OEC as grounds for his causes of action clearly show
that the case was brought under Rule 25 of the COMELEC Rules of Procedure,22 as amended
by COMELEC Resolution No. 9523,23 which allows petitions for disqualification to be filed “any
day after the last day for filing of certificates of candidacy, but not later than the date of
proclamation.” No credence was given to Ejercito’s contention that the petition was mooted by
his proclamation as Governor of Laguna. The COMELEC First Division opined that the case
of Sinaca is inapplicable, because it was not about Sinaca’s eligibility or whether he committed
any of the acts enumerated in Section 68 of the OEC. Consistent with Maquiling v. Commission
on Elections,24 it was declared that Ejercito’s garnering of more votes than San Luis in the May
2013 elections is not tantamount to condonation of any act or acts that he committed which may
be found to be a ground for disqualification or election offense.
The COMELEC First Division settled the substantive issues put forth in the petition for
disqualification in this wise:
Anent [San Luis’] first cause of action, [San Luis] presented the Sworn Statement dated [May 7,
2013] of a certain Mrs. Daisy A. Cornelio, together with the “Orange Card” issued to Mrs.
Cornelio, marked respectively as Exhibits “A-4” and “A-3” as per [San Luis’] Summary of
Exhibits – to prove that [Ejercito] committed the act described in Section 68 (a) of the OEC. After
reviewing Mrs. Cornelio’s Sworn Statement, we do not find any averment to the effect that the
Orange Card was given to the affiant to influence or induce her to vote for [Ejercito]. Affiant only
stated that she was given the Orange Card “last April of this year” and that she was “not able to
use it during those times when [she] or one of [her] family members got sick and needed hospital
assistance.” Aside from Mrs. Cornelio’s Sworn Statement, there is no other evidence to support
[San Luis’] claim, leading us to reject [San Luis’] first cause of action.
With respect to the second cause of action, [San Luis] presented Exhibits “B-1” to “B-4”, which
are submissions made by the ABS-CBN Corporation as mandated by Section 6 of Republic Act
No. 9006 (“RA 9006” or the “Fair Election Act”), implemented through Section 9 (a) of Resolution
No. 9615. Exhibit “B-3” is an Advertising Contract between ABS-CBN Corporation and Scenema
Concept International, Inc. (“SCI”). The details of the Contract are as
follows:chanroblesvirtuallawlibrary
Payor/Advertiser Scenema Concept International, Inc.
Beneficiary Jeorge “ER” Ejercito Estregan
Broadcast Schedule April 27, 28, May 3, 4, 10 & 11, 2013
Number of Spots 6 spots of 3.5 minutes each
Unit Cost per Spot PhP 3,366,195.04
Total Cost of Contract PhP 20,197,170.25 plus VAT
The Contract contains the signature of [Ejercito] signifying his acceptance of the donation by
SCI, the latter represented by its Executive Vice President, Ms. Maylyn Enriquez. In addition to
the advertising contract, Exhibit “B-4” was submitted, which is a photocopy of an Official
Receipt issued by ABS-CBN for the contract, with the following 11 May 2013 TV Patrol Sabado/5:30-6:00 pm 06:12:30 PM
details:chanroblesvirtuallawlibrary
Source: Pages 6, 8, 43, 47, 75, 84, and 93 of ABS-CBN Channel 2 Daily Operations Log for
[April 27, 2013] to [May 11, 2013].
Date of the Receipt [April 26, 2013]
Received From Scenema Concept International, Inc. Assuming arguendo, that the actual cost of both contracts only amounted to PhP 12,818,470.56
Amount Received PhP 6,409,235.28 as substantiated by the two (2) Official Receipts issued by the ABS-CBN on [April 26] and [May
Official Receipt No. 278499 7, 2013], or even if we were only to consider Exhibit [“B-4”] or the Php 6,409,235.28 payment to
ABS-CBN on [April 26, 2013], it nevertheless supports our finding that [Ejercito] exceeded his
Upon verification of the submitted Exhibits “B-1” to “B-4” with this Commission’s Education and authorized expenditure limit of PhP 4,576,566.00 which is a ground for disqualification under
Information Department (EID), the latter having custody of all advertising contracts submitted by Section 68 (c) and concurrently an election offense pursuant to Section 100 in relation to Section
broadcast stations and entities in relation to the [May 13, 2013] National and Local Elections, we 262 of the Omnibus Election Code.25
find the said Exhibits to be faithful reproductions of our file copy of the same. A comparison of Only Ejercito filed a Verified Motion for Reconsideration before the COMELEC En Banc.26 After
[Ejercito’s] signature on the Advertising Contract and that on his Certificate of Candidacy show the parties’ exchange of pleadings,27 the Resolution of the COMELEC First Division was
them to be identical to each other, leading us to the conclusion that [Ejercito] had indeed unanimously affirmed on May 21, 2014.
accepted the PhP 20,197,170.25 donation in the form of television advertisements to be aired on
ABS-CBN’s Channel 2. Even if we were to assume that only PhP 6,409,235.28 was actually paid The COMELEC En Banc agreed with the findings of its First Division that San Luis’ petition is an
out of PhP 20,197,170.25 advertising contract, this amount is still more than PhP 4,576,566.00, action to disqualify Ejercito, reasoning that:
which is [Ejercito’s] total authorized aggregate amount allowed for his election campaign, x x x First, the title of the petition indicating that it is a petition for disqualification clearly
computed as follows:chanroblesvirtuallawlibrary expresses the objective of the action. Second, it is manifest from the language of the petition
that the causes of action have relied primarily on Section 68 (a) and (c) of the OEC[,] which are
Number of registered voters Authorized expense per Total amount of spending grounds for disqualification x x x. Third, notwithstanding that the relief portion of the petition
for the whole Province of x voter registered in the = allowed for election sounded vague in its prayer for the disqualification of Ejercito, the allegations and arguments set
Laguna constituency campaign forth therein are obviously geared towards seeking his disqualification for having committed acts
listed as grounds for disqualification in Section 68 of OEC. Lastly, as correctly observed by the
1,525,522 registered x PhP 3.00 per voter = PhP 4,576,566.00 COMELEC First Division, San Luis’ Memorandum addresses and clarifies the intention of the
petition when it prayed for Ejercito to “be disqualified and prevented from holding office as
While not presented as evidence in this case, we cannot deny the existence of Governor of Laguna.” While there is a prayer seeking that Ejercito be held accountable for
another Advertising Contract dated [May 8, 2013] for one (1) spot of a 3.5-minute advertisement having committed election offenses, there can be no doubt that the petition was primarily for his
scheduled for broadcast on [May 9, 2013], amounting to PhP 3,366,195.05. This Contract also disqualification.
contains the signature of [Ejercito] accepting the donation from SCI and is accompanied by an
ABS-CBN-issued Official Receipt No. 279513 dated [May 7, 2013] in SCI’s name for PhP Section 68 of the OEC expressly grants COMELEC the power to take cognizance of an action or
6,409,235.28. If we add the amounts from both contracts, we arrive at a total cost of PhP protest seeking the disqualification of a candidate who has committed any of the acts listed
23,563,365.29, which, coincidentally, is the product of:chanroblesvirtuallawlibrary therein from continuing as one, or if he or she has been elected, from holding office. One ground
for disqualification listed in Section 68 is spending in an election campaign an amount in excess
Number of spots x Unit cost per spot = Total contract cost of that allowed by law. It is exactly on said ground that San Luis is seeking the disqualification of
Ejercito. The jurisdiction of COMELEC over the petition, therefore, is clear. 28
Seven (7) spots x PhP 3,366,195.04 = PhP 23,563,365.28 The alleged violation of Ejercito’s constitutional right to due process was also not sustained:
Ejercito insists that he was deprived of his right to notice and hearing and was not informed of
This matches the data gathered by the Commission’s EID from the reports and logs submitted the true nature of the case filed against him when San Luis was allegedly allowed in his
by broadcast stations as required by the Fair Election Act. According to the 99-page Daily memorandum to make as substantial amendment in the reliefs prayed for in his petition. San
Operations Log for Channel 2 submitted by ABS-CBN covering the period of [April 27, 2013] to Luis was allegedly allowed to seek for Ejercito’s disqualification instead of the filing of an election
[May 11, 2013], [Ejercito’s] 3.5-minute or 210-second advertisement was aired seven (7) times. offense against him.
The specific details on the dates of airing, program or time slot when the advertisements were
aired, and the time when the advertisements as culled from the 99-page Daily Operations As discussed above, the allegations in the petition, particularly the causes of action, clearly show
Log are summarized as thus:chanroblesvirtuallawlibrary that it is not merely a complaint for an election offense but a disqualification case against Ejercito
as well. San Luis’ memorandum merely amplified and clarified the allegations and arguments in
Date aired Program/Time Slot Airtime his petition. There was no change in the cause or causes of action. Ejercito[,] therefore, cannot
28 Apr 2013 TV Patrol Linggo/5:20-5:30 pm 05:54:40 PM claim that he was not aware of the true nature of the petition filed against him.
28 Apr 2013 Harapan: Senatorial Debate/9:30-11:30 pm 10:40:13 PM
04 May 2013 TODA MAX/10:30-11:15 pm 11:26:43 PM Likewise, Ejercito cannot complain that he was deprived of his right to notice and hearing. He
05 May 2013 Rated K-Handa Na Ba Kayo/7:15-8:15 pm 08:06:42 PM cannot feign ignorance that the COMELEC First Division, throughout the trial, was hearing the
09 May 2013 TV Patrol/6:30-7:45 pm 07:35:56 PM petition as a disqualification case and not as an election offense case. He was served
10 May 2013 TV Patrol/6:30-7:45 pm 07:44:50 PM with Summons with Notice of Conference on [June 4, 2013] and was given a copy of the petition.

Page 43 of 139
He likewise submitted to the jurisdiction of the Commission when he filed his Verified Answer.
He also participated in the Preliminary Conference on [June 27, 2013] wherein he examined
evidence on record and presented his own documentary exhibits. Lastly, he filed
a Manifestation (in lieu of Memorandum) incorporating all his allegations and defenses.
Ejercito contends that amending the reliefs prayed for is prohibited under Section 2, Rule 9 of
the 1993 COMELEC Rules of Procedure. He asserts that the relief prayed for in the
memorandum is not the same as that in the petition. However, a scrutiny of said amendment
shows that no new issues were introduced. Moreover, there was no departure from the causes
of action and no material alterations on the grounds of relief. The amendment[,] therefore[,] is
not substantial as it merely rectifies or corrects the true nature of reliefs being prayed for as set
forth in the petition.
The records of the case will show that Ejercito has been afforded the opportunity to contest and
rebut all the allegations against him. He was never deprived of his right to have access to the
evidence against him. He was adequately aware of the nature and implication of the
disqualification case against him. Thus, Ejercito cannot say that he was denied of his
constitutional right to due process.
It is important to note at this point that Ejercito, in his motion for reconsideration, deliberately did
not tackle the merit and substance of the charges against him. He limited himself to raising
procedural issues. This is despite all the opportunity that he was given to confront the evidence
lodged against him. Therefore, there is no reason for the COMELEC En Banc to disturb the
findings of the COMELEC First Division on whether Ejercito indeed over-spent in his campaign
for governorship of Laguna in the [May 13, 2013] National and Local Elections.29
Anchoring on the case of Lanot v. Commission on Elections,30 the COMELEC En Banc likewise
debunked Ejercito’s assertion that the petition was prematurely and improperly filed on the
ground that the filing of an election offense and the factual determination on the existence of
probable cause are required before a disqualification case based on Section 68 of the OEC may
proceed. It held:
As discussed in the case of Lanot vs. Comelec, each of the acts listed as ground for
disqualification under Section 68 of the OEC has two aspects – electoral and criminal which may
proceed independently from each other, to wit:
x x x The electoral aspect of a disqualification case determines whether the offender should be
disqualified from being a candidate or from holding office. Proceedings are summary in
character and require only clear preponderance of evidence. An erring candidate may be
disqualified even without prior determination of probable cause in a preliminary
investigation. The electoral aspect may proceed independently of the criminal aspect, and
vice-versa.
The criminal aspect of a disqualification case determines whether there is probable cause to
charge a candidate for an election offense. The prosecutor is the COMELEC, through its Law
Department, which determines whether probable cause exists. If there is probable cause, the
COMELEC, through its Law Department, files the criminal information before the proper court.
Proceedings before the proper court demand a full-blown hearing and require proof beyond
reasonable doubt to convict. A criminal conviction shall result in the disqualification of the
offender, which may even include disqualification from holding a future public office.” (Emphasis
supplied)31
The petition for disqualification against Ejercito for campaign over-spending before the
Commission is heard and resolved pursuant to the electoral aspect of Section 68 of the OEC. It
is an administrative proceeding separate and distinct from the criminal proceeding through which
Ejercito may be made to undergo in order to determine whether he can be held criminally liable
for the same act of over-spending. It is through this administrative proceeding that this
Commission, initially through its divisions, makes a factual determination on the veracity of the
Page 44 of 139
parties’ respective allegations in a disqualification case. There is no need for a preliminary
investigation finding on the criminal aspect of the offenses in Section 68 before the Commission
can act on the administrative or electoral aspect of the offense. All that is needed is a complaint
or a petition. As enunciated in Lanot, “(a)n erring candidate may be disqualified even without
prior determination of probable cause in a preliminary investigation. The electoral aspect may
proceed independently of the criminal aspect, and vice-versa.”
Moreover, Ejercito’s reliance on Codilla is misplaced. The COMELEC En Banc opined that the
portion of the Codilla decision that referred to the necessity of the conduct of preliminary
investigation pertains to cases where the offenders are charged with acts not covered by Section
68 of the OEC, and are, therefore, beyond the ambit of the COMELEC’s jurisdiction. It said that
the decision refers to this type of cases as criminal (not administrative) in nature, and, thus,
should be handled through the criminal process.
Further rejected was Ejercito’s argument that the COMELEC lost its jurisdiction over the petition
for disqualification the moment he was proclaimed as the duly-elected Governor of Laguna. For
the COMELEC En Banc, its First Division thoroughly and sufficiently addressed the matter when
it relied on Maquiling instead of Sinaca. It maintained that Section 5 of COMELEC Resolution
No. 9523, not COMELEC Resolution No. 2050,32 is relevant to the instant case as it states that
the COMELEC shall continue the trial and hearing of a pending disqualification case despite the
proclamation of a winner. It was noted that the proper application of COMELEC Resolution No.
2050 was already clarified in Sunga v. COMELEC.33chanrobleslaw
Finally, the COMELEC En Banc ruled on one of San Luis’ contentions in
his Comment/Opposition to Ejercito’s motion for reconsideration. He argued that he becomes
the winner in the gubernatorial election upon the disqualification of Ejercito. Relying
on Maquiling, San Luis declared that he was not the second placer as he obtained the highest
number of valid votes cast from among the qualified candidates. In denying that Maquiling is on
all fours with this case, the COMELEC En Banc said:
In the instant case, Ejercito cannot be considered as a non-candidate by reason of his
disqualification under Section 68 of the OEC. He was a candidate who filed a valid certificate of
candidacy which was never cancelled.
Ejercito was a bona fide candidate who was disqualified, not because of any ineligibility existing
at the time of the filing of the certificate of candidacy, but because he violated the rules of
candidacy. His disqualifying circumstance, that is, his having over-spent in his campaign, did not
exist at the time of the filing of his certificate of candidacy. It did not affect the validity of the
votes cast in his favor. Notwithstanding his disqualification, he remains the candidate who
garnered the highest number of votes.
Ejercito cannot be on the same footing with Arnado in the Maquiling case. Arnado was
disqualified from running for Mayor of Kauswagan, Lanao Del Sur because he was a dual citizen
not qualified to run for election. His disqualification existed at the time of the filing of the
certificate of candidacy. The effect, pursuant to the Maquiling case, is that the votes he garnered
are void, which in turn resulted in having considered the “second placer” – Maquiling – as the
candidate who obtained the highest number of valid votes cast.
San Luis is in a different circumstance. The votes for the disqualified winning candidate
remained valid. Ergo, San Luis, being the second placer in the vote count, remains the second
placer. He cannot[,] thus[,] be named the winner.
Section 6, Rule 25 of the COMELEC Resolution No. 9523, which governs Section 68 petitions
for disqualification, enunciates the rule succinctly, to wit:
Section 6. Effect of Granting of Petition. – In the event a Petition to disqualify a candidate is
granted by final judgment as defined under Section 8 of Rule 23 and the disqualified candidate
obtains the highest number of votes, the candidate with the second highest number of votes
cannot be proclaimed and the rule of succession, if allowed by law, shall be observed. In the We now explain.
event the rule of succession is not allowed, a vacancy shall exist for such position. 34
The petition filed by San Luis against Ejercito is for the latter’s disqualification and
On May 23, 2014, Ejercito filed before this Court a Petition for certiorari with application for the
prosecution for election offense
issuance of a status quo ante order or temporary restraining order (TRO)/writ of preliminary
injunction (WPI).35 Without issuing a TRO/WPI, the Honorable Chief Justice, Maria Lourdes P. A.
Ejercito insists that his alleged acts of giving material consideration in the form of “Orange
Sereno, issued on May 28, 2014 an order to respondents to comment on the petition within a
Cards” and election overspending are considered as election offenses under Section 35 of
non-extendible period of ten (10) days from notice.36 Such order was confirmed nunc pro tunc by
COMELEC Resolution No. 9615,48 in relation to Section 1349 of R.A. No. 9006, and punishable
the Court En Banc on June 3, 2014.37chanrobleslaw
under Section 26450 of the OEC. Considering that San Luis’ petition partakes of the nature of a
complaint for election offenses, the COMELEC First Division has no jurisdiction over the same
Meantime, on May 26, 2014, Ejercito filed before the COMELEC En Banc an Omnibus Motion to
based on COMELEC Resolution No. 938651 and Section 26552 of the OEC.
suspend proceedings and to defer the implementation of the May 21, 2014 Resolution.38 On the
same day, San Luis also filed an Extremely Urgent Motion to Declare COMELEC En Banc
Still, Ejercito contends that the COMELEC erroneously sanctioned a change in San Luis’ cause
Resolution of May 21, 2014 and First Division Resolution of September 26, 2013 Final and
of action by the mere expedient of changing the prayer in the latter’s Memorandum. According to
Executory and to Issue Forthwith Writ of Execution or Implementing Order39 invoking Paragraph
him, San Luis’ additional prayer for disqualification in the Memorandum is a substantial
2, Section 8 of COMELEC Resolution No. 9523, in relation to Section 13 (b), Rule 18 of the
amendment to the Petition as it constitutes a material deviation from the original cause of action
COMELEC Rules of Procedure.40 On May 27, 2014, the COMELEC En Banc issued an Order
– from a complaint for election offenses to a petition for disqualification. Since such substantial
denying Ejercito’s omnibus motion, granted San Luis’ extremely urgent motion, and directed the
amendment was effected after the case was set for hearing, Ejercito maintains that the same
Clerk of the Commission to issue the corresponding writ of execution. 41 On even date, Vice-
should have been allowed only with prior leave of the COMELEC First Division pursuant to
Governor Hernandez was sworn in as the Governor of Laguna at the COMELEC Main Office in
Section 2, Rule 953 of the COMELEC Rules of Procedure, which San Luis never did.
Manila. The service of the writ was deemed completed and validly served upon Ejercito on May
28, 2014.42chanrobleslaw
The arguments are untenable.
In his petition before Us, Ejercito raised the following issues for resolution:
The purpose of a disqualification proceeding is to prevent the candidate from running or, if
THE COMMISSION COMMITTED GRAVE ABUSE OF DISCRETION IN
elected, from serving, or to prosecute him for violation of the election laws.54 A petition to
THAT:chanroblesvirtuallawlibrary
disqualify a candidate may be filed pursuant to Section 68 of the OEC, which states:
SEC. 68. Disqualifications. -- Any candidate who, in an action or protest in which he is a party
(I) IT VIOLATED THE RIGHT OF PETITIONER TO DUE PROCESS WHEN IT RULED FOR
is declared by final decision of a competent court guilty of, or found by the Commission of
THE DISQUALIFICATION OF PETITIONER EVEN IF IT WAS NEVER PRAYED FOR IN THE
having: (a) given money or other material consideration to influence, induce or corrupt the voters
PETITION. WORSE, THERE IS YET NO FINDING OF GUILT BY A COMPETENT COURT OR
or public officials performing electoral functions; (b) committed acts of terrorism to enhance his
A FINDING OF FACT STATING THAT PETITIONER ACTUALLY COMMITTED THE ALLEGED
candidacy; (c) spent in his election campaign an amount in excess of that allowed by this Code;
ELECTION OFFENSE OF OVERSPENDING;
(d) solicited, received or made any contribution prohibited under Sections 89, 95, 96, 97 and
104; or (e) violated any of Sections 80, 83, 85, 86 and 261, paragraphs d, e, k, v, and cc, sub-
(II) IT RELIED ON A DOCUMENTARY EXHIBIT (ADVERTISING CONTRACT) WHICH WAS
paragraph 6, shall be disqualified from continuing as a candidate, or if he has been elected, from
NOT EVEN FORMALLY OFFERED AS EVIDENCE; [AND]
holding the office. Any person who is a permanent resident of or an immigrant to a foreign
country shall not be qualified to run for any elective office under this Code, unless said person
(III) IT DISQUALIFIED PETITIONER FOR AN ACT DONE BY A THIRD PARTY WHO SIMPLY
has waived his status as permanent resident or immigrant of a foreign country in accordance
EXERCISED ITS RIGHT TO FREE EXPRESSION WITHOUT THE KNOWLEDGE AND
with the residence requirement provided for in the election laws.
CONSENT OF PETITIONER[.]43
The prohibited acts covered by Section 68 (e) refer to election campaign or partisan political
The petition is unmeritorious.
activity outside the campaign period (Section 80); removal, destruction or defacement of lawful
election propaganda (Section 83); certain forms of election propaganda (Section 85); violation of
A special civil action for certiorari under Rule 64, in relation to Rule 65, is an independent action
rules and regulations on election propaganda through mass media; coercion of subordinates
that is available only if there is no appeal or any other plain, speedy, and adequate remedy in
(Section 261 [d]); threats, intimidation, terrorism, use of fraudulent device or other forms of
the ordinary course of law.44 It is a legal remedy that is limited to the resolution of jurisdictional
coercion (Section 261 [e]); unlawful electioneering (Section 261 [k]); release, disbursement or
issues and is not meant to correct simple errors of judgment. 45 More importantly, it will only
expenditure of public funds (Section 261 [v]); solicitation of votes or undertaking any propaganda
prosper if grave abuse of discretion is alleged and is actually proved to exist. 46
on the day of the election within the restricted areas (Section 261 [cc], sub-par.6). All the
Grave abuse of discretion arises when a lower court or tribunal violates the Constitution, the law
offenses mentioned in Section 68 refer to election offenses under the OEC, not to violations of
or existing jurisprudence. It means such capricious and whimsical exercise of judgment as would
other penal laws. In other words, offenses that are punished in laws other than in the OEC
amount to lack of jurisdiction; it contemplates a situation where the power is exercised in an
cannot be a ground for a Section 68 petition. Thus, We have held:
arbitrary or despotic manner by reason of passion or personal hostility, so patent and gross as to
x x x [T]he jurisdiction of the COMELEC to disqualify candidates is limited to those enumerated
amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined by law. x x
in Section 68 of the [OEC]. All other election offenses are beyond the ambit of COMELEC
x.47
jurisdiction. They are criminal and not administrative in nature. Pursuant to Sections 265 and
Ejercito failed to prove that the COMELEC rendered its assailed Resolution with grave abuse of 268 of the [OEC], the power of the COMELEC is confined to the conduct of preliminary
discretion. investigation on the alleged election offenses for the purpose of prosecuting the alleged
offenders before the regular courts of justice, viz:
Page 45 of 139
“Section 265. Prosecution. – The Commission shall, through its duly authorized legal officers,
have the exclusive power to conduct preliminary investigation of all election offenses punishable
under this Code, and to prosecute the same. The Commission may avail of the assistance of
other prosecuting arms of the government: Provided, however, That in the event that the
Commission fails to act on any complaint within four months from its filing, the complainant may
file the complaint with the office of the fiscal or with the Ministry of Justice for proper
investigation and prosecution, if warranted.
xxxxxxxxx
Section 268. Jurisdiction. – The regional trial court shall have the exclusive original jurisdiction to
try and decide any criminal action or proceeding for violation of this Code, except those relating
to the offense of failure to register or failure to vote which shall be under the jurisdictions of
metropolitan or municipal trial courts. From the decision of the courts, appeal will lie as in other
criminal cases.”55
In the case at bar, the COMELEC First Division and COMELEC En Banc correctly ruled that the
petition filed by San Luis against Ejercito is not just for prosecution of election offense but for
disqualification as well. Indeed, the following are clear indications:
1. The title of San Luis’ petition shows that the case was brought under Rule 25 of the
COMELEC Rules of Procedure, as amended by COMELEC Resolution No.
9523.56 This expresses the objective of the action since Rule 25 is the specific rule
governing the disqualification of candidates.
2. The averments of San Luis’ petition rely on Section 68 (a) and (c) of the OEC as
grounds for its causes of action. Section 68 of the OEC precisely enumerates the
grounds for the disqualification of a candidate for elective position and provides, as
penalty, that the candidate shall be disqualified from continuing as such, or if he or she
has been elected, from holding the office.
3. Paragraph 2 of San Luis’ prayer in the petition states that “[in the event that [Ejercito]
will be able to get a majority vote of the electorate of the Province of Laguna on May
13, 2013, his proclamation be suspended until further order of the Honorable
Commission.” San Luis reiterated this plea when he later filed a Very Urgent Ex-Parte
Motion to Issue Suspension of Possible Proclamation of Respondent and
Supplemental to the Very Urgent Ex-Parte Motion to Issue Suspension of Possible
Proclamation of Respondent. The relief sought is actually pursuant to Section 657 of
R.A. No. 6646 and Section 5 Rule 2558 of COMELEC Resolution No. 9523, both of
which pertain to the effect of a disqualification case when the petition is unresolved by
final judgment come election day.
4. San Luis’ Memorandum emphasized that the case is a “Special Action for
Disqualification,” praying that “[t]he Petition BE GRANTED [and] x x x [Ejercito] BE
DISQUALIFIED, and PREVENTED from further holding office as Governor of
Laguna.”
With the foregoing, Ejercito cannot feign ignorance of the true nature and intent of San Luis’
petition. This considering, it is unnecessary for Us to discuss the applicability of Section 2, Rule
9 of the COMELEC Rules of Procedure, there being no substantial amendment to San Luis’
petition that constitutes a material deviation from his original causes of action. Likewise,
COMELEC Resolution No. 9386 and Section 265 of the OEC do not apply since both refer solely
to the prosecution of election offenses. Specifically, COMELEC Resolution No. 9386 is an
amendment to Rule 34 of the COMELEC Rules of Procedure on the prosecution of election
Page 46 of 139
offenses, while Section 265 of the OEC is found under Article XXII of said law pertaining also to
election offenses.
The conduct of preliminary investigation is not required in the resolution of the electoral
aspect of a disqualification case
Assuming, arguendo, that San Luis’ petition was properly instituted as an action for
disqualification, Ejercito asserts that the conduct of preliminary investigation to determine
whether the acts enumerated under Section 68 of the OEC were indeed committed is a
requirement prior to actual disqualification. He posits that Section 5, Rule 25 of COMELEC
Resolution No. 9523 is silent on the matter of preliminary investigation; hence, the clear import
of this is that the necessity of preliminary investigation provided for in COMELEC Resolution No.
2050 remains undisturbed and continues to be in full force and effect.
We are not persuaded.
Section 5, Rule 25 of COMELEC Resolution No. 9523 states:
Section 5. Effect of Petition if Unresolved Before Completion of Canvass. – If a Petition for
Disqualification is unresolved by final judgment on the day of elections, the petitioner may file a
motion with the Division or Commission En Banc where the case is pending, to suspend the
proclamation of the candidate concerned, provided that the evidence for the grounds to
disqualify is strong. For this purpose, at least three (3) days prior to any election, the Clerk of the
Commission shall prepare a list of pending cases and furnish all Commissioners copies of said
the list.
In the event that a candidate with an existing and pending Petition to disqualify is proclaimed
winner, the Commission shall continue to resolve the said Petition.
It is expected that COMELEC Resolution No. 9523 is silent on the conduct of preliminary
investigation because it merely amended, among others, Rule 25 of the COMELEC Rules of
Procedure, which deals with disqualification of candidates. In disqualification cases, the
COMELEC may designate any of its officials, who are members of the Philippine Bar, to hear the
case and to receive evidence only in cases involving barangay officials. 59 As aforementioned,
the present rules of procedure in the investigation and prosecution of election offenses in the
COMELEC, which requires preliminary investigation, is governed by COMELEC Resolution No.
9386. Under said Resolution, all lawyers in the COMELEC who are Election Officers in the
National Capital Region ("NCR"), Provincial Election Supervisors, Regional Election Attorneys,
Assistant Regional Election Directors, Regional Election Directors and lawyers of the Law
Department are authorized to conduct preliminary investigation of complaints involving election
offenses under the election laws which may be filed directly with them, or which may be indorsed
to them by the COMELEC.60chanrobleslaw
Similarly, Ejercito’s reliance on COMELEC Resolution No. 2050 is misplaced. COMELEC
Resolution No. 2050, which was adopted on November 3, 1988, reads:
WHEREAS, there remain pending before the Commission, a number of cases of disqualification
filed by virtue of the provisions of Section 68 of the Omnibus Election Code in relation to Section
6 of R.A. 6646, otherwise known as the Electoral Reforms Law of 1987;
WHEREAS, opinions of the members of the Commission on matters of procedure in dealing with
cases of this nature and the manner of disposing of the same have not been uniform;
WHEREAS, in order to avoid conflicts of opinion in the disposition [of] disqualification cases
contemplated under Section 68 of the Omnibus Election Code in relation to Section 6 of Rep.
Act 6646, there is a strongly felt need to lay down a definite policy in the disposition of this
specific class of disqualification cases;
NOW, THEREFORE, on motion duly seconded, the Commission en
banc:chanroblesvirtuallawlibrary
RESOLVED, as it hereby resolves, to formulate the following rules governing the disposition of
cases of disqualification filed by virtue of Section 68 of the Omnibus Election Code in relation to
Section 6 of R.A. No. 6646, otherwise known as the Electoral Reforms Law of
1987:chanroblesvirtuallawlibrary
1. Any complaint for the disqualification of a duly registered candidate based upon any of the
grounds specifically enumerated under Section 68 of the Omnibus Election Code, filed directly
with the Commission before an election in which the respondent is a candidate, shall be inquired
into by the Commission for the purpose of determining whether the acts complained of have in
fact been committed. Where the inquiry by the Commission results in a finding before election,
that the respondent candidate did in fact commit the acts complained, the Commission shall
order the disqualification of the respondent candidate from continuing as such candidate.
In case such complaint was not resolved before the election, the Commission may motu proprio,
or [on] motion of any of the parties, refer the complaint to the [Law] Department of the
Commission as the instrument of the latter in the exercise of its exclusive power to conduct a
preliminary investigation of all cases involving criminal infractions of the election laws. Such
recourse may be availed of irrespective of whether the respondent has been elected or has lost
in the election.
2. Any complaint for disqualification based on Section 68 of the Omnibus Election Code in
relation to Section 6 of Rep. Act No. 6646 filed after the election against a candidate who has
already been proclaimed as winner shall be dismissed as a disqualification case. However, the
complaint shall be referred for preliminary investigation to the Law Department of the
Commission.
Where a similar complaint is filed after election but before proclamation of the respondent
candidate, the complaint shall, nevertheless, be dismissed as a disqualification case. However,
the complaint shall be referred for preliminary investigation to the Law Department. If, before
proclamation, the Law Department makes a prima facie finding of guilt and the corresponding
information has been filed with the appropriate trial court, the complainant may file a petition for
suspension of the proclamation of the respondent with the court before which the criminal case
is pending and the said court may order the suspension of the proclamation if the evidence of
guilt is strong.
3. The Law Department shall terminate the preliminary investigation within thirty (30) days from
receipt of the referral and shall submit its study, report and recommendation to the
Commission en banc within five (5) days from the conclusion of the preliminary investigation. If it
makes a prima facie finding of guilt, it shall submit with such study the Information for filing with
the appropriate court.61
In Bagatsing v. COMELEC,62 the Court stated that the above-quoted resolution covers two (2)
different scenarios:
First, as contemplated in paragraph 1, a complaint for disqualification filed before the
election which must be inquired into by the COMELEC for the purpose of determining whether
the acts complained of have in fact been committed. Where the inquiry results in a finding before
the election, the COMELEC shall order the candidate's disqualification. In case the complaint
was not resolved before the election, the COMELEC may motu propio or on motion of any of the
parties, refer the said complaint to the Law Department of the COMELEC for preliminary
investigation.
Second, as laid down in paragraph 2, a complaint for disqualification filed after the
election against a candidate (a) who has not yet been proclaimed as winner, or (b) who has
Page 47 of 139
already been proclaimed as winner. In both cases, the complaint shall be dismissed as a
disqualification case but shall be referred to the Law Department of the COMELEC for
preliminary investigation. However, if before proclamation, the Law Department makes a prima
facie finding of guilt and the corresponding information has been filed with the appropriate trial
court, the complainant may file a petition for suspension of the proclamation of the respondent
with the court before which the criminal case is pending and the said court may order the
suspension of the proclamation if the evidence of guilt is strong.63
However, with respect to Paragraph 1 of COMELEC Resolution No. 2050, which is the situation
in this case, We held in Sunga:
x x x Resolution No. 2050 as interpreted in Silvestre v. Duavit infringes on Sec. 6 of RA No.
6646, which provides:chanroblesvirtuallawlibrary
SEC. 6. Effects of Disqualification Case. - Any candidate who has been declared by final
judgment to be disqualified shall not be voted for, and the votes cast for him shall not be
counted. If for any reason a candidate is not declared by final judgment before an election to be
disqualified and he is voted for and receives the winning number of votes in such election, the
Court or Commission shall continue with the trial and hearing of the action, inquiry or
protest and, upon motion of the complainant or any intervenor, may during the pendency thereof
order the suspension of the proclamation of such candidate whenever the evidence of his guilt is
strong (italics supplied).
Clearly, the legislative intent is that the COMELEC should continue the trial and hearing of the
disqualification case to its conclusion, i.e., until judgment is rendered thereon. The word “shall”
signifies that this requirement of the law is mandatory, operating to impose a positive duty which
must be enforced. The implication is that the COMELEC is left with no discretion but to proceed
with the disqualification case even after the election. Thus, in providing for the outright dismissal
of the disqualification case which remains unresolved after the election, Silvestre v. Duavit in
effect disallows what RA No. 6646 imperatively requires. This amounts to a quasi-judicial
legislation by the COMELEC which cannot be countenanced and is invalid for having been
issued beyond the scope of its authority. Interpretative rulings of quasi-judicial bodies or
administrative agencies must always be in perfect harmony with statutes and should be for the
sole purpose of carrying their general provisions into effect. By such interpretative or
administrative rulings, of course, the scope of the law itself cannot be limited. Indeed, a quasi-
judicial body or an administrative agency for that matter cannot amend an act of Congress.
Hence, in case of a discrepancy between the basic law and an interpretative or administrative
ruling, the basic law prevails.
Besides, the deleterious effect of the Silvestre ruling is not difficult to foresee. A candidate guilty
of election offenses would be undeservedly rewarded, instead of punished, by the dismissal of
the disqualification case against him simply because the investigating body was unable, for any
reason caused upon it, to determine before the election if the offenses were indeed committed
by the candidate sought to be disqualified. All that the erring aspirant would need to do is to
employ delaying tactics so that the disqualification case based on the commission of election
offenses would not be decided before the election. This scenario is productive of more fraud
which certainly is not the main intent and purpose of the law.64chanrobleslaw
The “exclusive power [of the COMELEC] to conduct a preliminary investigation of all cases
involving criminal infractions of the election laws” stated in Par. 1 of COMELEC Resolution No.
2050 pertains to the criminal aspect of a disqualification case. It has been repeatedly
underscored that an election offense has its criminal and electoral aspects. While its criminal
aspect to determine the guilt or innocence of the accused cannot be the subject of summary
hearing, its electoral aspect to ascertain whether the offender should be disqualified from office
can be determined in an administrative proceeding that is summary in character. This Court said
in Sunga:
It is worth to note that an election offense has criminal as well as electoral aspects. Its criminal
aspect involves the ascertainment of the guilt or innocence of the accused candidate. Like in any
other criminal case, it usually entails a full-blown hearing and the quantum of proof required to
secure a conviction is beyond reasonable doubt. Its electoral aspect, on the other hand, is a
determination of whether the offender should be disqualified from office. This is done through an
administrative proceeding which is summary in character and requires only a clear
preponderance of evidence. Thus, under Sec. 4 of the COMELEC Rules of Procedure, petitions
for disqualification "shall be heard summarily after due notice." It is the electoral aspect that we
are more concerned with, under which an erring candidate may be disqualified even without
prior criminal conviction.65
and equally in Lanot:
x x x The electoral aspect of a disqualification case determines whether the offender should be
disqualified from being a candidate or from holding office. Proceedings are summary in
character and require only clear preponderance of evidence. An erring candidate may be
disqualified even without prior determination of probable cause in a preliminary investigation.
The electoral aspect may proceed independently of the criminal aspect, and vice-versa.
The criminal aspect of a disqualification case determines whether there is probable cause to
charge a candidate for an election offense. The prosecutor is the COMELEC, through its Law
Department, which determines whether probable cause exists. If there is probable cause, the
COMELEC, through its Law Department, files the criminal information before the proper court.
Proceedings before the proper court demand a full-blown hearing and require proof beyond
reasonable doubt to convict. A criminal conviction shall result in the disqualification of the
offender, which may even include disqualification from holding a future public office.
The two aspects account for the variance of the rules on disposition and resolution of
disqualification cases filed before or after an election. When the disqualification case is filed
before the elections, the question of disqualification is raised before the voting public. If the
candidate is disqualified after the election, those who voted for him assume the risk that their
votes may be declared stray or invalid. There is no such risk if the petition is filed after the
elections. x x x.66
We cannot accept Ejercito’s argument that Lanot did not categorically pronounce that the
conduct of a preliminary investigation exclusively pertains to the criminal aspect of an action for
disqualification or that a factual finding by the authorized legal officers of the COMELEC may be
dispensed with in the proceedings for the administrative aspect of a disqualification case.
According to him, a close reading of said case would reveal that upon filing of the petition for
disqualification with the COMELEC Division, the latter referred the matter to the Regional
Election Director for the purpose of preliminary investigation; therefore, Lanot contemplates two
referrals for the conduct of investigation – first, to the Regional Election Director, prior to the
issuance of the COMELEC First Division’s resolution, and second, to the Law Department,
following the reversal by the COMELEC En Banc.
For easy reference, the factual antecedents of Lanot are as follows:chanroblesvirtuallawlibrary
On March 19, 2004, a little less than two months before the May 10, 2004 elections, Henry P.
Lanot, et al. filed a Petition for Disqualification under Sections 68 and 80 of the OEC against
then incumbent Pasig City Mayor Vicente P. Eusebio. National Capital Region Director
Esmeralda Amora-Ladra conducted hearings on the petition. On May 4, 2004, she
recommended Eusebio’s disqualification and the referral of the case to the COMELEC Law
Department for the conduct of a preliminary investigation on the possible violation of Section 261
(a) of the OEC. When the COMELEC First Division issued a resolution adopting Director Ladra’s
recommendations on May 5, 2004, then COMELEC Chairman Benjamin S. Abalos informed the
pertinent election officers through an Advisory dated May 8, 2004. Eusebio filed a Motion for
Reconsideration on May 9, 2004. On election day, Chairman Abalos issued a memorandum to
Page 48 of 139
Director Ladra enjoining her from implementing the May 5, 2004 COMELEC First Division
resolution. The petition for disqualification was not yet finally resolved at the time of the
elections. Eusebio's votes were counted and canvassed. After which, Eusebio was proclaimed
as the winning candidate for city mayor. On August 20, 2004, the COMELEC En Banc annulled
the COMELEC First Division's order to disqualify Eusebio and referred the case to the
COMELEC Law Department for preliminary investigation.
When the issue was elevated to Us, the Court agreed with Lanot that the COMELEC En
Banc committed grave abuse of discretion when it ordered the dismissal of the disqualification
case pending preliminary investigation of the COMELEC Law Department. Error was made
when it ignored the electoral aspect of the disqualification case by setting aside the COMELEC
First Division's resolution and referring the entire case to the COMELEC Law Department for the
criminal aspect. We noted that COMELEC Resolution No. 2050, upon which the COMELEC En
Banc based its ruling, is procedurally inconsistent with COMELEC Resolution No. 6452, which
was the governing rule at the time. The latter resolution delegated to the COMELEC Field
Officials the hearing and reception of evidence of the administrative aspect of disqualification
cases in the May 10, 2004 National and Local Elections. In marked contrast, in the May 2013
elections, it was only in cases involving barangay officials that the COMELEC may designate
any of its officials, who are members of the Philippine Bar, to hear the case and to receive
evidence.67chanrobleslaw
The COMELEC En Banc properly considered as evidence the Advertising Contract dated
May 8, 2013
Ejercito likewise asserts that the Advertising Contract dated May 8, 2013 should not have been
relied upon by the COMELEC. First, it was not formally offered in evidence pursuant to Section
34, Rule 13268 of the Rules and he was not even furnished with a copy thereof, depriving him of
the opportunity to examine its authenticity and due execution and object to its
admissibility. Second, even if Section 34, Rule 132 does not apply, administrative bodies
exercising quasi-judicial functions are nonetheless proscribed from rendering judgment based on
evidence that was never presented and could not be controverted. There is a need to balance
the relaxation of the rules of procedure with the demands of administrative due process, the
tenets of which are laid down in the seminal case of Ang Tibay v. Court of Industrial
Relations.69 And third, the presentation of the advertising contracts, which are highly disputable
and on which no hearing was held for the purpose of taking judicial notice in accordance with
Section 3, Rule 12970 of the Rules, cannot be dispensed with by COMELEC’s claim that it could
take judicial notice.
Contrary to Ejercito’s claim, Section 34, Rule 132 of the Rules is inapplicable. Section 4, Rule
171 of the Rules of Court is clear enough in stating that it shall not apply to election cases except
by analogy or in a suppletory character and whenever practicable and convenient. In fact,
nowhere from COMELEC Resolution No. 9523 requires that documentary evidence should be
formally offered in evidence.72 We remind again that the electoral aspect of a disqualification
case is done through an administrative proceeding which is summary in character.
Granting, for argument’s sake, that Section 4, Rule 1 of the Rules of Court applies, there have
been instances when We suspended the strict application of the rule in the interest of substantial
justice, fairness, and equity.73 Since rules of procedure are mere tools designed to facilitate the
attainment of justice, it is well recognized that the Court is empowered to suspend its rules or to
exempt a particular case from the application of a general rule, when the rigid application thereof
tends to frustrate rather than promote the ends of justice.74 The fact is, even Sections 3 and 4,
Rule 1 of the COMELEC Rules of Procedure fittingly declare that “[the] rules shall be liberally
construed in order to promote the effective and efficient implementation of the objectives of
ensuring the holding of free, orderly, honest, peaceful and credible elections and to achieve just,
expeditious and inexpensive determination and disposition of every action and proceeding
brought before the Commission” and that “[in] the interest of justice and in order to obtain
speedy disposition of all matters pending before the Commission, these rules or any portion
thereof may be suspended by the Commission.” This Court said in Hayudini v. Commission on
Elections:75
Settled is the rule that the COMELEC Rules of Procedure are subject to liberal construction. The
COMELEC has the power to liberally interpret or even suspend its rules of procedure in the
interest of justice, including obtaining a speedy disposition of all matters pending before it. This
liberality is for the purpose of promoting the effective and efficient implementation of its
objectives – ensuring the holding of free, orderly, honest, peaceful, and credible elections, as
well as achieving just, expeditious, and inexpensive determination and disposition of every
action and proceeding brought before the COMELEC. Unlike an ordinary civil action, an election
contest is imbued with public interest. It involves not only the adjudication of private and
pecuniary interests of rival candidates, but also the paramount need of dispelling the uncertainty
which beclouds the real choice of the electorate. And the tribunal has the corresponding duty to
ascertain, by all means within its command, whom the people truly chose as their rightful
leader.76
Further, Ejercito’s dependence on Ang Tibay is weak. The essence of due process is simply an
opportunity to be heard, or, as applied to administrative proceedings, an opportunity to explain
one's side or an opportunity to seek for a reconsideration of the action or ruling complained
of.77 Any seeming defect in its observance is cured by the filing of a motion for reconsideration
and denial of due process cannot be successfully invoked by a party who had the opportunity to
be heard thereon.78 In this case, it is undisputed that Ejercito filed a motion for reconsideration
before the COMELEC En Banc. Despite this, he did not rebut the authenticity and due execution
of the advertising contracts when he decided not to discuss the factual findings of the
COMELEC First Division on the alleged ground that it may be construed as a waiver of the
jurisdictional issues that he raised.79chanrobleslaw
We agree with San Luis and the Office of the Solicitor General that, pursuant to Section 2, Rule
129,80 the COMELEC has the discretion to properly take judicial notice of the Advertising
Contract dated May 8, 2013. In accordance with R.A. No. 9006, the COMELEC, through its
Campaign Finance Unit, is empowered to:
a. Monitor fund raising and spending activities;
b. Receive and keep reports and statements of candidates, parties,
contributors and election contractors, and advertising contracts of mass
media entities;
c. Compile and analyze the reports and statements as soon as they are
received and make an initial determination of compliance;
d. Develop and manage a recording system for all reports, statements, and
contracts received by it and to digitize information contained therein;
e. Publish the digitized information gathered from the reports, statements and
contracts and make them available to the public;
f. Develop a reportorial and monitoring system;
g. Audit all reports, statements and contracts and determine compliance by the
candidates, parties, contributors, and election contractors, including the
inspection of Books and records of candidates, parties and mass media
Page 49 of 139
entities and issue subpoenas in relation thereto and submit its findings to
the Commission En Banc;
h. Coordinate with and/or assist other departments/offices of the Commission
receiving related reports on Campaign Finance including prosecution of
violators and collection of fines and/or imposition of perpetual
disqualification; and
i. Perform other functions as ordered by the Commission.81
The COMELEC may properly take and act on the advertising contracts without further proof from
the parties herein. Aside from being considered as an admission82 and presumed to be proper
submissions from them, the COMELEC already has knowledge of the contracts for being
ascertainable from its very own records. Said contracts are ought to be known by the COMELEC
because of its statutory function as the legal custodian of all advertising contracts promoting or
opposing any candidate during the campaign period. As what transpired in this case, the
COMELEC has the authority and discretion to compare the submitted advertising contracts with
the certified true copies of the broadcast logs, certificates of performance or other analogous
records which a broadcast station or entity is required to submit for the review and verification of
the frequency, date, time and duration of advertisements aired.
To be precise, R.A. No. 9006 provides:
Sec. 4. Requirements for Published or Printed and Broadcast Election Propaganda. –
xxxx
4.3 Print, broadcast or outdoor advertisements donated to the candidate or political party shall
not be printed, published, broadcast or exhibited without the written acceptance by the said
candidate or political party. Such written acceptance shall be attached to the advertising contract
and shall be submitted to the COMELEC as provided in Subsection 6.3 hereof.
Sec. 6. Equal Access to Media Time and Space. – All registered parties and bona
fide candidates shall have equal access to media time and space. The following guidelines may
be amplified on by the COMELEC:
xxxx
6.2
xxxx
(b.) Each bona fide candidate or registered political party for a locally elective office shall be
entitled to not more than sixty (60) minutes of television advertisement and ninety (90) minutes
of radio advertisement whether by purchase or donation.
For this purpose, the COMELEC shall require any broadcast station or entity to submit to the
COMELEC a copy of its broadcast logs and certificates of performance for the review and
verification of the frequency, date, time and duration of advertisements broadcast for any
candidate or political party.
6.3 All mass media entities shall furnish the COMELEC with a copy of all contracts for
advertising, promoting or opposing any political party or the candidacy of any person for public
office within five (5) days after its signing. x x x.
The implementing guidelines of the above-quoted provisions are found in Rule 5 of COMELEC
Resolution No. 9476 –
Section 2. Submission of Copies of Advertising Contracts. – All media entities shall submit a
copy of its advertising and or broadcast contracts, media purchase orders, booking orders, or
other similar documents to the Commission through its Campaign Finance Unit, accompanied by
a summary report in the prescribed form (Annex “E”) together with official receipts issued for
advertising, promoting or opposing a party, or the candidacy of any person for public office,
within five (5) days after its signing, through:
a. For Media Entities in the NCR
The Education and Information Department (EID), which shall furnish copies thereof to the
Campaign Finance Unit of the Commission.
b. For Media Entities outside of the NCR
The City/Municipal Election Officer (EO) concerned who shall furnish copies thereof to the
Education and Information Department of the Commission within five (5) days after the
campaign periods. The EID shall furnish copies thereof to the Campaign Finance Unit of the
Commission.cralawred
The City/Municipal Election Officer (EO) concerned, who in turn, shall furnish copies thereof to
the Education and Information Department (EID) of the Commission which in turn shall furnish
copies thereof to the Campaign Finance Unit (CFU) of the Commission within five (5) days from
the receipt thereof.
For website owners or administrators –
The City/Municipal Election Officer (EO) concerned, who in turn, shall furnish copies thereof to
the Education and Information Department (EID) of the Commission which in turn shall furnish
copies thereof to the Campaign Finance Unit (CFU) of the Commission within five (5) days from
the receipt thereof.
All broadcast entities shall preserve their broadcast logs for a period of five (5) years from the
date of broadcast for submission to the Commission whenever required.
Certified true copies of broadcast logs, certificates of performance, and certificates of
acceptance, or other analogous record shall be submitted, as follows:chanroblesvirtuallawlibrary

xxxx
3 weeks after start of
1st Report March 4 - 11
campaign period
It shall be the duty of the EID to formally inform media entities that the latter’s failure to comply
with the mandatory provisions of this Section shall be considered an election offense punishable 3 weeks after 1st filing
2nd Report April 3 - 10
pursuant to Section 13 of Republic Act No. 9006. [RA 9006, Secs. 6.3 and 13] Candidates for National week
Positions 1 week before election
and in COMELEC Resolution No. 9615 – 3rd Report May 2 - 9
day
SECTION 9. Requirements and/or Limitations on the Use of Election Propaganda through Last Report Election week May 14 - 17
Mass Media. – All parties and bona fide candidates shall have equal access to media time and
space for their election propaganda during the campaign period subject to the following 1 week after start of
1st Report April 15 - 22
requirements and/or limitations: campaign period
a. Broadcast Election Propaganda 1 week after 1st filing
Candidates for Local 2nd Report April 30 - May 8
week
Positions
xxx 3rd Report Election week May 9 - 15
1 week after election
Last Report May 16 - 22
Provided, further, that a copy of the broadcast advertisement contract be furnished to the day
Commission, thru the Education and Information Department, within five (5) days from contract For subsequent elections, the schedule for the submission of reports shall be prescribed by the
signing.cralawred Commission.

xxx
d. Common requirements/limitations:chanroblesvirtuallawlibrary
xxx
(3) For the above purpose, each broadcast entity and website owner or administrator shall
submit to the Commission a certified true copy of its broadcast logs, certificates of performance,
or other analogous record, including certificates of acceptance as required in Section 7(b)
of these Guidelines, for the review and verification of the frequency, date, time and duration of
advertisements aired for any candidate or party through:chanroblesvirtuallawlibrary
For Broadcast Entities in the NCR –
The Education and Information Department (EID) which in turn shall furnish copies thereof to the
Campaign Finance Unit (CFU) of the Commission within five days from receipt thereof.
For Broadcast Entities outside of the NCR –
Ejercito should be disqualified for spending in his election campaign an amount in
excess of what is allowed by the OEC
Ejercito claims that the advertising contracts between ABS-CBN Corporation and Scenema
Concept International, Inc. were executed by an identified supporter without his knowledge and
consent as, in fact, his signature thereon was obviously forged. Even assuming that such
contract benefited him, Ejercito alleges that he should not be penalized for the conduct of third
parties who acted on their own without his consent. Citing Citizens United v. Federal Election
Commission83 decided by the US Supreme Court, he argues that every voter has the right to
support a particular candidate in accordance with the free exercise of his or her rights of speech
and of expression, which is guaranteed in Section 4, Article III of the 1987 Constitution.84 He
believes that an advertising contract paid for by a third party without the candidate’s knowledge
and consent must be considered a form of political speech that must prevail against the laws
suppressing it, whether by design or inadvertence. Further, Ejercito advances the view that
COMELEC Resolution No. 947685 distinguishes between “contribution” and “expenditure” and
makes no proscription on the medium or amount of contribution. 86 He also stresses that it is
clear from COMELEC Resolution No. 9615 that the limit set by law applies only to election
expenditures of candidates and not to contributions made by third parties. For Ejercito, the fact
that the legislature imposes no legal limitation on campaign donations is presumably because

Page 50 of 139
discussion of public issues and debate on the qualifications of candidates are integral to the
operation of the government.
We refuse to believe that the advertising contracts between ABS-CBN Corporation and
Scenema Concept International, Inc. were executed without Ejercito’s knowledge and consent.
As found by the COMELEC First Division, the advertising contracts submitted in evidence by
San Luis as well as those in legal custody of the COMELEC belie his hollow assertion. His
express conformity to the advertising contracts is actually a must because non-compliance is
considered as an election offense.87chanrobleslaw
Notably, R.A. No. 9006 explicitly directs that broadcast advertisements donated to the candidate
shall not be broadcasted without the written acceptance of the candidate, which shall be
attached to the advertising contract and shall be submitted to the COMELEC, and that, in every
case, advertising contracts shall be signed by the donor, the candidate concerned or by the duly-
authorized representative of the political party.88 Conformably with the mandate of the law,
COMELEC Resolution No. 9476 requires that election propaganda materials donated to a
candidate shall not be broadcasted unless it is accompanied by the written acceptance of said
candidate, which shall be in the form of an official receipt in the name of the candidate and must
specify the description of the items donated, their quantity and value, and that, in every case, the
advertising contracts, media purchase orders or booking orders shall be signed by the candidate
concerned or by the duly authorized representative of the party and, in case of a donation,
should be accompanied by a written acceptance of the candidate, party or their authorized
representatives.89 COMELEC Resolution No. 9615 also unambiguously states that it shall be
unlawful to broadcast any election propaganda donated or given free of charge by any person or
broadcast entity to a candidate without the written acceptance of the said candidate and unless
they bear and be identified by the words “airtime for this broadcast was provided free of charge
by” followed by the true and correct name and address of the donor. 90chanrobleslaw
This Court cannot give weight to Ejercito’s representation that his signature on the advertising
contracts was a forgery. The issue is a belated claim, raised only for the first time in this petition
for certiorari. It is a rudimentary principle of law that matters neither alleged in the pleadings nor
raised during the proceedings below cannot be ventilated for the first time on appeal before the
Supreme Court.91 It would be offensive to the basic rules of fair play and justice to allow Ejercito
to raise an issue that was not brought up before the COMELEC. 92 While it is true that litigation is
not a game of technicalities, it is equally true that elementary considerations of due process
require that a party be duly apprised of a claim against him before judgment may be
rendered.93chanrobleslaw
Likewise, whether the advertising contracts were executed without Ejercito’s knowledge and
consent, and whether his signatures thereto were fraudulent, are issues of fact. Any factual
challenge has no place in a Rule 65 petition. This Court is not a trier of facts and is not equipped
to receive evidence and determine the truth of factual allegations.94 Instead, the findings of fact
made by the COMELEC, or by any other administrative agency exercising expertise in its
particular field of competence, are binding on the Court. As enunciated in Juan v. Commission
on Election:95
Findings of facts of administrative bodies charged with their specific field of expertise, are
afforded great weight by the courts, and in the absence of substantial showing that such findings
are made from an erroneous estimation of the evidence presented, they are conclusive, and in
the interest of stability of the governmental structure, should not be disturbed. The COMELEC,
as an administrative agency and a specialized constitutional body charged with the enforcement
and administration of all laws and regulations relative to the conduct of an election, plebiscite,
initiative, referendum, and recall, has more than enough expertise in its field that its findings or
conclusions are generally respected and even given finality. x x x.96
Having determined that the subject TV advertisements were done and broadcasted with
Ejercito’s consent, it follows that Citizens United does not apply. In said US case, a non-profit
Page 51 of 139
corporation sued the Federal Election Commission, assailing, among others, the constitutionality
of a ban on corporate independent expenditures for electioneering communications under 2
U.S.C.S. § 441b. The corporation released a documentary film unfavorable of then-Senator
Hillary Clinton, who was a candidate for the Democratic Party's Presidential nomination. It
wanted to make the film available through video-on-demand within thirty (30) days of the primary
elections, and it produced advertisements to promote the film. However, federal law prohibits all
corporations – including non-profit advocacy corporations – from using their general treasury
funds to make independent expenditures for speech that is an "electioneering
communication"97 or for speech that expressly advocates the election or defeat of a candidate
within thirty (30) days of a primary election and sixty (60) days of a general election. The US
Supreme Court held that the ban imposed under § 441b on
corporate independent expenditures violated the First Amendment98 because the Government
could not suppress political speech on the basis of the speaker's identity as a non-profit or for-
profit corporation. It was opined:
Section 441b's prohibition on corporate independent expenditures is thus a ban on speech. As a
"restriction on the amount of money a person or group can spend on political communication
during a campaign," that statute "necessarily reduces the quantity of expression by restricting
the number of issues discussed, the depth of their exploration, and the size of the audience
reached." Buckley v. Valeo, 424 U.S. 1, 19, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976) (per curiam).
Were the Court to uphold these restrictions, the Government could repress speech by silencing
certain voices at any of the various points in the speech process. See McConnell, supra, at 251,
124 S. Ct. 619, 517 L. Ed. 2d 491 (opinion of Scalia, J.) (Government could repress speech by
"attacking all levels of the production and dissemination of ideas," for "effective public
communication requires the speaker to make use of the services of others"). If § 441b applied to
individuals, no one would believe that it is merely a time, place, or manner restriction on speech.
Its purpose and effect are to silence entities whose voices the Government deems to be
suspect.
Speech is an essential mechanism of democracy, for it is the means to hold officials accountable
to the people. See Buckley, supra, at 14-15, 96 S. Ct. 612, 46 L. Ed. 2d 659 ("In a republic
where the people are sovereign, the ability of the citizenry to make informed choices among
candidates for office is essential"). The right of citizens to inquire, to hear, to speak, and to use
information to reach consensus is a precondition to enlightened self-government and a
necessary means to protect it. The First Amendment "'has its fullest and most urgent application'
to speech uttered during a campaign for political office." Eu v. San Francisco County Democratic
Central Comm., 489 U.S. 214, 223, 109 S. Ct. 1013, 103 L. Ed. 2d 271 (1989) (quoting Monitor
Patriot Co. v. Roy, 401 U.S. 265, 272, 91 S. Ct. 621, 28 L. Ed. 2d 35 (1971)); see Buckley,
supra, at 14, 96 S. Ct. 612, 46 L. Ed. 2d 659 ("Discussion of public issues and debate on the
qualifications of candidates are integral to the operation of the system of government established
by our Constitution").
For these reasons, political speech must prevail against laws that would suppress it, whether by
design or inadvertence. Laws that burden political speech are "subject to strict scrutiny," which
requires the Government to prove that the restriction "furthers a compelling interest and is
narrowly tailored to achieve that interest." WRTL, 551 U.S., at 464, 127 S. Ct. 2652, 168 L. Ed.
2d 329 (opinion of Roberts, C. J.). While it might be maintained that political speech simply
cannot be banned or restricted as a categorical matter, see Simon & Schuster, 502 U.S., at 124,
112 S. Ct. 501, 116 L. Ed. 2d 476 (Kennedy, J., concurring in judgment), the quoted language
from WRTL provides a sufficient framework for protecting the relevant First Amendment interests
in this case. We shall employ it here.
Premised on mistrust of governmental power, the First Amendment stands against attempts to
disfavor certain subjects or viewpoints. See, e.g., United States v. Playboy Entertainment Group,
Inc., 529 U.S. 803, 813, 120 S. Ct. 1878, 146 L. Ed. 2d 865 (2000) (striking down content-based
restriction). Prohibited, too, are restrictions distinguishing among different speakers, allowing
speech by some but not others. See First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 784, 98
S. Ct. 1407, 55 L. Ed. 2d 707 (1978). As instruments to censor, these categories are
interrelated: Speech restrictions based on the identity of the speaker are all too often simply a
means to control content.
Quite apart from the purpose or effect of regulating content, moreover, the Government may
commit a constitutional wrong when by law it identifies certain preferred speakers. By taking the
right to speak from some and giving it to others, the Government deprives the disadvantaged
person or class of the right to use speech to strive to establish worth, standing, and respect for
the speaker's voice. The Government may not by these means deprive the public of the right
and privilege to determine for itself what speech and speakers are worthy of consideration. The
First Amendment protects speech and speaker, and the ideas that flow from each.
The Court has upheld a narrow class of speech restrictions that operate to the disadvantage of
certain persons, but these rulings were based on an interest in allowing governmental entities to
perform their functions. See, e.g., Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 683, 106
S. Ct. 3159, 92 L. Ed. 2d 549 (1986) (protecting the "function of public school education"); Jones
v. North Carolina Prisoners' Labor Union, Inc., 433 U.S. 119, 129, 97 S. Ct. 2532, 53 L. Ed. 2d
629 (1977) (furthering "the legitimate penological objectives of the corrections system" (internal
quotation marks omitted)); Parker v. Levy, 417 U.S. 733, 759, 94 S. Ct. 2547, 41 L. Ed. 2d 439
(1974) (ensuring "the capacity of the Government to discharge its [military] responsibilities"
(internal quotation marks omitted)); Civil Service Comm'n v. Letter Carriers, 413 U.S. 548, 557,
93 S. Ct. 2880, 37 L. Ed. 2d 796 (1973) ("[F]ederal service should depend upon meritorious
performance rather than political service"). The corporate independent expenditures at issue in
this case, however, would not interfere with governmental functions, so these cases are
inapposite. These precedents stand only for the proposition that there are certain governmental
functions that cannot operate without some restrictions on particular kinds of speech. By
contrast, it is inherent in the nature of the political process that voters must be free to obtain
information from diverse sources in order to determine how to cast their votes. At least before
Austin, the Court had not allowed the exclusion of a class of speakers from the general public
dialogue.
We find no basis for the proposition that, in the context of political speech, the Government may
impose restrictions on certain disfavored speakers. Both history and logic lead us to this
conclusion.
The previous decisions of the US Supreme Court in Austin v. Michigan Chamber of
Commerce99 (which ruled that political speech may be banned based on the speaker's corporate
identity) and the relevant portion of McConnell v. Federal Election Commission100 (which upheld
the limits on electioneering communications in a facial challenge) were, in effect, overruled by
Citizens United.
Like Citizens United is the 1976 case of Buckley v. Valeo.101 In this much earlier case, the US
Supreme Court ruled, among other issues elevated to it for resolution, on a provision of the
Federal Election Campaign Act of 1971, as amended, (FECA)102 which limits independent
political expenditures by an individual or group advocating the election or defeat of a clearly
identified candidate for federal office to $1,000 per year. Majority of the US Supreme Court
expressed the view that the challenged provision is unconstitutional as it impermissibly burdens
the right of free expression under the First Amendment, and could not be sustained on the basis
of governmental interests in preventing the actuality or appearance of corruption or in equalizing
the resources of candidates.103chanrobleslaw
Even so, the rulings in Citizens United and Buckley find bearing only on matters related to
“independent expenditures,” an election law concept which has no application in this jurisdiction.
In the US context, independent expenditures for or against a particular candidate enjoy
constitutional protection. They refer to those expenses made by an individual, a group or a legal
Page 52 of 139
entity which are not authorized or requested by the candidate, an authorized committee of the
candidate, or an agent of the candidate; they are expenditures that are not placed in cooperation
with or with the consent of a candidate, his agents, or an authorized committee of the
candidate.104 In contrast, there is no similar provision here in the Philippines. In fact, R.A. No.
9006105 and its implementing rules and regulations106 specifically make it unlawful to print,
publish, broadcast or exhibit any print, broadcast or outdoor advertisements donated to the
candidate without the written acceptance of said candidate.
If at all, another portion of the Buckley decision is significant to this case. One of the issues
resolved therein is the validity of a provision of the FECA which imposes $1,000 limitation on
political contributions by individuals and groups to candidates and authorized campaign
committees.107 Five justices of the nine-member US Supreme Court sustained the challenged
provision on the grounds that it does not violate First Amendment speech and association rights
or invidiously discriminate against non-incumbent candidates and minority party candidates but
is supported by substantial governmental interests in limiting corruption and the appearance of
corruption. It was held:chanroblesvirtuallawlibrary
As the general discussion in Part I-A, supra, indicated, the primary First Amendment problem
raised by the Act's contribution limitations is their restriction of one aspect of the contributor's
freedom of political association. The Court's decisions involving associational freedoms establish
that the right of association is a "basic constitutional freedom," Kusper v. Pontikes, 414 U.S. at
57, that is "closely allied to freedom of speech and a right which, like free speech, lies at the
foundation of a free society." Shelton v. Tucker, 364 U.S. 479, 486 (1960). See, e.g., Bates v.
Little Rock, 361 U.S. 516, 522-523 (1960); NAACP v. Alabama, supra at 460-461; NAACP v.
Button, supra, at 452 (Harlan, J., dissenting). In view of the fundamental nature of the right to
associate, governmental "action which may have the effect of curtailing the freedom to associate
is subject to the closest scrutiny." NAACP v. Alabama, supra, at 460-461. Yet, it is clear that
"<[n]either the right to associate nor the right to participate in political activities is absolute." CSC
v. Letter Carriers, 413 U.S. 548, 567 (1973). Even a "significant interference' with protected
rights of political association" may be sustained if the State demonstrates a sufficiently important
interest and employs means closely drawn to avoid unnecessary abridgment of associational
freedoms. Cousins v. Wigoda, supra, at 488; NAACP v. Button, supra, at 438; Shelton v. Tucker,
supra, at 488.
Appellees argue that the Act's restrictions on large campaign contributions are justified by three
governmental interests. According to the parties and amici, the primary interest served by the
limitations and, indeed, by the Act as a whole, is the prevention of corruption and the
appearance of corruption spawned by the real or imagined coercive influence of large financial
contributions on candidates' positions and on their actions if elected to office. Two "ancillary"
interests underlying the Act are also allegedly furthered by the $ 1,000 limits on contributions.
First, the limits serve to mute the voices of affluent persons and groups in the election process
and thereby to equalize the relative ability of all citizens to affect the outcome of elections.
Second, it is argued, the ceilings may to some extent act as a brake on the skyrocketing cost of
political campaigns and thereby serve to open the political system more widely to candidates
without access to sources of large amounts of money.
It is unnecessary to look beyond the Act's primary purpose -- to limit the actuality and
appearance of corruption resulting from large individual financial contributions -- in order to find a
constitutionally sufficient justification for the $ 1,000 contribution limitation. Under a system of
private financing of elections, a candidate lacking immense personal or family wealth must
depend on financial contributions from others to provide the resources necessary to conduct a
successful campaign. The increasing importance of the communications media and
sophisticated mass-mailing and polling operations to effective campaigning make the raising of
large sums of money an ever more essential ingredient of an effective candidacy. To the extent
that large contributions are given to secure political quid pro quo's from current and potential
office holders, the integrity of our system of representative democracy is undermined. Although
the scope of such pernicious practices can never be reliably ascertained, the deeply disturbing
examples surfacing after the 1972 election demonstrate that the problem is not an illusory one.
Of almost equal concern as the danger of actual quid pro quo arrangements is the impact of the
appearance of corruption stemming from public awareness of the opportunities for abuse
inherent in a regime of large individual financial contributions. In CSC v. Letter Carriers, supra,
the Court found that the danger to "fair and effective government" posed by partisan political
conduct on the part of federal employees charged with administering the law was a sufficiently
important concern to justify broad restrictions on the employees' right of partisan political
association. Here, as there, Congress could legitimately conclude that the avoidance of the
appearance of improper influence "is also critical... if confidence in the system of representative
Government is not to be eroded to a disastrous extent." 413 U.S. at 565.
Appellants contend that the contribution limitations must be invalidated because bribery laws
and narrowly drawn disclosure requirements constitute a less restrictive means of dealing with
"proven and suspected quid pro quo arrangements." But laws making criminal the giving and
taking of bribes deal with only the most blatant and specific attempts of those with money to
influence governmental action. And while disclosure requirements serve the many salutary
purposes discussed elsewhere in this opinion, Congress was surely entitled to conclude that
disclosure was only a partial measure, and that contribution ceilings were a necessary legislative
concomitant to deal with the reality or appearance of corruption inherent in a system permitting
unlimited financial contributions, even when the identities of the contributors and the amounts of
their contributions are fully disclosed.
The Act's $ 1,000 contribution limitation focuses precisely on the problem of large campaign
contributions -- the narrow aspect of political association where the actuality and potential for
corruption have been identified -- while leaving persons free to engage in independent political
expression, to associate actively through volunteering their services, and to assist to a limited
but nonetheless substantial extent in supporting candidates and committees with financial
resources. Significantly, the Act's contribution limitations in themselves do not undermine to any
material degree the potential for robust and effective discussion of candidates and campaign
issues by individual citizens, associations, the institutional press, candidates, and political
parties.
We find that, under the rigorous standard of review established by our prior decisions, the
weighty interests served by restricting the size of financial contributions to political candidates
are sufficient to justify the limited effect upon First Amendment freedoms caused by the $ 1,000
contribution ceiling. (Emphasis supplied)
Until now, the US Supreme Court has not overturned the ruling that, with respect to limiting
political contributions by individuals and groups, the Government’s interest in preventing quid pro
quo corruption or its appearance was “sufficiently important” or “compelling” so that the interest
would satisfy even strict scrutiny.108chanrobleslaw
In any event, this Court should accentuate that resort to foreign jurisprudence would be proper
only if no law or jurisprudence is available locally to settle a controversy and that even in the
absence of local statute and case law, foreign jurisprudence are merely persuasive authority at
best since they furnish an uncertain guide.109 We prompted in Republic of the Philippines v.
Manila Electric Company:110chanrobleslaw
x x x American decisions and authorities are not per se controlling in this jurisdiction. At best,
they are persuasive for no court holds a patent on correct decisions. Our laws must be
construed in accordance with the intention of our own lawmakers and such intent may be
deduced from the language of each law and the context of other local legislation related thereto.
Page 53 of 139
More importantly, they must be construed to serve our own public interest which is the be-all and
the end-all of all our laws. And it need not be stressed that our public interest is distinct and
different from others.111chanrobleslaw
and once more in Central Bank Employees Assoc., Inc. v. Bangko Sentral Ng
Pilipinas:112chanrobleslaw
x x x [A]merican jurisprudence and authorities, much less the American Constitution, are of
dubious application for these are no longer controlling within our jurisdiction and have only
limited persuasive merit insofar as Philippine constitutional law is concerned.... [I]n resolving
constitutional disputes, [this Court] should not be beguiled by foreign jurisprudence some of
which are hardly applicable because they have been dictated by different constitutional settings
and needs.” Indeed, although the Philippine Constitution can trace its origins to that of the United
States, their paths of development have long since diverged.113chanrobleslaw
Indeed, in Osmeña v. COMELEC,114 this Court, in reaffirming its ruling in National Press Club v.
Commission on Elections115 that Section 11 (b) of R.A. No. 6646116 does not invade and violate
the constitutional guarantees comprising freedom of expression, remarked in response to the
dissent of Justice Flerida Ruth P. Romero:chanroblesvirtuallawlibrary
On the other hand, the dissent of Justice Romero in the present case, in batting for an
“uninhibited market place of ideas,” quotes the following from Buckley v.
Valeo:chanroblesvirtuallawlibrary
[T]he concept that the government may restrict the speech of some elements in our society in
order to enhance the relative voice of the others is wholly foreign to the First Amendment which
was designed to “secure the widest possible dissemination of information from diverse and
antagonistic sources” and “to assure unfettered interchange of ideas for the bringing about of
political and social changes desired by the people.”ChanRoblesVirtualawlibrary
But do we really believe in that? That statement was made to justify striking down a limit on
campaign expenditure on the theory that money is speech. Do those who endorse the view that
government may not restrict the speech of some in order to enhance the relative voice of others
also think that the campaign expenditure limitation found in our election laws is unconstitutional?
How about the principle of one person, one vote, is this not based on the political equality of
voters? Voting after all is speech. We speak of it as the voice of the people – even of God. The
notion that the government may restrict the speech of some in order to enhance the relative
voice of others may be foreign to the American Constitution. It is not to the Philippine
Constitution, being in fact an animating principle of that document.
Indeed, Art. IX-C, §4 is not the only provision in the Constitution mandating political equality. Art.
XIII, §1 requires Congress to give the “highest priority” to the enactment of measures designed
to reduce political inequalities, while Art. II, §26 declares as a fundamental principle of our
government “equal access to opportunities for public service.” Access to public office will be
denied to poor candidates if they cannot even have access to mass media in order to reach the
electorate. What fortress principle trumps or overrides these provisions for political equality?
Unless the idealism and hopes which fired the imagination of those who framed the Constitution
now appear dim to us, how can the electoral reforms adopted by them to implement the
Constitution, of which §11(b) of R.A. No. 6646, in relation to §§90 and 92 are part, be considered
infringements on freedom of speech? That the framers contemplated regulation of political
propaganda similar to §11(b) is clear from the following portion of the sponsorship speech of
Commissioner Vicente B. Foz:chanroblesvirtuallawlibrary
MR. FOZ. . . . Regarding the regulation by the Commission of the enjoyment or utilization of
franchises or permits for the operation of transportation and other public utilities, media of
communication or information, all grants, special privileges or concessions granted by the
Government, there is a provision that during the election period, the Commission may regulate,
among other things, the rates, reasonable free space, and time allotments for public information
campaigns and forums among candidates for the purpose of ensuring free, orderly, honest and
peaceful elections. This has to do with the media of communication or
information.117chanrobleslaw
Proceeding from the above, the Court shall now rule on Ejercito’s proposition that the legislature
imposes no legal limitation on campaign donations. He vigorously asserts that COMELEC
Resolution No. 9476 distinguishes between “contribution” and “expenditure” and makes no
proscription on the medium or amount of contribution made by third parties in favor of the
candidates, while the limit set by law, as appearing in COMELEC Resolution No. 9615, applies
only to election expenditures of candidates.
We deny.
Section 13 of R.A. No. 7166118 sets the current allowable limit on expenses of candidates and
political parties for election campaign, thus:chanroblesvirtuallawlibrary
SEC. 13. Authorized Expenses of Candidates and Political Parties. – The aggregate amount that
a candidate or registered political party may spend for election campaign shall be as
follows:chanroblesvirtuallawlibrary
(a) For candidates – Ten pesos (P10.00) for President and Vice President; and for other
candidates, Three pesos (P3.00) for every voter currently registered in the constituency where
he filed his certificate of candidacy: Provided, That, a candidate without any political party and
without support from any political party may be allowed to spend Five pesos (P5.00) for every
such voter; and
(b) For political parties - Five pesos (P5.00) for every voter currently registered in the
constituency or constituencies where it has official candidates.
Any provision of law to the contrary notwithstanding, any contribution in cash or in kind to any
candidate or political party or coalition of parties for campaign purposes, duly reported to the
Commission, shall not be subject to the payment of any gift tax.119chanrobleslaw
Sections 100, 101, and 103 of the OEC are not repealed by R.A. No. 7166.120 These provisions,
which are merely amended insofar as the allowable amount is concerned,
read:chanroblesvirtuallawlibrary
SECTION 100. Limitations upon expenses of candidates. – No candidate shall spend for his
election campaign an aggregate amount exceeding one peso and fifty centavos for every voter
currently registered in the constituency where he filed his candidacy: Provided, That the
expenses herein referred to shall include those incurred or caused to be incurred by the
candidate, whether in cash or in kind, including the use, rental or hire of land, water or aircraft,
equipment, facilities, apparatus and paraphernalia used in the campaign: Provided, further, That
where the land, water or aircraft, equipment, facilities, apparatus and paraphernalia used is
owned by the candidate, his contributor or supporter, the Commission is hereby empowered to
assess the amount commensurate with the expenses for the use thereof, based on the
prevailing rates in the locality and shall be included in the total expenses incurred by the
candidate.
SECTION 101. Limitations upon expenses of political parties. – A duly accredited political party
may spend for the election of its candidates in the constituency or constituencies where it has
Page 54 of 139
official candidates an aggregate amount not exceeding the equivalent of one peso and fifty
centavos for every voter currently registered therein. Expenses incurred by branches, chapters,
or committees of such political party shall be included in the computation of the total
expenditures of the political party.
Expenses incurred by other political parties shall be considered as expenses of their respective
individual candidates and subject to limitation under Section 100 of this Code.
SECTION 103. Persons authorized to incur election expenditures. – No person, except the
candidate, the treasurer of a political party or any person authorized by such candidate or
treasurer, shall make any expenditure in support of or in opposition to any candidate or political
party. Expenditures duly authorized by the candidate or the treasurer of the party shall be
considered as expenditures of such candidate or political party.
The authority to incur expenditures shall be in writing, copy of which shall be furnished the
Commission signed by the candidate or the treasurer of the party and showing the expenditures
so authorized, and shall state the full name and exact address of the person so designated.
(Emphasis supplied)121chanrobleslaw
The focal query is: How shall We interpret “the expenses herein referred to shall include those
incurred or caused to be incurred by the candidate” and “except the candidate, the treasurer of a
political party or any person authorized by such candidate or treasurer” found in Sections 100
and 103, respectively, of the OEC? Do these provisions exclude from the allowable election
expenditures the contributions of third parties made with the consent of the candidate? The
Court holds not.
When the intent of the law is not apparent as worded, or when the application of the law would
lead to absurdity, impossibility or injustice, extrinsic aids of statutory construction may be
resorted to such as the legislative history of the law for the purpose of solving doubt, and that
courts may take judicial notice of the origin and history of the law, the deliberations during the
enactment, as well as prior laws on the same subject matter in order to ascertain the true intent
or spirit of the law.122chanrobleslaw
Looking back, it could be found that Sections 100, 101, and 103 of the OEC are substantially
lifted from P.D. No. 1296,123 as amended. Sections 51, 52 and 54 of which specifically
provide:chanroblesvirtuallawlibrary
Section 51. Limitations upon expenses of candidates. No candidate shall spend for his election
campaign an amount more than the salary or the equivalent of the total emoluments for one year
attached to the office for which he is a candidate: Provided, That the expenses herein referred to
shall include those incurred by the candidate, his contributors and supporters, whether in cash or
in kind, including the use, rental or hire of land, water or air craft, equipment, facilities, apparatus
and paraphernalia used in the campaign: Provided, further, That, where the land, water or air
craft, equipment, facilities, apparatus and paraphernalia used is owned by the candidate, his
contributor or supporter, the Commission is hereby empowered to assess the amount
commensurate with the expenses for the use thereof, based on the prevailing rates in the locality
and shall be included in the total expenses incurred by the candidate.
In the case of candidates for the interim Batasang Pambansa, they shall not spend more than
sixty thousand pesos for their election campaign.
Section 52. Limitation upon expenses of political parties, groups or aggrupations. A political
party, group or aggrupation may not spend for the election of its candidates in the constituency
or constituencies where it has official candidates an aggregate amount more than the equivalent
of fifty centavos for every voter currently registered therein: Provided, That expenses incurred by
such political party, group or aggrupation not duly registered with the Commission and/or not
presenting or supporting a complete list of candidates shall be considered as expenses of its
candidates and subject to the limitation under Section 51 of this Code. Expenses incurred by
branches, chapters or committees of a political party, group or aggrupation shall be included in
the computation of the total expenditures of the political party, group or aggrupation. (Emphasis
supplied)
Section 54. Persons authorized to incur election expenditures. No person, except the candidate
or any person authorized by him or the treasurer of a political party, group or aggrupation, shall
make any expenditure in support of, or in opposition to any candidate or political party, group or
aggrupation. Expenditures duly authorized by the candidate of the treasurer of the party, group
or aggrupation shall be considered as expenditure of such candidate or political party, group or
aggrupation.
The authority to incur expenditures shall be in writing, copy of which shall be furnished the
Commission, signed by the candidate or the treasurer of the party, group or aggrupation and
showing the expenditure so authorized, and shall state the full name and exact address of the
person so designated. (Emphasis supplied)
Prior to P.D. No. 1296, R.A. No. 6388 (otherwise known as the “Election Code of 1971”) was
enacted.124 Sections 41 and 42 of which are relevant, to quote:chanroblesvirtuallawlibrary
Section 41. Limitation Upon Expenses of Candidates. – No candidate shall spend for his election
campaign more than the total amount of salary for the full term attached to the office for which
he is a candidate.
Section 42. Limitation Upon Expenses of Political Parties and Other Non-political Organizations.
– No political party as defined in this Code shall spend for the election of its candidates an
aggregate amount more than the equivalent of one peso for every voter currently registered
throughout the country in case of a regular election, or in the constituency in which the
election shall be held in case of a special election which is not held in conjunction with a regular
election. Any other organization not connected with any political party, campaigning for or
against a candidate, or for or against a political party shall not spend more than a total amount of
five thousand pesos. (Emphasis supplied)
Much earlier, Section 12 (G) of R.A. No. 6132,125 which implemented the resolution of both
Houses of Congress calling for a constitutional convention, explicitly
stated:chanroblesvirtuallawlibrary
Section 12. Regulations of Election Spending and Propaganda. The following provisions shall
govern election spending and propaganda in the election provided for in this
Act:chanroblesvirtuallawlibrary
xxx
(G) All candidates and all other persons making or receiving expenditures, contributions or
donations which in their totality exceed fifty pesos, in order to further or oppose the candidacy of
any candidate, shall file a statement of all such expenditures and contributions made or received
on such dates and with such details as the Commission on Elections shall prescribe by rules.
The total expenditures made by a candidate, or by any other person with the knowledge and
consent of the candidate, shall not exceed thirty-two thousand pesos. (Emphasis supplied)
In tracing the legislative history of Sections 100, 101, and 103 of the OEC, it can be said,
therefore, that the intent of our lawmakers has been consistent through the years: to regulate not
Page 55 of 139
just the election expenses of the candidate but also of his or her contributor/supporter/donor as
well as by including in the aggregate limit of the former’s election expenses those incurred by the
latter. The phrase “those incurred or caused to be incurred by the candidate” is sufficiently
adequate to cover those expenses which are contributed or donated in the candidate’s behalf.
By virtue of the legal requirement that a contribution or donation should bear the written
conformity of the candidate, a contributor/supporter/donor certainly qualifies as “any person
authorized by such candidate or treasurer.” Ubi lex non distinguit, nec nos distinguere
debemus.126 (Where the law does not distinguish, neither should We.) There should be no
distinction in the application of a law where none is indicated.
The inclusion of the amount contributed by a donor to the candidate’s allowable limit of election
expenses does not trample upon the free exercise of the voters’ rights of speech and of
expression under Section 4, Artticle III of the Constitution. As a content-neutral regulation,127 the
law’s concern is not to curtail the message or content of the advertisement promoting a
particular candidate but to ensure equality between and among aspirants with “deep pockets”
and those with less financial resources. Any restriction on speech or expression is only
incidental and is no more than necessary to achieve the substantial governmental interest of
promoting equality of opportunity in political advertising. It bears a clear and reasonable
connection with the constitutional objectives set out in Section 26, Article II, Section 4, Article IX-
C, and Section 1, Art. XIII of the Constitution.128 Indeed, to rule otherwise would practically result
in an unlimited expenditure for political advertising, which skews the political process and
subverts the essence of a truly democratic form of government.
WHEREFORE, the Petition is DENIED. The May 21, 2014 Resolution of the COMELEC En
Banc in SPA No. 13-306 (DC), which upheld the September 26, 2013 Resolution of the
COMELEC First Division, granting the petition for disqualification filed by private respondent
Edgar “Egay” S. San Luis against petitioner Emilio Ramon “E.R.” P. Ejercito, is hereby
AFFIRMED. SO ORDERED.
G.R. No. 205728, January 21, 2015
THE DIOCESE OF BACOLOD, REPRESENTED BY THE MOST REV. BISHOP VICENTE M.
NAVARRA AND THE BISHOP HIMSELF IN HIS PERSONAL
CAPACITY, Petitioners, v. COMMISSION ON ELECTIONS AND THE ELECTION OFFICER OF
BACOLOD CITY, ATTY. MAVIL V. MAJARUCON, Respondents.
DECISION
LEONEN, J.:
“The Philippines is a democratic and
republican State. Sovereignty resides in the
people and all government authority emanates
from them.” – Article II, Section 1, Constitution
All governmental authority emanates from our people. No unreasonable restrictions of the
fundamental and preferred right to expression of the electorate during political contests no
matter how seemingly benign will be tolerated.
This case defines the extent that our people may shape the debates during elections. It is
significant and of first impression. We are asked to decide whether the Commission on Elections
(COMELEC) has the competence to limit expressions made by the citizens — who are not
candidates — during elections. pending this opinion and the availment of legal remedies, the tarpaulin be allowed to
remain.11chanRoblesvirtualLawlibrary
Before us is a special civil action for certiorari and prohibition with application for preliminary
injunction and temporary restraining order1 under Rule 65 of the Rules of Court seeking to nullify On February 27, 2013, COMELEC Law Department issued a letter12 ordering the immediate
COMELEC’s Notice to Remove Campaign Materials2 dated February 22, 2013 and letter3 issued removal of the tarpaulin; otherwise, it will be constrained to file an election offense against
on February 27, 2013. petitioners. The letter of COMELEC Law Department was silent on the remedies available to
petitioners. The letter provides as follows:chanroblesvirtuallawlibrary
The facts are not disputed.
Dear Bishop Navarra:
On February 21, 2013, petitioners posted two (2) tarpaulins within a private compound housing
the San Sebastian Cathedral of Bacolod. Each tarpaulin was approximately six feet (6') by ten It has reached this Office that our Election Officer for this City, Atty. Mavil Majarucon, had
feet (10') in size. They were posted on the front walls of the cathedral within public view. The first already given you notice on February 22, 2013 as regards the election propaganda material
tarpaulin contains the message “IBASURA RH Law” referring to the Reproductive Health Law of posted on the church vicinity promoting for or against the candidates and party-list groups with
2012 or Republic Act No. 10354. The second tarpaulin is the subject of the present the following names and messages, particularly described as
case.4chanRoblesvirtualLawlibrary follows:ChanRoblesVirtualawlibrary
This tarpaulin contains the heading “Conscience Vote” and lists candidates as either “(Anti-RH) Material size : six feet (6’) by ten feet (10’)
Team Buhay” with a check mark, or “(Pro-RH) Team Patay” with an “X” mark.5 The electoral Description : FULL COLOR TARPAULIN
candidates were classified according to their vote on the adoption of Republic Act No. 10354, Image of : SEE ATTACHED PICTURES
otherwise known as the RH Law.6 Those who voted for the passing of the law were classified by Message : CONSCIENCE VOTE (ANTI RH) TEAM
petitioners as comprising “Team Patay,” while those who voted against it form “Team BUHAY : (PRO RH) TEAM PATAY
Buhay”:7chanRoblesvirtualLawlibrary Location : POSTED ON THE CHURCH VICINITY OF THE DIOCESE OF
BACOLOD CITY
The three (3) – day notice expired on February 25, 2013.
TEAM BUHAY TEAM PATAY
Estrada, JV Angara, Juan Edgardo Considering that the above-mentioned material is found to be in violation of Comelec Resolution
No. 9615 promulgated on January 15, 2013 particularly on the size (even with the subsequent
Honasan, Gregorio Casiño, Teddy division of the said tarpaulin into two), as the lawful size for election propaganda material is only
Magsaysay, Mitos Cayetano, Alan Peter two feet (2’) by three feet (3’), please order/cause the immediate removal of said election
propaganda material, otherwise, we shall be constrained to file an election offense case against
Pimentel, Koko Enrile, Jackie you.
Trillanes, Antonio Escudero, Francis
We pray that the Catholic Church will be the first institution to help the Commission on Elections
Villar, Cynthia Hontiveros, Risa in ensuring the conduct of peaceful, orderly, honest and credible elections.
Party List Buhay Legarda, Loren
Thank you and God Bless!
Party List Ang Pamilya Party List Gabriela
Party List Akbayan [signed]
Party List Bayan Muna ATTY. ESMERALDA AMORA-LADRA
Director IV13
Party List Anak Pawis
Concerned about the imminent threat of prosecution for their exercise of free speech, petitioners
During oral arguments, respondents conceded that the tarpaulin was neither sponsored nor paid initiated this case through this petition for certiorari and prohibition with application for
for by any candidate. Petitioners also conceded that the tarpaulin contains names of candidates preliminary injunction and temporary restraining order.14 They question respondents’ notice
for the 2013 elections, but not of politicians who helped in the passage of the RH Law but were dated February 22, 2013 and letter issued on February 27, 2013. They pray that: (1) the petition
not candidates for that election. be given due course; (2) a temporary restraining order (TRO) and/or a writ of preliminary
injunction be issued restraining respondents from further proceeding in enforcing their orders for
On February 22, 2013, respondent Atty. Mavil V. Majarucon, in her capacity as Election Officer the removal of the Team Patay tarpaulin; and (3) after notice and hearing, a decision be
of Bacolod City, issued a Notice to Remove Campaign Materials 8 addressed to petitioner Most rendered declaring the questioned orders of respondents as unconstitutional and void, and
Rev. Bishop Vicente M. Navarra. The election officer ordered the tarpaulin’s removal within three permanently restraining respondents from enforcing them or any other similar
(3) days from receipt for being oversized. COMELEC Resolution No. 9615 provides for the size order.15chanRoblesvirtualLawlibrary
requirement of two feet (2’) by three feet (3’).9chanRoblesvirtualLawlibrary
After due deliberation, this court, on March 5, 2013, issued a temporary restraining order
On February 25, 2013, petitioners replied10 requesting, among others, that (1) petitioner Bishop enjoining respondents from enforcing the assailed notice and letter, and set oral arguments on
be given a definite ruling by COMELEC Law Department regarding the tarpaulin; and (2) March 19, 2013.16chanRoblesvirtualLawlibrary
Page 56 of 139
 IV.
On March 13, 2013, respondents filed their comment17 arguing that (1) a petition for certiorari
and prohibition under Rule 65 of the Rules of Court filed before this court is not the proper WHETHER THE 22 FEBRUARY 2013 NOTICE/ ORDER BY ELECTION OFFICER
remedy to question the notice and letter of respondents; and (2) the tarpaulin is an election MAJARUCON AND THE 27 FEBRUARY 2013 ORDER BY THE COMELEC LAW
propaganda subject to regulation by COMELEC pursuant to its mandate under Article IX-C, DEPARTMENT VIOLATES THE PRINCIPLE OF SEPARATION OF CHURCH AND STATE[;]
Section 4 of the Constitution. Hence, respondents claim that the issuances ordering its removal [AND]
for being oversized are valid and constitutional.18chanRoblesvirtualLawlibrary
V.
During the hearing held on March 19, 2013, the parties were directed to file their respective
memoranda within 10 days or by April 1, 2013, taking into consideration the intervening WHETHER THE ACTION OF THE PETITIONERS IN POSTING ITS TARPAULIN VIOLATES
holidays.19chanRoblesvirtualLawlibrary THE CONSTITUTIONAL PRINCIPLE OF SEPARATION OF CHURCH AND STATE.
The issues, which also served as guide for the oral arguments,
are:20chanRoblesvirtualLawlibrary I
PROCEDURAL ISSUES
I.
I.A
This court’s jurisdiction over COMELEC cases
WHETHER THE 22 FEBRUARY 2013 NOTICE/ORDER BY ELECTION OFFICER
MAJARUCON AND THE 27 FEBRUARY 2013 ORDER BY THE COMELEC LAW
Respondents ask that this petition be dismissed on the ground that the notice and letter are not
DEPARTMENT ARE CONSIDERED JUDGMENTS/FINAL ORDERS/RESOLUTIONS OF THE
final orders, decisions, rulings, or judgments of the COMELEC En Banc issued in the exercise of
COMELEC WHICH WOULD WARRANT A REVIEW OF THIS COURT VIA RULE 65
its adjudicatory powers, reviewable via Rule 64 of the Rules of
PETITION[;]
Court.21chanRoblesvirtualLawlibrary

A. WHETHER PETITIONERS VIOLATED THE HIERARCHY OF COURTS
DOCTRINE AND JURISPRUDENTIAL RULES GOVERNING APPEALS
FROM COMELEC DECISIONS;
B. ASSUMING ARGUENDO THAT THE AFOREMENTIONED ORDERS ARE
NOT CONSIDERED JUDGMENTS/FINAL ORDERS/RESOLUTIONS OF
THE COMELEC, WHETHER THERE ARE EXCEPTIONAL
CIRCUMSTANCES WHICH WOULD ALLOW THIS COURT TO TAKE
COGNIZANCE OF THE CASE[;]
II.
WHETHER IT IS RELEVANT TO DETERMINE WHETHER THE TARPAULINS ARE
“POLITICAL ADVERTISEMENT” OR “ELECTION PROPAGANDA” CONSIDERING THAT
PETITIONER IS NOT A POLITICAL CANDIDATE[;]
III.
WHETHER THE TARPAULINS ARE A FORM OR EXPRESSION (PROTECTED SPEECH), OR
ELECTION PROPAGANDA/POLITICAL ADVERTISEMENT[;]
A. ASSUMING ARGUENDO THAT THE TARPAULINS ARE A FORM OF
EXPRESSION, WHETHER THE COMELEC POSSESSES THE
AUTHORITY TO REGULATE THE SAME[;]
B. WHETHER THIS FORM OF EXPRESSION MAY BE REGULATED[;]
Rule 64 is not the exclusive remedy for all acts of the COMELEC. Rule 65 is applicable
especially to raise objections relating to a grave abuse of discretion resulting in the ouster of
jurisdiction.22 As a special civil action, there must also be a showing that there be no plain,
speedy, and adequate remedy in the ordinary course of the law.
Respondents contend that the assailed notice and letter are not subject to review by this court,
whose power to review is “limited only to final decisions, rulings and orders of the COMELEC En
Banc rendered in the exercise of its adjudicatory or quasi-judicial power.”23 Instead, respondents
claim that the assailed notice and letter are reviewable only by COMELEC itself pursuant to
Article IX-C, Section 2(3) of the Constitution24 on COMELEC’s power to decide all questions
affecting elections.25 Respondents invoke the cases of Ambil, Jr. v. COMELEC,26Repol v.
COMELEC,27Soriano, Jr. v. COMELEC,28 Blanco v. COMELEC,29 and Cayetano v.
COMELEC,30 to illustrate how judicial intervention is limited to final decisions, orders, rulings and
judgments of the COMELEC En Banc.31chanRoblesvirtualLawlibrary
These cases are not applicable.
In Ambil, Jr. v. COMELEC, the losing party in the gubernatorial race of Eastern Samar filed the
election protest.32 At issue was the validity of the promulgation of a COMELEC Division
resolution.33 No motion for reconsideration was filed to raise this issue before the COMELEC En
Banc. This court declared that it did not have jurisdiction and clarified:chanroblesvirtuallawlibrary
We have interpreted [Section 7, Article IX-A of the Constitution]34 to mean final orders, rulings
and decisions of the COMELEC rendered in the exercise of its adjudicatory or quasi-judicial
powers.” This decision must be a final decision or resolution of the Comelec en banc, not of a
division, certainly not an interlocutory order of a division. The Supreme Court has no power to
review via certiorari, an interlocutory order or even a final resolution of a Division of the
Commission on Elections.35 (Emphasis in the original, citations omitted)

However, in the next case cited by respondents, Repol v. COMELEC, this court provided
exceptions to this general rule. Repol was another election protest case, involving the mayoralty
Page 57 of 139
elections in Pagsanghan, Samar.36 This time, the case was brought to this court because the
COMELEC First Division issued a status quo ante order against the Regional Trial Court
executing its decision pending appeal.37 This court’s ponencia discussed the general rule
enunciated in Ambil, Jr. that it cannot take jurisdiction to review interlocutory orders of a
COMELEC Division.38 However, consistent with ABS-CBN Broadcasting Corporation v.
COMELEC,39 it clarified the exception:chanroblesvirtuallawlibrary
This Court, however, has ruled in the past that this procedural requirement [of filing a motion for
reconsideration] may be glossed over to prevent miscarriage of justice, when the issue involves
the principle of social justice or the protection of labor, when the decision or resolution sought to
be set aside is a nullity, or when the need for relief is extremely urgent and certiorari is the only
adequate and speedy remedy available.40
Based on ABS-CBN, this court could review orders and decisions of COMELEC — in electoral
contests — despite not being reviewed by the COMELEC En Banc, if:chanroblesvirtuallawlibrary
1) It will prevent the miscarriage of justice;
2) The issue involves a principle of social justice;
3) The issue involves the protection of labor;
4) The decision or resolution sought to be set aside is a nullity; or
5) The need for relief is extremely urgent and certiorari is the only adequate and speedy
remedy available.
Ultimately, this court took jurisdiction in Repol and decided that the status quo ante order issued
by the COMELEC Division was unconstitutional.
Respondents also cite Soriano, Jr. v. COMELEC. This case was also an election protest case
involving candidates for the city council of Muntinlupa City.41 Petitioners in Soriano, Jr. filed
before this court a petition for certiorari against an interlocutory order of the COMELEC First
Division.42 While the petition was pending in this court, the COMELEC First Division dismissed
the main election protest case.43Soriano applied the general rule that only final orders should be
questioned with this court. The ponencia for this court, however, acknowledged the exceptions
to the general rule in ABS-CBN.44chanRoblesvirtualLawlibrary
Blanco v. COMELEC, another case cited by respondents, was a disqualification case of one of
the mayoralty candidates of Meycauayan, Bulacan.45 The COMELEC Second Division ruled that
petitioner could not qualify for the 2007 elections due to the findings in an administrative case
that he engaged in vote buying in the 1995 elections.46 No motion for reconsideration was filed
before the COMELEC En Banc. This court, however, took cognizance of this case applying one
of the exceptions in ABS-CBN: The assailed resolution was a
nullity.47chanRoblesvirtualLawlibrary
Finally, respondents cited Cayetano v. COMELEC, a recent election protest case involving the
mayoralty candidates of Taguig City.48 Petitioner assailed a resolution of the COMELEC denying
her motion for reconsideration to dismiss the election protest petition for lack of form and
substance.49 This court clarified the general rule and refused to take cognizance of the review of
the COMELEC order. While recognizing the exceptions in ABS-CBN, this court ruled that these
exceptions did not apply.50chanRoblesvirtualLawlibrary
Ambil, Jr., Repol, Soriano, Jr., Blanco, and Cayetano cited by respondents do not operate
as precedents to oust this court from taking jurisdiction over this case. All these cases
cited involve election protests or disqualification cases filed by the losing candidate
Page 58 of 139
against the winning candidate.
In the present case, petitioners are not candidates seeking for public office. Their petition
is filed to assert their fundamental right to expression.
Furthermore, all these cases cited by respondents pertained to COMELEC’s exercise of its
adjudicatory or quasi-judicial power. This case pertains to acts of COMELEC in the
implementation of its regulatory powers. When it issued the notice and letter, the COMELEC
was allegedly enforcing election laws.cralawred
I.B
Rule 65, grave abuse of discretion,
and limitations on political speech
The main subject of this case is an alleged constitutional violation: the infringement on speech
and the “chilling effect” caused by respondent COMELEC’s notice and letter.
Petitioners allege that respondents committed grave abuse of discretion amounting to lack or
excess of jurisdiction in issuing the notice51 dated February 22, 2013 and letter52 dated February
27, 2013 ordering the removal of the tarpaulin.53 It is their position that these infringe on their
fundamental right to freedom of expression and violate the principle of separation of church and
state and, thus, are unconstitutional.54chanRoblesvirtualLawlibrary
The jurisdiction of this court over the subject matter is determined from the allegations in the
petition. Subject matter jurisdiction is defined as the authority “to hear and determine cases of
the general class to which the proceedings in question belong and is conferred by the sovereign
authority which organizes the court and defines its powers.”55 Definitely, the subject matter in this
case is different from the cases cited by respondents.
Nothing less than the electorate’s political speech will be affected by the restrictions imposed by
COMELEC. Political speech is motivated by the desire to be heard and understood, to move
people to action. It is concerned with the sovereign right to change the contours of power
whether through the election of representatives in a republican government or the revision of the
basic text of the Constitution. The zeal with which we protect this kind of speech does not
depend on our evaluation of the cogency of the message. Neither do we assess whether we
should protect speech based on the motives of COMELEC. We evaluate restrictions on freedom
of expression from their effects. We protect both speech and medium because the quality of this
freedom in practice will define the quality of deliberation in our democratic society.
COMELEC’s notice and letter affect preferred speech. Respondents’ acts are capable of
repetition. Under the conditions in which it was issued and in view of the novelty of this case, it
could result in a “chilling effect” that would affect other citizens who want their voices heard on
issues during the elections. Other citizens who wish to express their views regarding the election
and other related issues may choose not to, for fear of reprisal or sanction by the COMELEC.
Direct resort to this court is allowed to avoid such proscribed conditions. Rule 65 is also the
procedural platform for raising grave abuse of discretion.
Both parties point to constitutional provisions on jurisdiction. For petitioners, it referred to this
court’s expanded exercise of certiorari as provided by the Constitution as
follows:chanroblesvirtuallawlibrary
Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.56 (Emphasis supplied)
On the other hand, respondents relied on its constitutional mandate to decide all
questions affecting elections. Article IX-C, Section 2(3) of the Constitution,
provides:chanroblesvirtuallawlibrary
Sec. 2. The Commission on Elections shall exercise the following powers and functions:
....
(3) Decide, except those involving the right to vote, all questions affecting elections, including
determination of the number and location of polling places, appointment of election officials and
inspectors, and registration of voters.
Respondents’ reliance on this provision is misplaced.
We are not confronted here with the question of whether the COMELEC, in its exercise of
jurisdiction, gravely abused it. We are confronted with the question as to whether the COMELEC
had any jurisdiction at all with its acts threatening imminent criminal action effectively abridging
meaningful political speech.
It is clear that the subject matter of the controversy is the effect of COMELEC’s notice and letter
on free speech. This does not fall under Article IX-C, Section 2(3) of the Constitution. The use of
the word “affecting” in this provision cannot be interpreted to mean that COMELEC has the
exclusive power to decide any and all questions that arise during elections. COMELEC’s
constitutional competencies during elections should not operate to divest this court of its own
jurisdiction.
The more relevant provision for jurisdiction in this case is Article VIII, Section 5(1) of the
Constitution. This provision provides for this court’s original jurisdiction over petitions for
certiorari and prohibition. This should be read alongside the expanded jurisdiction of the court in
Article VIII, Section 1 of the Constitution.
Certainly, a breach of the fundamental right of expression by COMELEC is grave abuse of
discretion. Thus, the constitutionality of the notice and letter coming from COMELEC is within
this court’s power to review.
During elections, we have the power and the duty to correct any grave abuse of discretion or any
act tainted with unconstitutionality on the part of any government branch or instrumentality. This
includes actions by the COMELEC. Furthermore, it is this court’s constitutional mandate to
protect the people against government’s infringement of their fundamental rights. This
constitutional mandate outweighs the jurisdiction vested with the COMELEC.
It will, thus, be manifest injustice if the court does not take jurisdiction over this case.cralawred
I.C
Hierarchy of courts
This brings us to the issue of whether petitioners violated the doctrine of hierarchy of courts in
directly filing their petition before this court.
Respondents contend that petitioners’ failure to file the proper suit with a lower court of
concurrent jurisdiction is sufficient ground for the dismissal of their petition. 57 They add that
Page 59 of 139
observation of the hierarchy of courts is compulsory, citing Heirs of Bertuldo Hinog v.
Melicor.58 While respondents claim that while there are exceptions to the general rule on
hierarchy of courts, none of these are present in this case. 59chanRoblesvirtualLawlibrary
On the other hand, petitioners cite Fortich v. Corona60 on this court’s discretionary power to take
cognizance of a petition filed directly to it if warranted by “compelling reasons, or [by] the nature
and importance of the issues raised. . . .”61 Petitioners submit that there are “exceptional and
compelling reasons to justify a direct resort [with] this Court.”62chanRoblesvirtualLawlibrary
In Bañez, Jr. v. Concepcion,63 we explained the necessity of the application of the hierarchy of
courts: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 shield 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.64
In Bañez, we also elaborated on the reasons why lower courts are allowed to issue writs of
certiorari, prohibition, and mandamus, citing Vergara v. Suelto:65chanRoblesvirtualLawlibrary
The Supreme Court is a court of last resort, and must so remain if it is to satisfactorily perform
the functions assigned to it by the fundamental charter and immemorial tradition. It cannot and
should not be burdened with the task of dealing with causes in the first instance. Its original
jurisdiction to issue the so-called extraordinary writs should be exercised only where absolutely
necessary or where serious and important reasons exist therefore. Hence, that jurisdiction
should generally be exercised relative to actions or proceedings before the Court of Appeals, or
before constitutional or other tribunals, bodies or agencies whose acts for some reason or
another are not controllable by the Court of Appeals. 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.66 (Emphasis omitted)
The doctrine that requires respect for the hierarchy of courts was created by this court to ensure
that every level of the judiciary performs its designated roles in an effective and efficient manner.
Trial courts do not only determine the facts from the evaluation of the evidence presented before
them. They are likewise competent to determine issues of law which may include the validity of
an ordinance, statute, or even an executive issuance in relation to the Constitution.67 To
effectively perform these functions, they are territorially organized into regions and then into
branches. Their writs generally reach within those territorial boundaries. Necessarily, they mostly
perform the all-important task of inferring the facts from the evidence as these are physically
presented before them. In many instances, the facts occur within their territorial jurisdiction,
which properly present the ‘actual case’ that makes ripe a determination of the constitutionality
of such action. The consequences, of course, would be national in scope. There are, however,
some cases where resort to courts at their level would not be practical considering their
decisions could still be appealed before the higher courts, such as the Court of Appeals.
The Court of Appeals is primarily designed as an appellate court that reviews the determination
of facts and law made by the trial courts. It is collegiate in nature. This nature ensures more
standpoints in the review of the actions of the trial court. But the Court of Appeals also has
original jurisdiction over most special civil actions. Unlike the trial courts, its writs can have a
nationwide scope. It is competent to determine facts and, ideally, should act on constitutional
issues that may not necessarily be novel unless there are factual questions to determine.
This court, on the other hand, leads the judiciary by breaking new ground or further reiterating —
in the light of new circumstances or in the light of some confusions of bench or bar — existing
precedents. Rather than a court of first instance or as a repetition of the actions of the Court of
Appeals, this court promulgates these doctrinal devices in order that it truly performs that role.
In other words, the Supreme Court’s role to interpret the Constitution and act in order to protect
constitutional rights when these become exigent should not be emasculated by the doctrine in
respect of the hierarchy of courts. That has never been the purpose of such doctrine.
Thus, the doctrine of hierarchy of courts is not an iron-clad rule.68 This court has “full
discretionary power to take cognizance and assume jurisdiction [over] special civil actions for
certiorari . . . filed directly with it for exceptionally compelling reasons69 or if warranted by the
nature of the issues clearly and specifically raised in the petition.”70 As correctly pointed out by
petitioners,71 we have provided exceptions to this doctrine:
First, a direct resort to this court is allowed when there are genuine issues of constitutionality
that must be addressed at the most immediate time. A direct resort to this court includes availing
of the remedies of certiorari and prohibition to assail the constitutionality of actions of both
legislative and executive branches of the government.72chanRoblesvirtualLawlibrary
In this case, the assailed issuances of respondents prejudice not only petitioners’ right to
freedom of expression in the present case, but also of others in future similar cases. The case
before this court involves an active effort on the part of the electorate to reform the political
landscape. This has become a rare occasion when private citizens actively engage the public in
political discourse. To quote an eminent political theorist:chanroblesvirtuallawlibrary
[T]he theory of freedom of expression involves more than a technique for arriving at better social
judgments through democratic procedures. It comprehends a vision of society, a faith and a
whole way of life. The theory grew out of an age that was awakened and invigorated by the idea
of new society in which man's mind was free, his fate determined by his own powers of reason,
and his prospects of creating a rational and enlightened civilization virtually unlimited. It is put
forward as a prescription for attaining a creative, progressive, exciting and intellectually robust
community. It contemplates a mode of life that, through encouraging toleration, skepticism,
reason and initiative, will allow man to realize his full potentialities. It spurns the alternative of a
society that is tyrannical, conformist, irrational and stagnant. 73
In a democracy, the citizen’s right to freely participate in the exchange of ideas in furtherance of
political decision-making is recognized. It deserves the highest protection the courts may
provide, as public participation in nation-building is a fundamental principle in our Constitution.
As such, their right to engage in free expression of ideas must be given immediate protection by
this court.
A second exception is when the issues involved are of transcendental importance.74 In these
cases, the imminence and clarity of the threat to fundamental constitutional rights outweigh the
necessity for prudence. The doctrine relating to constitutional issues of transcendental
importance prevents courts from the paralysis of procedural niceties when clearly faced with the
need for substantial protection.
In the case before this court, there is a clear threat to the paramount right of freedom of speech
and freedom of expression which warrants invocation of relief from this court. The principles laid
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down in this decision will likely influence the discourse of freedom of speech in the future,
especially in the context of elections. The right to suffrage not only includes the right to vote for
one’s chosen candidate, but also the right to vocalize that choice to the public in general, in the
hope of influencing their votes. It may be said that in an election year, the right to vote
necessarily includes the right to free speech and expression. The protection of these
fundamental constitutional rights, therefore, allows for the immediate resort to this court.
Third, cases of first impression75 warrant a direct resort to this court. In cases of first impression,
no jurisprudence yet exists that will guide the lower courts on this matter. In Government of the
United States v. Purganan,76 this court took cognizance of the case as a matter of first
impression that may guide the lower courts:chanroblesvirtuallawlibrary
In the interest of justice and to settle once and for all the important issue of bail in extradition
proceedings, we deem it best to take cognizance of the present case. Such proceedings
constitute a matter of first impression over which there is, as yet, no local jurisprudence to guide
lower courts.77
This court finds that this is indeed a case of first impression involving as it does the issue of
whether the right of suffrage includes the right of freedom of expression. This is a question which
this court has yet to provide substantial answers to, through jurisprudence. Thus, direct resort to
this court is allowed.
Fourth, the constitutional issues raised are better decided by this court. In Drilon v. Lim,78 this
court held that:chanroblesvirtuallawlibrary
. . . it will be prudent for such courts, if only out of a becoming modesty, to defer to the higher
judgment of this Court in the consideration of its validity, which is better determined after a
thorough deliberation by a collegiate body and with the concurrence of the majority of those who
participated in its discussion.79 (Citation omitted)
In this case, it is this court, with its constitutionally enshrined judicial power, that can rule with
finality on whether COMELEC committed grave abuse of discretion or performed acts contrary to
the Constitution through the assailed issuances.
Fifth, the time element presented in this case cannot be ignored. This case was filed during the
2013 election period. Although the elections have already been concluded, future cases may be
filed that necessitate urgency in its resolution. Exigency in certain situations would qualify as an
exception for direct resort to this court.
Sixth, the filed petition reviews the act of a constitutional organ. COMELEC is a constitutional
body. In Albano v. Arranz,80 cited by petitioners, this court held that “[i]t is easy to realize the
chaos that would ensue if the Court of First Instance of each and every province were [to]
arrogate itself the power to disregard, suspend, or contradict any order of the Commission on
Elections: that constitutional body would be speedily reduced to
impotence.”81chanRoblesvirtualLawlibrary
In this case, if petitioners sought to annul the actions of COMELEC through pursuing remedies
with the lower courts, any ruling on their part would not have been binding for other citizens
whom respondents may place in the same situation. Besides, this court affords great respect to
the Constitution and the powers and duties imposed upon COMELEC. Hence, a ruling by this
court would be in the best interest of respondents, in order that their actions may be guided
accordingly in the future.
Seventh, petitioners rightly claim that they had no other plain, speedy, and adequate remedy in
the ordinary course of law that could free them from the injurious effects of respondents’ acts in
violation of their right to freedom of expression.
In this case, the repercussions of the assailed issuances on this basic right constitute an
exceptionally compelling reason to justify the direct resort to this court. The lack of other
sufficient remedies in the course of law alone is sufficient ground to allow direct resort to this
court.
Eighth, the petition includes questions that are “dictated by public welfare and the advancement
of public policy, or demanded by the broader interest of justice, or the orders complained of were
found to be patent nullities, or the appeal was considered as clearly an inappropriate
remedy.”82 In the past, questions similar to these which this court ruled on immediately despite
the doctrine of hierarchy of courts included citizens’ right to bear arms, 83 government contracts
involving modernization of voters’ registration lists,84 and the status and existence of a public
office.85chanRoblesvirtualLawlibrary
This case also poses a question of similar, if not greater import. Hence, a direct action to this
court is permitted.
It is not, however, necessary that all of these exceptions must occur at the same time to justify a
direct resort to this court. While generally, the hierarchy of courts is respected, the present case
falls under the recognized exceptions and, as such, may be resolved by this court
directly.cralawred
I.D
The concept of a political question
Respondents argue further that the size limitation and its reasonableness is a political question,
hence not within the ambit of this court’s power of review. They cite Justice Vitug’s separate
opinion in Osmeña v. COMELEC86 to support their position:chanroblesvirtuallawlibrary
It might be worth mentioning that Section 26, Article II, of the Constitution also states that the
“State shall guarantee equal access to opportunities for public service, and prohibit political
dynasties as may be defined by law.” I see neither Article IX (C)(4) nor Section 26, Article II, of
the Constitution to be all that adversarial or irreconcilably inconsistent with the right of free
expression. In any event, the latter, being one of general application, must yield to the specific
demands of the Constitution. The freedom of expression concededly holds, it is true, a vantage
point in hierarchy of constitutionally-enshrined rights but, like all fundamental rights, it is not
without limitations.
The case is not about a fight between the “rich” and the “poor” or between the “powerful” and the
“weak” in our society but it is to me a genuine attempt on the part of Congress and the
Commission on Elections to ensure that all candidates are given an equal chance to media
coverage and thereby be equally perceived as giving real life to the candidates’ right of free
expression rather than being viewed as an undue restriction of that freedom. The wisdom in the
enactment of the law, i.e., that which the legislature deems to be best in giving life to the
Constitutional mandate, is not for the Court to question; it is a matter that lies beyond the normal
prerogatives of the Court to pass upon.87
This separate opinion is cogent for the purpose it was said. But it is not in point in this case.
The present petition does not involve a dispute between the rich and poor, or the powerful and
weak, on their equal opportunities for media coverage of candidates and their right to freedom of
expression. This case concerns the right of petitioners, who are non-candidates, to post the
Page 61 of 139
tarpaulin in their private property, as an exercise of their right of free expression. Despite the
invocation of the political question doctrine by respondents, this court is not proscribed from
deciding on the merits of this case.
In Tañada v. Cuenco,88 this court previously elaborated on the concept of what constitutes a
political question:chanroblesvirtuallawlibrary
What is generally meant, when it is said that a question is political, and not judicial, is that it is a
matter which is to be exercised by the people in their primary political capacity, or that it has
been specifically delegated to some other department or particular officer of the government,
with discretionary power to act.89 (Emphasis omitted)
It is not for this court to rehearse and re-enact political debates on what the text of the law
should be. In political forums, particularly the legislature, the creation of the text of the law is
based on a general discussion of factual circumstances, broadly construed in order to allow for
general application by the executive branch. Thus, the creation of the law is not limited by
particular and specific facts that affect the rights of certain individuals, per se.
Courts, on the other hand, rule on adversarial positions based on existing facts established on a
specific case-to-case basis, where parties affected by the legal provision seek the courts’
understanding of the law.
The complementary nature of the political and judicial branches of government is essential in
order to ensure that the rights of the general public are upheld at all times. In order to preserve
this balance, branches of government must afford due respect and deference for the duties and
functions constitutionally delegated to the other. Courts cannot rush to invalidate a law or rule.
Prudence dictates that we are careful not to veto political acts unless we can craft doctrine
narrowly tailored to the circumstances of the case.
The case before this court does not call for the exercise of prudence or modesty. There is no
political question. It can be acted upon by this court through the expanded jurisdiction granted to
this court through Article VIII, Section 1 of the Constitution.
A political question arises in constitutional issues relating to the powers or competence of
different agencies and departments of the executive or those of the legislature. The political
question doctrine is used as a defense when the petition asks this court to nullify certain acts
that are exclusively within the domain of their respective competencies, as provided by the
Constitution or the law. In such situation, presumptively, this court should act with deference. It
will decline to void an act unless the exercise of that power was so capricious and arbitrary so as
to amount to grave abuse of discretion.
The concept of a political question, however, never precludes judicial review when the act of a
constitutional organ infringes upon a fundamental individual or collective right. Even assuming
arguendo that the COMELEC did have the discretion to choose the manner of regulation of the
tarpaulin in question, it cannot do so by abridging the fundamental right to expression.
Marcos v. Manglapus90 limited the use of the political question
doctrine:chanroblesvirtuallawlibrary
When political questions are involved, the Constitution limits the determination to whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the official whose action is being questioned. If grave abuse is not established, the Court
will not substitute its judgment for that of the official concerned and decide a matter which by its
nature or by law is for the latter alone to decide.91

How this court has chosen to address the political question doctrine has undergone an evolution
since the time that it had been first invoked in Marcos v. Manglapus. Increasingly, this court has
taken the historical and social context of the case and the relevance of pronouncements of
carefully and narrowly tailored constitutional doctrines. This trend was followed in cases such
as Daza v. Singson92 and Coseteng v. Mitra Jr.93chanRoblesvirtualLawlibrary
Daza and Coseteng involved a question as to the application of Article VI, Section 18 of the
1987 Constitution involving the removal of petitioners from the Commission on Appointments. In
times past, this would have involved a quintessentially political question as it related to the
dominance of political parties in Congress. However, in these cases, this court exercised its
power of judicial review noting that the requirement of interpreting the constitutional provision
involved the legality and not the wisdom of a manner by which a constitutional duty or power
was exercised. This approach was again reiterated in Defensor Santiago v. Guingona,
Jr.94chanRoblesvirtualLawlibrary
95
In Integrated Bar of the Philippines v. Zamora, this court declared again that the possible
existence of a political question did not bar an examination of whether the exercise of discretion
was done with grave abuse of discretion. In that case, this court ruled on the question of whether
there was grave abuse of discretion in the President’s use of his power to call out the armed
forces to prevent and suppress lawless violence.
In Estrada v. Desierto,96 this court ruled that the legal question as to whether a former President
resigned was not a political question even if the consequences would be to ascertain the political
legitimacy of a successor President.
Many constitutional cases arise from political crises. The actors in such crises may use the
resolution of constitutional issues as leverage. But the expanded jurisdiction of this court now
mandates a duty for it to exercise its power of judicial review expanding on principles that may
avert catastrophe or resolve social conflict.
This court’s understanding of the political question has not been static or unbending. In Llamas
v. Executive Secretary Oscar Orbos,97 this court held:chanroblesvirtuallawlibrary
While it is true that courts cannot inquire into the manner in which the President's discretionary
powers are exercised or into the wisdom for its exercise, it is also a settled rule that when the
issue involved concerns the validity of such discretionary powers or whether said powers are
within the limits prescribed by the Constitution, We will not decline to exercise our power of
judicial review. And such review does not constitute a modification or correction of the act of the
President, nor does it constitute interference with the functions of the President. 98
The concept of judicial power in relation to the concept of the political question was discussed
most extensively in Francisco v. HRET.99 In this case, the House of Representatives argued that
the question of the validity of the second impeachment complaint that was filed against former
Chief Justice Hilario Davide was a political question beyond the ambit of this court. Former Chief
Justice Reynato Puno elaborated on this concept in his concurring and dissenting
opinion:chanroblesvirtuallawlibrary
To be sure, the force to impugn the jurisdiction of this Court becomes more feeble in light of the
new Constitution which expanded the definition of judicial power as including “the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.” As well observed by retired Justice Isagani Cruz, this expanded definition of
Page 62 of 139
judicial power considerably constricted the scope of political question. He opined that the
language luminously suggests that this duty (and power) is available even against the executive
and legislative departments including the President and the Congress, in the exercise of
their discretionary powers.100 (Emphasis in the original, citations omitted)
Francisco also provides the cases which show the evolution of the political question, as applied
in the following cases:chanroblesvirtuallawlibrary
In Marcos v. Manglapus, this Court, speaking through Madame Justice Irene Cortes,
held:ChanRoblesVirtualawlibrary
The present Constitution limits resort to the political question doctrine and broadens the scope of
judicial inquiry into areas which the Court, under previous constitutions, would have normally left
to the political departments to decide. x x x
In Bengzon v. Senate Blue Ribbon Committee, through Justice Teodoro Padilla, this Court
declared:ChanRoblesVirtualawlibrary
The “allocation of constitutional boundaries” is a task that this Court must perform under the
Constitution. Moreover, as held in a recent case, “(t)he political question doctrine neither
interposes an obstacle to judicial determination of the rival claims. The jurisdiction to delimit
constitutional boundaries has been given to this Court. It cannot abdicate that
obligation mandated by the 1987 Constitution, although said provision by no means does away
with the applicability of the principle in appropriate cases.” (Emphasis and italics supplied)
And in Daza v. Singson, speaking through Justice Isagani Cruz, this Court
ruled:ChanRoblesVirtualawlibrary
In the case now before us, the jurisdictional objection becomes even less tenable and
decisive. The reason is that, even if we were to assume that the issue presented before us was
political in nature, we would still not be precluded from resolving it under
the expanded jurisdiction conferred upon us that now covers, in proper cases, even the political
question. x x x (Emphasis and italics supplied.)
....
In our jurisdiction, the determination of whether an issue involves a truly political and non-
justiciable question lies in the answer to the question of whether there are constitutionally
imposed limits on powers or functions conferred upon political bodies. If there are, then our
courts are duty-bound to examine whether the branch or instrumentality of the government
properly acted within such limits.101 (Citations omitted)
As stated in Francisco, a political question will not be considered justiciable if there are no
constitutionally imposed limits on powers or functions conferred upon political bodies. Hence, the
existence of constitutionally imposed limits justifies subjecting the official actions of the body to
the scrutiny and review of this court.
In this case, the Bill of Rights gives the utmost deference to the right to free speech. Any
instance that this right may be abridged demands judicial scrutiny. It does not fall squarely into
any doubt that a political question brings.cralawred
I.E
Exhaustion of administrative remedies
Respondents allege that petitioners violated the principle of exhaustion of administrative
remedies. Respondents insist that petitioners should have first brought the matter to the
COMELEC En Banc or any of its divisions.102chanRoblesvirtualLawlibrary
Respondents point out that petitioners failed to comply with the requirement in Rule 65 that
“there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of
law.”103 They add that the proper venue to assail the validity of the assailed issuances was in the
course of an administrative hearing to be conducted by COMELEC. 104 In the event that an
election offense is filed against petitioners for posting the tarpaulin, they claim that petitioners
should resort to the remedies prescribed in Rule 34 of the COMELEC Rules of
Procedure.105chanRoblesvirtualLawlibrary
The argument on exhaustion of administrative remedies is not proper in this case.
Despite the alleged non-exhaustion of administrative remedies, it is clear that the controversy is
already ripe for adjudication. Ripeness is the “prerequisite that something had by then been
accomplished or performed by either branch [or in this case, organ of government] before a
court may come into the picture.”106chanRoblesvirtualLawlibrary
Petitioners’ exercise of their right to speech, given the message and their medium, had
understandable relevance especially during the elections. COMELEC’s letter threatening the
filing of the election offense against petitioners is already an actionable infringement of this right.
The impending threat of criminal litigation is enough to curtail petitioners’ speech.
In the context of this case, exhaustion of their administrative remedies as COMELEC suggested
in their pleadings prolongs the violation of their freedom of speech.
Political speech enjoys preferred protection within our constitutional order. In Chavez v.
Gonzales,107 Justice Carpio in a separate opinion emphasized: “[i]f ever there is a hierarchy of
protected expressions, political expression would occupy the highest rank, and among different
kinds of political expression, the subject of fair and honest elections would be at the
top.”108 Sovereignty resides in the people.109 Political speech is a direct exercise of the
sovereignty. The principle of exhaustion of administrative remedies yields in order to protect this
fundamental right.
Even assuming that the principle of exhaustion of administrative remedies is applicable, the
current controversy is within the exceptions to the principle. In Chua v. Ang,110 this court
held:chanroblesvirtuallawlibrary
On the other hand, prior exhaustion of administrative remedies may be dispensed with and
judicial action may be validly resorted to immediately: (a) when there is a violation of due
process; (b) when the issue involved is purely a legal question; (c) when the administrative
action is patently illegal amounting to lack or excess of jurisdiction; (d) when there is estoppel on
the part of the administrative agency concerned; (e) when there is irreparable injury; (f) when the
respondent is a department secretary whose acts as an alter ego of the President bear the
implied and assumed approval of the latter; (g) when to require exhaustion of administrative
remedies would be unreasonable; (h) when it would amount to a nullification of a claim; (i) when
the subject matter is a private land in land case proceedings; (j) when the rule does not provide
a plain, speedy and adequate remedy; or (k) when there are circumstances indicating the
urgency of judicial intervention.”111 (Emphasis supplied, citation omitted)
The circumstances emphasized are squarely applicable with the present case. First, petitioners
allege that the assailed issuances violated their right to freedom of expression and the principle
of separation of church and state. This is a purely legal question. Second, the circumstances of
the present case indicate the urgency of judicial intervention considering the issue then on the
RH Law as well as the upcoming elections. Thus, to require the exhaustion of administrative
remedies in this case would be unreasonable.
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Time and again, we have held that this court “has the power to relax or suspend the rules or to
except a case from their operation when compelling reasons so warrant, or when the purpose of
justice requires it, [and when] [w]hat constitutes [as] good and sufficient cause that will merit
suspension of the rules is discretionary upon the court”. 112 Certainly, this case of first impression
where COMELEC has threatened to prosecute private parties who seek to participate in the
elections by calling attention to issues they want debated by the public in the manner they feel
would be effective is one of those cases.cralawred
II
SUBSTANTIVE ISSUES
II.A
COMELEC had no legal basis
to regulate expressions
made by private citizens
Respondents cite the Constitution, laws, and jurisprudence to support their position that they had
the power to regulate the tarpaulin.113 However, all of these provisions pertain to candidates and
political parties. Petitioners are not candidates. Neither do they belong to any political party.
COMELEC does not have the authority to regulate the enjoyment of the preferred right to
freedom of expression exercised by a non-candidate in this case.cralawred
II.A.1
First, respondents cite Article IX-C, Section 4 of the Constitution, which
provides:chanroblesvirtuallawlibrary
Section 4. The Commission may, during the election period, supervise or regulate the enjoyment
or utilization of all franchises or permits for the operation of transportation and other public
utilities, media of communication or information, all grants, special privileges, or concessions
granted by the Government or any subdivision, agency, or instrumentality thereof, including any
government-owned or controlled corporation or its subsidiary. Such supervision or regulation
shall aim to ensure equal opportunity, time, and space, and the right to reply, including
reasonable, equal rates therefor, for public information campaigns and forums among
candidates in connection with the objective of holding free, orderly, honest, peaceful, and
credible elections.114 (Emphasis supplied)
Sanidad v. COMELEC115 involved the rules promulgated by COMELEC during the plebiscite for
the creation of the Cordillera Autonomous Region.116 Columnist Pablito V. Sanidad questioned
the provision prohibiting journalists from covering plebiscite issues on the day before and on
plebiscite day.117 Sanidad argued that the prohibition was a violation of the “constitutional
guarantees of the freedom of expression and of the press. . . .”118 We held that the “evil sought
to be prevented by this provision is the possibility that a franchise holder may favor or give any
undue advantage to a candidate in terms of advertising space or radio or television time.”119 This
court found that “[m]edia practitioners exercising their freedom of expression during plebiscite
periods are neither the franchise holders nor the candidates[,]”120 thus, their right to expression
during this period may not be regulated by COMELEC.121chanRoblesvirtualLawlibrary
Similar to the media, petitioners in the case at bar are neither franchise holders nor
candidates.cralawred
II.A.2

Respondents likewise cite Article IX-C, Section 2(7) of the Constitution as
follows:122chanRoblesvirtualLawlibrary
Sec. 2. The Commission on Elections shall exercise the following powers and
functions:ChanRoblesVirtualawlibrary
....
(7) Recommend to the Congress effective measures to minimize election spending, including
limitation of places where propaganda materials shall be posted, and to prevent and penalize all
forms of election frauds, offenses, malpractices, and nuisance candidates. (Emphasis supplied)
Based on the enumeration made on acts that may be penalized, it will be inferred that this
provision only affects candidates.
Petitioners assail the “Notice to Remove Campaign Materials” issued by COMELEC. This was
followed by the assailed letter regarding the “election propaganda material posted on the church
vicinity promoting for or against the candidates and party-list groups. . . .”123 Section 9 of the Fair
Election Act124 on the posting of campaign materials only mentions “parties” and
“candidates”:chanroblesvirtuallawlibrary
Sec. 9. Posting of Campaign Materials. - The COMELEC may authorize political parties and
party-list groups to erect common poster areas for their candidates in not more than ten (10)
public places such as plazas, markets, barangay centers and the like, wherein candidates can
post, display or exhibit election propaganda: Provided, That the size of the poster areas shall not
exceed twelve (12) by sixteen (16) feet or its equivalent.
Independent candidates with no political parties may likewise be authorized to erect common
poster areas in not more than ten (10) public places, the size of which shall not exceed four (4)
by six (6) feet or its equivalent.
Candidates may post any lawful propaganda material in private places with the consent of the
owner thereof, and in public places or property which shall be allocated equitably and impartially
among the candidates. (Emphasis supplied)
Similarly, Section 17 of COMELEC Resolution No. 9615, the rules and regulations implementing
the Fair Election Act, provides as follows:chanroblesvirtuallawlibrary
SECTION 17. Posting of Campaign Materials. - Parties and candidates may post any lawful
campaign material in:
a. Authorized common poster areas in public places subject to the
requirements and/or limitations set forth in the next following section; and
b. Private places provided it has the consent of the owner thereof.
The posting of campaign materials in public places outside of the
designated common poster areas and those enumerated under Section 7
(g) of these Rules and the like is prohibited. Persons posting the same shall
be liable together with the candidates and other persons who caused the
posting. It will be presumed that the candidates and parties caused the
posting of campaign materials outside the common poster areas if they do
not remove the same within three (3) days from notice which shall be issued
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by the Election Officer of the city or municipality where the unlawful election
propaganda are posted or displayed.
Members of the PNP and other law enforcement agencies called upon by
the Election Officer or other officials of the COMELEC shall apprehend the
violators caught in the act, and file the appropriate charges against them.
(Emphasis supplied)
Respondents considered the tarpaulin as a campaign material in their issuances. The above
provisions regulating the posting of campaign materials only apply to candidates and political
parties, and petitioners are neither of the two.
Section 3 of Republic Act No. 9006 on “Lawful Election Propaganda” also states that these are
“allowed for all registered political parties, national, regional, sectoral parties or organizations
participating under the party-list elections and for all bona fide candidates seeking national and
local elective positions subject to the limitation on authorized expenses of candidates and
political parties. . . .” Section 6 of COMELEC Resolution No. 9615 provides for a similar wording.
These provisions show that election propaganda refers to matter done by or on behalf of and in
coordination with candidates and political parties. Some level of coordination with the candidates
and political parties for whom the election propaganda are released would ensure that these
candidates and political parties maintain within the authorized expenses limitation.
The tarpaulin was not paid for by any candidate or political party. 125 There was no allegation that
petitioners coordinated with any of the persons named in the tarpaulin regarding its posting. On
the other hand, petitioners posted the tarpaulin as part of their advocacy against the RH Law.
Respondents also cite National Press Club v. COMELEC126 in arguing that its regulatory power
under the Constitution, to some extent, set a limit on the right to free speech during election
period.127chanRoblesvirtualLawlibrary
National Press Club involved the prohibition on the sale and donation of space and time for
political advertisements, limiting political advertisements to COMELEC-designated space and
time. This case was brought by representatives of mass media and two candidates for office in
the 1992 elections. They argued that the prohibition on the sale and donation of space and time
for political advertisements is tantamount to censorship, which necessarily infringes on the
freedom of speech of the candidates.128chanRoblesvirtualLawlibrary
This court upheld the constitutionality of the COMELEC prohibition in National Press
Club. However, this case does not apply as most of the petitioners were electoral
candidates, unlike petitioners in the instant case. Moreover, the subject matter of National
Press Club, Section 11(b) of Republic Act No. 6646,129 only refers to a particular kind of media
such as newspapers, radio broadcasting, or television.130 Justice Feliciano emphasized that the
provision did not infringe upon the right of reporters or broadcasters to air their commentaries
and opinions regarding the candidates, their qualifications, and program for government.
Compared to Sanidad wherein the columnists lost their ability to give their commentary on the
issues involving the plebiscite, National Press Club does not involve the same infringement.
In the case at bar, petitioners lost their ability to give a commentary on the candidates for the
2013 national elections because of the COMELEC notice and letter. It was not merely a
regulation on the campaigns of candidates vying for public office. Thus, National Press
Club does not apply to this case.
Finally, Section 79 of Batas Pambansa Blg. 881, otherwise known as the Omnibus Election
Code, defines an “election campaign” as follows:chanroblesvirtuallawlibrary
....
(b) The term “election campaign” or “partisan political activity” refers to an act designed to
promote the election or defeat of a particular candidate or candidates to a public office which
shall include:
(1) Forming organizations, associations, clubs, committees or other groups of persons for the
purpose of soliciting votes and/or undertaking any campaign for or against a candidate;
(2) Holding political caucuses, conferences, meetings, rallies, parades, or other similar
assemblies, for the purpose of soliciting votes and/or undertaking any campaign or propaganda
for or against a candidate;
(3) Making speeches, announcements or commentaries, or holding interviews for or against the
election of any candidate for public office;
(4) Publishing or distributing campaign literature or materials designed to support or oppose the
election of any candidate; or
(5) Directly or indirectly soliciting votes, pledges or support for or against a candidate.
The foregoing enumerated acts if performed for the purpose of enhancing the chances of
aspirants for nomination for candidacy to a public office by a political party, aggroupment, or
coalition of parties shall not be considered as election campaign or partisan election activity.
Public expressions or opinions or discussions of probable issues in a forthcoming election or on
attributes of or criticisms against probable candidates proposed to be nominated in a
forthcoming political party convention shall not be construed as part of any election campaign or
partisan political activity contemplated under this Article. (Emphasis supplied)
True, there is no mention whether election campaign is limited only to the candidates and
political parties themselves. The focus of the definition is that the act must be “designed to
promote the election or defeat of a particular candidate or candidates to a public office.”
In this case, the tarpaulin contains speech on a matter of public concern, that is, a statement of
either appreciation or criticism on votes made in the passing of the RH law. Thus, petitioners
invoke their right to freedom of expression.cralawred
II.B
The violation of the constitutional right
to freedom of speech and expression
Petitioners contend that the assailed notice and letter for the removal of the tarpaulin violate their
fundamental right to freedom of expression.
On the other hand, respondents contend that the tarpaulin is an election propaganda subject to
their regulation pursuant to their mandate under Article IX-C, Section 4 of the Constitution. Thus,
the assailed notice and letter ordering its removal for being oversized are valid and
constitutional.131chanRoblesvirtualLawlibrary
II.B.1
Page 65 of 139
Fundamental to the consideration of this issue is Article III, Section 4 of the
Constitution:chanroblesvirtuallawlibrary
Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the
press, or the right of the people peaceably to assemble and petition the government for redress
of grievances.132chanRoblesvirtualLawlibrary
No law. . .
While it is true that the present petition assails not a law but an opinion by the COMELEC Law
Department, this court has applied Article III, Section 4 of the Constitution even to governmental
acts.
In Primicias v. Fugoso,133 respondent Mayor applied by analogy Section 1119 of the Revised
Ordinances of 1927 of Manila for the public meeting and assembly organized by petitioner
Primicias.134 Section 1119 requires a Mayor’s permit for the use of streets and public places for
purposes such as athletic games, sports, or celebration of national holidays. 135 What was
questioned was not a law but the Mayor’s refusal to issue a permit for the holding of petitioner’s
public meeting.136 Nevertheless, this court recognized the constitutional right to freedom of
speech, to peaceful assembly and to petition for redress of grievances, albeit not
absolute,137 and the petition for mandamus to compel respondent Mayor to issue the permit was
granted.138chanRoblesvirtualLawlibrary
In ABS-CBN v. COMELEC, what was assailed was not a law but COMELEC En Banc
Resolution No. 98-1419 where the COMELEC resolved to approve the issuance of a restraining
order to stop ABS-CBN from conducting exit surveys.139 The right to freedom of expression was
similarly upheld in this case and, consequently, the assailed resolution was nullified and set
aside.140chanRoblesvirtualLawlibrary
. . . shall be passed abridging. . .
All regulations will have an impact directly or indirectly on expression. The prohibition against the
abridgment of speech should not mean an absolute prohibition against regulation. The primary
and incidental burden on speech must be weighed against a compelling state interest clearly
allowed in the Constitution. The test depends on the relevant theory of speech implicit in the kind
of society framed by our Constitution.
. . . of expression. . .
Our Constitution has also explicitly included the freedom of expression, separate and in addition
to the freedom of speech and of the press provided in the US Constitution. The word
“expression” was added in the 1987 Constitution by Commissioner Brocka for having a wider
scope:chanroblesvirtuallawlibrary
MR. BROCKA: This is a very minor amendment, Mr. Presiding Officer. On Section 9, page 2,
line 29, it says: “No law shall be passed abridging the freedom of speech.” I would like to
recommend to the Committee the change of the word “speech” to EXPRESSION; or if not, add
the words AND EXPRESSION after the word “speech,” because it is more expansive, it has a
wider scope, and it would refer to means of expression other than speech.
THE PRESIDING OFFICER (Mr. Bengzon): What does the Committee say?
FR. BERNAS: “Expression” is more broad than speech. We accept it.

MR. BROCKA: Thank you.
THE PRESIDING OFFICER (Mr. Bengzon): Is it accepted?
FR. BERNAS: Yes.
THE PRESIDING OFFICER (Mr. Bengzon): Is there any objection? (Silence) The Chair hears
none; the amendment is approved.
FR. BERNAS: So, that provision will now read: “No law shall be passed abridging the freedom of
speech, expression or of the press . . . .”141
Speech may be said to be inextricably linked to freedom itself as “[t]he right to think is the
beginning of freedom, and speech must be protected from the government because speech is
the beginning of thought.”142chanRoblesvirtualLawlibrary
II.B.2
Communication is an essential outcome of protected speech. 143chanRoblesvirtualLawlibrary
Communication exists when “(1) a speaker, seeking to signal others, uses conventional actions
because he or she reasonably believes that such actions will be taken by the audience in the
manner intended; and (2) the audience so takes the actions.”144 “[I]n communicative action[,] the
hearer may respond to the claims by . . . either accepting the speech act’s claims or opposing
them with criticism or requests for justification.”145chanRoblesvirtualLawlibrary
Speech is not limited to vocal communication. “[C]onduct is treated as a form of speech
sometimes referred to as ‘symbolic speech[,]’”146 such that “‘when ‘speech’ and ‘nonspeech’
elements are combined in the same course of conduct,’ the ‘communicative element’ of the
conduct may be ‘sufficient to bring into play the [right to freedom of
expression].’”147chanRoblesvirtualLawlibrary
The right to freedom of expression, thus, applies to the entire continuum of speech from
utterances made to conduct enacted, and even to inaction itself as a symbolic manner of
communication.
In Ebralinag v. The Division Superintendent of Schools of Cebu,148 students who were members
of the religious sect Jehovah’s Witnesses were to be expelled from school for refusing to salute
the flag, sing the national anthem, and recite the patriotic pledge. 149 In his concurring opinion,
Justice Cruz discussed how the salute is a symbolic manner of communication and a valid form
of expression.150 He adds that freedom of speech includes even the right to be
silent:chanroblesvirtuallawlibrary
Freedom of speech includes the right to be silent. Aptly has it been said that the Bill of Rights
that guarantees to the individual the liberty to utter what is in his mind also guarantees to him the
liberty not to utter what is not in his mind. The salute is a symbolic manner of communication
that conveys its message as clearly as the written or spoken word. As a valid form of expression,
it cannot be compelled any more than it can be prohibited in the face of valid religious objections
like those raised in this petition. To impose it on the petitioners is to deny them the right not to
speak when their religion bids them to be silent. This coercion of conscience has no place in the
free society.
The democratic system provides for the accommodation of diverse ideas, including the
Page 66 of 139
unconventional and even the bizarre or eccentric. The will of the majority prevails, but it cannot
regiment thought by prescribing the recitation by rote of its opinions or proscribing the assertion
of unorthodox or unpopular views as in this case. The conscientious objections of the petitioners,
no less than the impatience of those who disagree with them, are protected by the Constitution.
The State cannot make the individual speak when the soul within rebels. 151
Even before freedom “of expression” was included in Article III, Section 4 of the present
Constitution, this court has applied its precedent version to expressions other than verbal
utterances.
In the 1985 case of Gonzalez v. Chairman Katigbak,152 petitioners objected to the classification
of the motion picture “Kapit sa Patalim” as “For Adults Only.” They contend that the classification
“is without legal and factual basis and is exercised as impermissible restraint of artistic
expression.”153 This court recognized that “[m]otion pictures are important both as a medium for
the communication of ideas and the expression of the artistic impulse.”154 It adds that “every
writer, actor, or producer, no matter what medium of expression he may use, should be freed
from the censor.”155 This court found that “[the Board’s] perception of what constitutes obscenity
appears to be unduly restrictive.”156 However, the petition was dismissed solely on the ground
that there were not enough votes for a ruling of grave abuse of discretion in the classification
made by the Board.157chanRoblesvirtualLawlibrary
II.B.3
Size does matter
The form of expression is just as important as the information conveyed that it forms part of the
expression. The present case is in point.
It is easy to discern why size matters.
First, it enhances efficiency in communication. A larger tarpaulin allows larger fonts which make
it easier to view its messages from greater distances. Furthermore, a larger tarpaulin makes it
easier for passengers inside moving vehicles to read its content. Compared with the
pedestrians, the passengers inside moving vehicles have lesser time to view the content of a
tarpaulin. The larger the fonts and images, the greater the probability that it will catch their
attention and, thus, the greater the possibility that they will understand its message.
Second, the size of the tarpaulin may underscore the importance of the message to the reader.
From an ordinary person’s perspective, those who post their messages in larger fonts care more
about their message than those who carry their messages in smaller media. The perceived
importance given by the speakers, in this case petitioners, to their cause is also part of the
message. The effectivity of communication sometimes relies on the emphasis put by the
speakers and on the credibility of the speakers themselves. Certainly, larger segments of the
public may tend to be more convinced of the point made by authoritative figures when they make
the effort to emphasize their messages.
Third, larger spaces allow for more messages. Larger spaces, therefore, may translate to more
opportunities to amplify, explain, and argue points which the speakers might want to
communicate. Rather than simply placing the names and images of political candidates and an
expression of support, larger spaces can allow for brief but memorable presentations of the
candidates’ platforms for governance. Larger spaces allow for more precise inceptions of ideas,
catalyze reactions to advocacies, and contribute more to a more educated and reasoned
electorate. A more educated electorate will increase the possibilities of both good governance
and accountability in our government.

These points become more salient when it is the electorate, not the candidates or the political
parties, that speaks. Too often, the terms of public discussion during elections are framed and
kept hostage by brief and catchy but meaningless sound bites extolling the character of the
candidate. Worse, elections sideline political arguments and privilege the endorsement by
celebrities. Rather than provide obstacles to their speech, government should in fact encourage
it. Between the candidates and the electorate, the latter have the better incentive to demand
discussion of the more important issues. Between the candidates and the electorate, the former
have better incentives to avoid difficult political standpoints and instead focus on appearances
and empty promises.
Large tarpaulins, therefore, are not analogous to time and place. 158 They are fundamentally part
of expression protected under Article III, Section 4 of the Constitution.cralawred
II.B.4
There are several theories and schools of thought that strengthen the need to protect the basic
right to freedom of expression.
First, this relates to the right of the people to participate in public affairs, including the right to
criticize government actions.
Proponents of the political theory on “deliberative democracy” submit that “substantial, open,
[and] ethical dialogue is a critical, and indeed defining, feature of a good polity.”159 This theory
may be considered broad, but it definitely “includes [a] collective decision making with the
participation of all who will be affected by the decision.”160 It anchors on the principle that the
cornerstone of every democracy is that sovereignty resides in the people. 161 To ensure order in
running the state’s affairs, sovereign powers were delegated and individuals would be elected or
nominated in key government positions to represent the people. On this note, the theory on
deliberative democracy may evolve to the right of the people to make government accountable.
Necessarily, this includes the right of the people to criticize acts made pursuant to governmental
functions.
Speech that promotes dialogue on public affairs, or airs out grievances and political discontent,
should thus be protected and encouraged.
Borrowing the words of Justice Brandeis, “it is hazardous to discourage thought, hope and
imagination; that fear breeds repression; that repression breeds hate; that hate menaces stable
government; that the path of safety lies in the opportunity to discuss freely supposed grievances
and proposed remedies.”162chanRoblesvirtualLawlibrary
In this jurisdiction, this court held that “[t]he interest of society and the maintenance of good
government demand a full discussion of public affairs.”163 This court has, thus, adopted the
principle that “debate on public issues should be uninhibited, robust, and wide open . . .
[including even] unpleasantly sharp attacks on government and public
officials.”164chanRoblesvirtualLawlibrary
Second, free speech should be encouraged under the concept of a market place of ideas. This
theory was articulated by Justice Holmes in that “the ultimate good desired is better reached by
[the] free trade in ideas:”165chanRoblesvirtualLawlibrary
When men have realized that time has upset many fighting faiths, they may come to believe
even more than they believe the very foundations of their own conduct that the ultimate good
desired is better reached by free trade in ideas - that the best test of truth is the power of the
Page 67 of 139
thought to get itself accepted in the competition of the market, and that truth is the only ground
upon which their wishes safely can be carried out.166
The way it works, the exposure to the ideas of others allows one to “consider, test, and develop
their own conclusions.”167 A free, open, and dynamic market place of ideas is constantly shaping
new ones. This promotes both stability and change where recurring points may crystallize and
weak ones may develop. Of course, free speech is more than the right to approve existing
political beliefs and economic arrangements as it includes, “[t]o paraphrase Justice Holmes, [the]
freedom for the thought that we hate, no less than for the thought that agrees with us.”168 In fact,
free speech may “best serve its high purpose when it induces a condition of unrest, creates
dissatisfaction with conditions as they are, or even stirs people to anger.”169 It is in this context
that we should guard against any curtailment of the people’s right to participate in the free trade
of ideas.
Third, free speech involves self-expression that enhances human dignity. This right is “a means
of assuring individual self-fulfillment,”170 among others. In Philippine Blooming Mills Employees
Organization v. Philippine Blooming Mills Co., Inc,171 this court discussed as
follows:chanroblesvirtuallawlibrary
The rights of free expression, free assembly and petition, are not only civil rights but also political
rights essential to man's enjoyment of his life, to his happiness and to his full and complete
fulfillment. Thru these freedoms the citizens can participate not merely in the periodic
establishment of the government through their suffrage but also in the administration of public
affairs as well as in the discipline of abusive public officers. The citizen is accorded these rights
so that he can appeal to the appropriate governmental officers or agencies for redress and
protection as well as for the imposition of the lawful sanctions on erring public officers and
employees.172 (Emphasis supplied)
Fourth, expression is a marker for group identity. For one, “[v]oluntary associations perform [an]
important democratic role [in providing] forums for the development of civil skills, for deliberation,
and for the formation of identity and community spirit[,] [and] are largely immune from [any]
governmental interference.”173 They also “provide a buffer between individuals and the state - a
free space for the development of individual personality, distinct group identity, and dissident
ideas - and a potential source of opposition to the state.”174 Free speech must be protected as
the vehicle to find those who have similar and shared values and ideals, to join together and
forward common goals.
Fifth, the Bill of Rights, free speech included, is supposed to “protect individuals and minorities
against majoritarian abuses perpetrated through [the] framework [of democratic
governance].”175 Federalist framers led by James Madison were concerned about two potentially
vulnerable groups: “the citizenry at large - majorities - who might be tyrannized or plundered by
despotic federal officials”176 and the minorities who may be oppressed by “dominant factions of
the electorate [that] capture [the] government for their own selfish ends[.]”177 According to
Madison, “[i]t is of great importance in a republic not only to guard the society against the
oppression of its rulers, but to guard one part of the society against the injustice of the other
part.”178 We should strive to ensure that free speech is protected especially in light of any
potential oppression against those who find themselves in the fringes on public issues.
Lastly, free speech must be protected under the safety valve theory. 179 This provides that
“nonviolent manifestations of dissent reduce the likelihood of violence[.]”180 “[A] dam about to
burst . . . resulting in the ‘banking up of a menacing flood of sullen anger behind the walls of
restriction’”181 has been used to describe the effect of repressing nonviolent outlets. 182 In order to
avoid this situation and prevent people from resorting to violence, there is a need for peaceful
methods in making passionate dissent. This includes “free expression and political
participation”183 in that they can “vote for candidates who share their views, petition their
legislatures to [make or] change laws, . . . distribute literature alerting other citizens of their
concerns[,]”184 and conduct peaceful rallies and other similar acts.185 Free speech must, thus, be
protected as a peaceful means of achieving one’s goal, considering the possibility that
repression of nonviolent dissent may spill over to violent means just to drive a point.cralawred
II.B.5
Every citizen’s expression with political consequences enjoys a high degree of protection.
Respondents argue that the tarpaulin is election propaganda, being petitioners’ way of endorsing
candidates who voted against the RH Law and rejecting those who voted for it. 186 As such, it is
subject to regulation by COMELEC under its constitutional mandate.187 Election propaganda is
defined under Section 1(4) of COMELEC Resolution No. 9615 as
follows:chanroblesvirtuallawlibrary
SECTION 1. Definitions . . .
....
4. The term “political advertisement” or “election propaganda” refers to any matter broadcasted,
published, printed, displayed or exhibited, in any medium, which contain the name, image, logo,
brand, insignia, color motif, initials, and other symbol or graphic representation that is capable of
being associated with a candidate or party, and is intended to draw the attention of the public or
a segment thereof to promote or oppose, directly or indirectly, the election of the said candidate
or candidates to a public office. In broadcast media, political advertisements may take the form
of spots, appearances on TV shows and radio programs, live or taped announcements, teasers,
and other forms of advertising messages or announcements used by commercial advertisers.
Political advertising includes matters, not falling within the scope of personal opinion, that appear
on any Internet website, including, but not limited to, social networks, blogging sites, and micro-
blogging sites, in return for consideration, or otherwise capable of pecuniary estimation.
On the other hand, petitioners invoke their “constitutional right to communicate their opinions,
views and beliefs about issues and candidates.”188 They argue that the tarpaulin was their
statement of approval and appreciation of the named public officials’ act of voting against the RH
Law, and their criticism toward those who voted in its favor.189 It was “part of their advocacy
campaign against the RH Law,”190 which was not paid for by any candidate or political
party.191 Thus, “the questioned orders which . . . effectively restrain[ed] and curtail[ed] [their]
freedom of expression should be declared unconstitutional and
void.”192chanRoblesvirtualLawlibrary
This court has held free speech and other intellectual freedoms as “highly ranked in our scheme
of constitutional values.”193 These rights enjoy precedence and primacy.194 In Philippine
Blooming Mills, this court discussed the preferred position occupied by freedom of
expression:chanroblesvirtuallawlibrary
Property and property rights can be lost thru prescription; but human rights are imprescriptible. If
human rights are extinguished by the passage of time, then the Bill of Rights is a useless
attempt to limit the power of government and ceases to be an efficacious shield against the
tyranny of officials, of majorities, of the influential and powerful, and of oligarchs - political,
economic or otherwise.
In the hierarchy of civil liberties, the rights of free expression and of assembly occupy a preferred
Page 68 of 139
position as they are essential to the preservation and vitality of our civil and political institutions;
and such priority “gives these liberties the sanctity and the sanction not permitting dubious
intrusions.”195 (Citations omitted)
This primordial right calls for utmost respect, more so “when what may be curtailed is the
dissemination of information to make more meaningful the equally vital right of suffrage.”196 A
similar idea appeared in our jurisprudence as early as 1969, which was Justice Barredo’s
concurring and dissenting opinion in Gonzales v. COMELEC:197chanRoblesvirtualLawlibrary
I like to reiterate over and over, for it seems this is the fundamental point others miss, that
genuine democracy thrives only where the power and right of the people to elect the men to
whom they would entrust the privilege to run the affairs of the state exist. In the language of the
declaration of principles of our Constitution, “The Philippines is a republican state. Sovereignty
resides in the people and all government authority emanates from them” (Section 1, Article II).
Translating this declaration into actuality, the Philippines is a republic because and solely
because the people in it can be governed only by officials whom they themselves have placed in
office by their votes. And in it is on this cornerstone that I hold it to be self-evident that when the
freedoms of speech, press and peaceful assembly and redress of grievances are being
exercised in relation to suffrage or as a means to enjoy the inalienable right of the qualified
citizen to vote, they are absolute and timeless. If our democracy and republicanism are to be
worthwhile, the conduct of public affairs by our officials must be allowed to suffer incessant and
unabating scrutiny, favorable or unfavorable, everyday and at all times. Every holder of power in
our government must be ready to undergo exposure any moment of the day or night, from
January to December every year, as it is only in this way that he can rightfully gain the
confidence of the people. I have no patience for those who would regard public dissection of the
establishment as an attribute to be indulged by the people only at certain periods of time. I
consider the freedoms of speech, press and peaceful assembly and redress of grievances, when
exercised in the name of suffrage, as the very means by which the right itself to vote can only be
properly enjoyed. It stands to reason therefore, that suffrage itself would be next to useless if
these liberties cannot be untrammelled [sic] whether as to degree or time. 198 (Emphasis
supplied)
Not all speech are treated the same. In Chavez v. Gonzales, this court discussed that some
types of speech may be subject to regulation:chanroblesvirtuallawlibrary
Some types of speech may be subjected to some regulation by the State under its pervasive
police power, in order that it may not be injurious to the equal right of others or those of the
community or society. The difference in treatment is expected because the relevant interests of
one type of speech, e.g., political speech, may vary from those of another, e.g., obscene
speech. Distinctions have therefore been made in the treatment, analysis, and evaluation of the
permissible scope of restrictions on various categories of speech. We have ruled, for example,
that in our jurisdiction slander or libel, lewd and obscene speech, as well as “fighting words” are
not entitled to constitutional protection and may be penalized.199 (Citations omitted)
We distinguish between political and commercial speech. Political speech refers to speech “both
intended and received as a contribution to public deliberation about some issue,”200 “foster[ing]
informed and civic-minded deliberation.”201 On the other hand, commercial speech has been
defined as speech that does “no more than propose a commercial
transaction.”202chanRoblesvirtualLawlibrary
The expression resulting from the content of the tarpaulin is, however, definitely political speech.
In Justice Brion’s dissenting opinion, he discussed that “[t]he content of the tarpaulin, as well as
the timing of its posting, makes it subject of the regulations in RA 9006 and Comelec Resolution
No. 9615.”203 He adds that “[w]hile indeed the RH issue, by itself, is not an electoral matter, the
slant that the petitioners gave the issue converted the non-election issue into a live election one
hence, Team Buhay and Team Patay and the plea to support one and oppose the
other.”204chanRoblesvirtualLawlibrary
While the tarpaulin may influence the success or failure of the named candidates and political
parties, this does not necessarily mean it is election propaganda. The tarpaulin was not paid for
or posted “in return for consideration” by any candidate, political party, or party-list group.
The second paragraph of Section 1(4) of COMELEC Resolution No. 9615, or the rules and
regulations implementing Republic Act No. 9006 as an aid to interpret the law insofar as the
facts of this case requires, states:chanroblesvirtuallawlibrary
4. The term “political advertisement” or “election propaganda” refers to any
matter broadcasted, published, printed, displayed or exhibited, in any
medium, which contain the name, image, logo, brand, insignia, color motif,
initials, and other symbol or graphic representation that is capable of being
associated with a candidate or party, and is intended to draw the attention of
the public or a segment thereof to promote or oppose, directly or indirectly,
the election of the said candidate or candidates to a public office. In
broadcast media, political advertisements may take the form of spots,
appearances on TV shows and radio programs, live or taped
announcements, teasers, and other forms of advertising messages or
announcements used by commercial advertisers.
Political advertising includes matters, not falling within the scope of
personal opinion, that appear on any Internet website, including, but
not limited to, social networks, blogging sites, and micro-blogging
sites, in return for consideration, or otherwise capable of pecuniary
estimation. (Emphasis supplied)
It is clear that this paragraph suggests that personal opinions are not included, while sponsored
messages are covered.
Thus, the last paragraph of Section 1(1) of COMELEC Resolution No. 9615
states:chanroblesvirtuallawlibrary
SECTION 1. Definitions - As used in this Resolution:
1. The term “election campaign” or “partisan political activity” refers to an act
designed to promote the election or defeat of a particular candidate or
candidates to a public office, and shall include any of the following:
....
Personal opinions, views, and preferences for candidates, contained in
blogs shall not be considered acts of election campaigning or partisan
political activity unless expressed by government officials in the Executive
Department, the Legislative Department, the Judiciary, the Constitutional
Commissions, and members of the Civil Service.
Page 69 of 139
In any event, this case does not refer to speech in cyberspace, and its effects and parameters
should be deemed narrowly tailored only in relation to the facts and issues in this case. It also
appears that such wording in COMELEC Resolution No. 9615 does not similarly appear in
Republic Act No. 9006, the law it implements.
We should interpret in this manner because of the value of political speech.
As early as 1918, in United States v. Bustos,205 this court recognized the need for full discussion
of public affairs. We acknowledged that free speech includes the right to criticize the conduct of
public men:chanroblesvirtuallawlibrary
The interest of society and the maintenance of good government demand a full discussion of
public affairs. Complete liberty to comment on the conduct of public men is a scalpel in the case
of free speech. The sharp incision of its probe relieves the abscesses of officialdom. Men in
public life may suffer under a hostile and an unjust accusation; the wound can be assuaged with
the balm of a clear conscience. A public officer must not be too thin-skinned with reference to
comment upon his official acts. Only thus can the intelligence and dignity of the individual be
exalted.206
Subsequent jurisprudence developed the right to petition the government for redress of
grievances, allowing for criticism, save for some exceptions. 207 In the 1951 case of Espuelas v.
People,208 this court noted every citizen’s privilege to criticize his or her government, provided it
is “specific and therefore constructive, reasoned or tempered, and not a contemptuous
condemnation of the entire government set-up.”209chanRoblesvirtualLawlibrary
The 1927 case of People v. Titular210 involved an alleged violation of the Election Law provision
“penaliz[ing] the anonymous criticism of a candidate by means of posters or circulars.”211 This
court explained that it is the poster’s anonymous character that is being penalized. 212 The
ponente adds that he would “dislike very much to see this decision made the vehicle for the
suppression of public opinion.”213chanRoblesvirtualLawlibrary
In 1983, Reyes v. Bagatsing214 discussed the importance of allowing individuals to vent their
views. According to this court, “[i]ts value may lie in the fact that there may be something worth
hearing from the dissenter [and] [t]hat is to ensure a true ferment of
ideas.”215chanRoblesvirtualLawlibrary
Allowing citizens to air grievances and speak constructive criticisms against their government
contributes to every society’s goal for development. It puts forward matters that may be changed
for the better and ideas that may be deliberated on to attain that purpose. Necessarily, it also
makes the government accountable for acts that violate constitutionally protected rights.
In 1998, Osmeña v. COMELEC found Section 11(b) of Republic Act No. 6646, which prohibits
mass media from selling print space and air time for campaign except to the COMELEC, to be a
democracy-enhancing measure.216 This court mentioned how “discussion of public issues and
debate on the qualifications of candidates in an election are essential to the proper functioning of
the government established by our Constitution.”217chanRoblesvirtualLawlibrary
As pointed out by petitioners, “speech serves one of its greatest public purposes in the context
of elections when the free exercise thereof informs the people what the issues are, and who are
supporting what issues.”218 At the heart of democracy is every advocate’s right to make known
what the people need to know,219 while the meaningful exercise of one’s right of suffrage
includes the right of every voter to know what they need to know in order to make their choice.
Thus, in Adiong v. COMELEC,220 this court discussed the importance of debate on public issues,
and the freedom of expression especially in relation to information that ensures the meaningful
exercise of the right of suffrage:chanroblesvirtuallawlibrary
We have adopted the principle that debate on public issues should be uninhibited, robust, and
wide open and that it may well include vehement, caustic and sometimes unpleasantly sharp
attacks on government and public officials. Too many restrictions will deny to people the robust,
uninhibited, and wide open debate, the generating of interest essential if our elections will truly
be free, clean and honest.
We have also ruled that the preferred freedom of expression calls all the more for the utmost
respect when what may be curtailed is the dissemination of information to make more
meaningful the equally vital right of suffrage.221 (Emphasis supplied, citations omitted)
Speech with political consequences is at the core of the freedom of expression and must be
protected by this court.
Justice Brion pointed out that freedom of expression “is not the god of rights to which all other
rights and even government protection of state interest must
bow.”222chanRoblesvirtualLawlibrary
The right to freedom of expression is indeed not absolute. Even some forms of protected speech
are still subject to some restrictions. The degree of restriction may depend on whether the
regulation is content-based or content-neutral.223 Content-based regulations can either be based
on the viewpoint of the speaker or the subject of the expression.cralawred
II.B.6
Content-based regulation
COMELEC contends that the order for removal of the tarpaulin is a content-neutral regulation.
The order was made simply because petitioners failed to comply with the maximum size
limitation for lawful election propaganda.224chanRoblesvirtualLawlibrary
On the other hand, petitioners argue that the present size regulation is content-based as it
applies only to political speech and not to other forms of speech such as commercial
speech.225 “[A]ssuming arguendo that the size restriction sought to be applied . . . is a mere time,
place, and manner regulation, it’s still unconstitutional for lack of a clear and reasonable nexus
with a constitutionally sanctioned objective.”226chanRoblesvirtualLawlibrary
The regulation may reasonably be considered as either content-neutral or content-
based.227 Regardless, the disposition of this case will be the same. Generally, compared with
other forms of speech, the proposed speech is content-based.
As pointed out by petitioners, the interpretation of COMELEC contained in the questioned order
applies only to posters and tarpaulins that may affect the elections because they deliver opinions
that shape both their choices. It does not cover, for instance, commercial speech.
Worse, COMELEC does not point to a definite view of what kind of expression of non-candidates
will be adjudged as “election paraphernalia.” There are no existing bright lines to categorize
speech as election-related and those that are not. This is especially true when citizens will want
to use their resources to be able to raise public issues that should be tackled by the candidates
as what has happened in this case. COMELEC’s discretion to limit speech in this case is
fundamentally unbridled.
Page 70 of 139
Size limitations during elections hit at a core part of expression. The content of the tarpaulin is
not easily divorced from the size of its medium.
Content-based regulation bears a heavy presumption of invalidity, and this court has used the
clear and present danger rule as measure.228 Thus, in Chavez v.
Gonzales:chanroblesvirtuallawlibrary
A content-based regulation, however, bears a heavy presumption of invalidity and is measured
against the clear and present danger rule. The latter will pass constitutional muster only if
justified by a compelling reason, and the restrictions imposed are neither overbroad nor
vague.229 (Citations omitted)
Under this rule, “the evil consequences sought to be prevented must be substantive, ‘extremely
serious and the degree of imminence extremely high.’”230 “Only when the challenged act has
overcome the clear and present danger rule will it pass constitutional muster, with the
government having the burden of overcoming the presumed
unconstitutionality.”231chanRoblesvirtualLawlibrary
Even with the clear and present danger test, respondents failed to justify the regulation. There is
no compelling and substantial state interest endangered by the posting of the tarpaulin as to
justify curtailment of the right of freedom of expression. There is no reason for the state to
minimize the right of non-candidate petitioners to post the tarpaulin in their private property. The
size of the tarpaulin does not affect anyone else’s constitutional rights.
Content-based restraint or censorship refers to restrictions “based on the subject matter of the
utterance or speech.”232 In contrast, content-neutral regulation includes controls merely on the
incidents of the speech such as time, place, or manner of the
speech.233chanRoblesvirtualLawlibrary
This court has attempted to define “content-neutral” restraints starting with the 1948 case
of Primicias v. Fugoso.234 The ordinance in this case was construed to grant the Mayor discretion
only to determine the public places that may be used for the procession or meeting, but not the
power to refuse the issuance of a permit for such procession or meeting.235 This court explained
that free speech and peaceful assembly are “not absolute for it may be so regulated that it shall
not be injurious to the equal enjoyment of others having equal rights, nor injurious to the rights of
the community or society.”236chanRoblesvirtualLawlibrary
The earlier case of Calalang v. Williams237 involved the National Traffic Commission resolution
that prohibited the passing of animal-drawn vehicles along certain roads at specific hours.238 This
court similarly discussed police power in that the assailed rules carry out the legislative policy
that “aims to promote safe transit upon and avoid obstructions on national roads, in the interest
and convenience of the public.” 239chanRoblesvirtualLawlibrary
As early as 1907, United States v. Apurado240 recognized that “more or less disorder will mark
the public assembly of the people to protest against grievances whether real or imaginary,
because on such occasions feeling is always wrought to a high pitch of excitement. . . .” 241 It is
with this backdrop that the state is justified in imposing restrictions on incidental matters as time,
place, and manner of the speech.
In the landmark case of Reyes v. Bagatsing, this court summarized the steps that permit
applicants must follow which include informing the licensing authority ahead of time as regards
the date, public place, and time of the assembly.242 This would afford the public official time to
inform applicants if there would be valid objections, provided that the clear and present danger
test is the standard used for his decision and the applicants are given the opportunity to be
heard.243 This ruling was practically codified in Batas Pambansa No. 880, otherwise known as
the Public Assembly Act of 1985.
Subsequent jurisprudence have upheld Batas Pambansa No. 880 as a valid content-neutral
regulation. In the 2006 case of Bayan v. Ermita,244 this court discussed how Batas Pambansa
No. 880 does not prohibit assemblies but simply regulates their time, place, and manner. 245 In
2010, this court found in Integrated Bar of the Philippines v. Atienza246 that respondent Mayor
Atienza committed grave abuse of discretion when he modified the rally permit by changing the
venue from Mendiola Bridge to Plaza Miranda without first affording petitioners the opportunity to
be heard.247chanRoblesvirtualLawlibrary
We reiterate that the regulation involved at bar is content-based. The tarpaulin content is not
easily divorced from the size of its medium.cralawred
II.B.7
Justice Carpio and Justice Perlas-Bernabe suggest that the provisions imposing a size limit for
tarpaulins are content-neutral regulations as these “restrict the manner by which speech is
relayed but not the content of what is conveyed.”248chanRoblesvirtualLawlibrary
If we apply the test for content-neutral regulation, the questioned acts of COMELEC will not pass
the three requirements for evaluating such restraints on freedom of speech. 249 “When the
speech restraints take the form of a content-neutral regulation, only a substantial governmental
interest is required for its validity,”250 and it is subject only to the intermediate
approach.251chanRoblesvirtualLawlibrary
This intermediate approach is based on the test that we have prescribed in several cases. 252 A
content-neutral government regulation is sufficiently justified:chanroblesvirtuallawlibrary
[1] if it is within the constitutional power of the Government; [2] if it furthers an important or
substantial governmental interest; 3 if the governmental interest is unrelated to the suppression
of free expression; and 4 if the incident restriction on alleged [freedom of speech & expression] is
no greater than is essential to the furtherance of that interest. 253
On the first requisite, it is not within the constitutional powers of the COMELEC to regulate the
tarpaulin. As discussed earlier, this is protected speech by petitioners who are non-candidates.
On the second requirement, not only must the governmental interest be important or substantial,
it must also be compelling as to justify the restrictions made.
Compelling governmental interest would include constitutionally declared principles. We have
held, for example, that “the welfare of children and the State’s mandate to protect and care for
them, as parens patriae,254 constitute a substantial and compelling government interest in
regulating . . . utterances in TV broadcast.”255chanRoblesvirtualLawlibrary
Respondent invokes its constitutional mandate to ensure equal opportunity for public information
campaigns among candidates in connection with the holding of a free, orderly, honest, peaceful,
and credible election.256chanRoblesvirtualLawlibrary
Justice Brion in his dissenting opinion discussed that “[s]ize limits to posters are necessary to
ensure equality of public information campaigns among candidates, as allowing posters with
different sizes gives candidates and their supporters the incentive to post larger posters[,] [and]
[t]his places candidates with more money and/or with deep-pocket supporters at an undue
Page 71 of 139
advantage against candidates with more humble financial
capabilities.”257chanRoblesvirtualLawlibrary
First, Adiong v. COMELEC has held that this interest is “not as important as the right of [a
private citizen] to freely express his choice and exercise his right of free speech.”258 In any case,
faced with both rights to freedom of speech and equality, a prudent course would be to “try to
resolve the tension in a way that protects the right of
participation.”259chanRoblesvirtualLawlibrary
Second, the pertinent election laws related to private property only require that the private
property owner’s consent be obtained when posting election propaganda in the property. 260 This
is consistent with the fundamental right against deprivation of property without due process of
law.261 The present facts do not involve such posting of election propaganda absent consent
from the property owner. Thus, this regulation does not apply in this case.
Respondents likewise cite the Constitution262 on their authority to recommend effective
measures to minimize election spending. Specifically, Article IX-C, Section 2(7)
provides:chanroblesvirtuallawlibrary
Sec. 2. The Commission on Elections shall exercise the following powers and functions:
....
(7) Recommend to the Congress effective measures to minimize election spending, including
limitation of places where propaganda materials shall be posted, and to prevent and penalize all
forms of election frauds, offenses, malpractices, and nuisance candidates. (Emphasis supplied)
This does not qualify as a compelling and substantial government interest to justify regulation of
the preferred right to freedom of expression.
The assailed issuances for the removal of the tarpaulin are based on the two feet (2’) by three
feet (3’) size limitation under Section 6(c) of COMELEC Resolution No. 9615. This resolution
implements the Fair Election Act that provides for the same size
limitation.263chanRoblesvirtualLawlibrary
This court held in Adiong v. COMELEC that “[c]ompared to the paramount interest of the State in
guaranteeing freedom of expression, any financial considerations behind the regulation are of
marginal significance.”264 In fact, speech with political consequences, as in this case, should be
encouraged and not curtailed. As petitioners pointed out, the size limitation will not serve the
objective of minimizing election spending considering there is no limit on the number of
tarpaulins that may be posted.265chanRoblesvirtualLawlibrary
The third requisite is likewise lacking. We look not only at the legislative intent or motive in
imposing the restriction, but more so at the effects of such restriction, if implemented. The
restriction must not be narrowly tailored to achieve the purpose. It must be demonstrable. It must
allow alternative avenues for the actor to make speech.
In this case, the size regulation is not unrelated to the suppression of speech. Limiting the
maximum size of the tarpaulin would render ineffective petitioners’ message and violate their
right to exercise freedom of expression.
The COMELEC’s act of requiring the removal of the tarpaulin has the effect of dissuading
expressions with political consequences. These should be encouraged, more so when exercised
to make more meaningful the equally important right to suffrage.

The restriction in the present case does not pass even the lower test of intermediate scrutiny for
content-neutral regulations.
The action of the COMELEC in this case is a strong deterrent to further speech by the
electorate. Given the stature of petitioners and their message, there are indicators that this will
cause a “chilling effect” on robust discussion during elections.
The form of expression is just as important as the message itself. In the words of Marshall
McLuhan, “the medium is the message.”266 McLuhan’s colleague and mentor Harold Innis has
earlier asserted that “the materials on which words were written down have often counted for
more than the words themselves.”267chanRoblesvirtualLawlibrary
III
Freedom of expression and equality
III.A
The possibility of abuse
Of course, candidates and political parties do solicit the help of private individuals for the
endorsement of their electoral campaigns.
On the one extreme, this can take illicit forms such as when endorsement materials in the form
of tarpaulins, posters, or media advertisements are made ostensibly by “friends” but in reality are
really paid for by the candidate or political party. This skirts the constitutional value that provides
for equal opportunities for all candidates.
However, as agreed by the parties during the oral arguments in this case, this is not the situation
that confronts us. In such cases, it will simply be a matter for investigation and proof of fraud on
the part of the COMELEC.
The guarantee of freedom of expression to individuals without any relationship to any political
candidate should not be held hostage by the possibility of abuse by those seeking to be elected.
It is true that there can be underhanded, covert, or illicit dealings so as to hide the candidate’s
real levels of expenditures. However, labelling all expressions of private parties that tend to have
an effect on the debate in the elections as election paraphernalia would be too broad a remedy
that can stifle genuine speech like in this case. Instead, to address this evil, better and more
effective enforcement will be the least restrictive means to the fundamental freedom.
On the other extreme, moved by the credentials and the message of a candidate, others will
spend their own resources in order to lend support for the campaigns. This may be without
agreement between the speaker and the candidate or his or her political party. In lieu of donating
funds to the campaign, they will instead use their resources directly in a way that the candidate
or political party would have done so. This may effectively skirt the constitutional and statutory
limits of campaign spending.
Again, this is not the situation in this case.
The message of petitioners in this case will certainly not be what candidates and political parties
will carry in their election posters or media ads. The message of petitioner, taken as a whole, is
an advocacy of a social issue that it deeply believes. Through rhetorical devices, it
communicates the desire of Diocese that the positions of those who run for a political position on
this social issue be determinative of how the public will vote. It primarily advocates a stand on
a social issue; only secondarily — even almost incidentally — will cause the election or
Page 72 of 139
non-election of a candidate.
The twin tarpaulins consist of satire of political parties. Satire is a “literary form that employs
such devices as sarcasm, irony and ridicule to deride prevailing vices or follies,”268 and this may
target any individual or group in society, private and government alike. It seeks to effectively
communicate a greater purpose, often used for “political and social criticism”269 “because it tears
down facades, deflates stuffed shirts, and unmasks hypocrisy. . . . Nothing is more thoroughly
democratic than to have the high-and-mighty lampooned and spoofed.”270 Northrop Frye, well-
known in this literary field, claimed that satire had two defining features: “one is wit or humor
founded on fantasy or a sense of the grotesque and absurd, the other is an object of
attack.”271 Thus, satire frequently uses exaggeration, analogy, and other rhetorical devices.
The tarpaulins exaggerate. Surely, “Team Patay” does not refer to a list of dead individuals nor
could the Archbishop of the Diocese of Bacolod have intended it to mean that the entire plan of
the candidates in his list was to cause death intentionally. The tarpaulin caricatures political
parties and parodies the intention of those in the list. Furthermore, the list of “Team Patay” is
juxtaposed with the list of “Team Buhay” that further emphasizes the theme of its author:
Reproductive health is an important marker for the church of petitioners to endorse.
The messages in the tarpaulins are different from the usual messages of candidates. Election
paraphernalia from candidates and political parties are more declarative and descriptive and
contain no sophisticated literary allusion to any social objective. Thus, they usually simply exhort
the public to vote for a person with a brief description of the attributes of the candidate. For
example “Vote for [x], Sipag at Tiyaga,” “Vote for [y], Mr. Palengke,” or “Vote for [z], Iba kami sa
Makati.”
This court’s construction of the guarantee of freedom of expression has always been wary of
censorship or subsequent punishment that entails evaluation of the speaker’s viewpoint or the
content of one’s speech. This is especially true when the expression involved has political
consequences. In this case, it hopes to affect the type of deliberation that happens during
elections. A becoming humility on the part of any human institution no matter how endowed with
the secular ability to decide legal controversies with finality entails that we are not the keepers of
all wisdom.
Humanity’s lack of omniscience, even acting collectively, provides space for the weakest
dissent. Tolerance has always been a libertarian virtue whose version is embedded in our Bill of
Rights. There are occasional heretics of yesterday that have become our visionaries.
Heterodoxies have always given us pause. The unforgiving but insistent nuance that the majority
surely and comfortably disregards provides us with the checks upon reality that may soon evolve
into creative solutions to grave social problems. This is the utilitarian version. It could also be
that it is just part of human necessity to evolve through being able to express or communicate.
However, the Constitution we interpret is not a theoretical document. It contains other provisions
which, taken together with the guarantee of free expression, enhances each other’s value.
Among these are the provisions that acknowledge the idea of equality. In shaping doctrine
construing these constitutional values, this court needs to exercise extraordinary prudence and
produce narrowly tailored guidance fit to the facts as given so as not to unwittingly cause the
undesired effect of diluting freedoms as exercised in reality and, thus, render them
meaningless.cralawred
III.B.
Speech and equality:
Some considerations
We first establish that there are two paradigms of free speech that separate at the point of giving
priority to equality vis-à-vis liberty.272chanRoblesvirtualLawlibrary
In an equality-based approach, “politically disadvantaged speech prevails over regulation[,] but
regulation promoting political equality prevails over speech.”273 This view allows the government
leeway to redistribute or equalize ‘speaking power,’ such as protecting, even implicitly
subsidizing, unpopular or dissenting voices often systematically subdued within society’s
ideological ladder.274 This view acknowledges that there are dominant political actors who,
through authority, power, resources, identity, or status, have capabilities that may drown out the
messages of others. This is especially true in a developing or emerging economy that is part of
the majoritarian world like ours.
The question of libertarian tolerance
This balance between equality and the ability to express so as to find one’s authentic self or to
participate in the self determination of one’s communities is not new only to law. It has always
been a philosophical problematique.
In his seminal work, Repressive Tolerance, philosopher and social theorist Herbert Marcuse
recognized how institutionalized inequality exists as a background limitation, rendering freedoms
exercised within such limitation as merely “protect[ing] the already established machinery of
discrimination.”275 In his view, any improvement “in the normal course of events” within an
unequal society, without subversion, only strengthens existing interests of those in power and
control.276chanRoblesvirtualLawlibrary
In other words, abstract guarantees of fundamental rights like freedom of expression may
become meaningless if not taken in a real context. This tendency to tackle rights in the abstract
compromises liberties. In his words:chanroblesvirtuallawlibrary
Liberty is self-determination, autonomy—this is almost a tautology, but a tautology which results
from a whole series of synthetic judgments. It stipulates the ability to determine one’s own life: to
be able to determine what to do and what not to do, what to suffer and what not. But the subject
of this autonomy is never the contingent, private individual as that which he actually is or
happens to be; it is rather the individual as a human being who is capable of being free with the
others. And the problem of making possible such a harmony between every individual liberty and
the other is not that of finding a compromise between competitors, or between freedom and law,
between general and individual interest, common and private welfare in an established society,
but of creating the society in which man is no longer enslaved by institutions which vitiate self-
determination from the beginning. In other words, freedom is still to be created even for the
freest of the existing societies.277 (Emphasis in the original)
Marcuse suggests that the democratic argument — with all opinions presented to and
deliberated by the people — “implies a necessary condition, namely, that the people must be
capable of deliberating and choosing on the basis of knowledge, that they must have access to
authentic information, and that, on this basis, their evaluation must be the result of autonomous
thought.”278 He submits that “[d]ifferent opinions and ‘philosophies’ can no longer compete
peacefully for adherence and persuasion on rational grounds: the ‘marketplace of ideas’ is
organized and delimited by those who determine the national and the individual
interest.”279chanRoblesvirtualLawlibrary
A slant toward left manifests from his belief that “there is a ‘natural right’ of resistance for
oppressed and overpowered minorities to use extralegal means if the legal ones have proved to
be inadequate.”280 Marcuse, thus, stands for an equality that breaks away and transcends from
established hierarchies, power structures, and indoctrinations. The tolerance of libertarian
society he refers to as “repressive tolerance.”
Page 73 of 139
Legal scholars
The 20th century also bears witness to strong support from legal scholars for “stringent
protections of expressive liberty,”281 especially by political egalitarians. Considerations such as
“expressive, deliberative, and informational interests,”282 costs or the price of expression, and
background facts, when taken together, produce bases for a system of stringent protections for
expressive liberties.283chanRoblesvirtualLawlibrary
Many legal scholars discuss the interest and value of expressive liberties. Justice Brandeis
proposed that “public discussion is a political duty.”284 Cass Sustein placed political speech on
the upper tier of his two-tier model for freedom of expression, thus, warranting stringent
protection.285 He defined political speech as “both intended and received as a contribution to
public deliberation about some issue.”286chanRoblesvirtualLawlibrary
But this is usually related also to fair access to opportunities for such liberties. 287 Fair access to
opportunity is suggested to mean substantive equality and not mere formal equality since
“favorable conditions for realizing the expressive interest will include some assurance of the
resources required for expression and some guarantee that efforts to express views on matters
of common concern will not be drowned out by the speech of better-endowed
citizens.”288chanRoblesvirtualLawlibrary
Justice Brandeis’ solution is to “remedy the harms of speech with more speech.”289 This view
moves away from playing down the danger as merely exaggerated, toward “tak[ing] the costs
seriously and embrac[ing] expression as the preferred strategy for addressing
them.”290chanRoblesvirtualLawlibrary
However, in some cases, the idea of more speech may not be enough. Professor Laurence
Tribe observed the need for context and “the specification of substantive values before [equality]
has full meaning.”291 Professor Catherine A. MacKinnon adds that “equality continues to be
viewed in a formal rather than a substantive sense.”292 Thus, more speech can only mean more
speech from the few who are dominant rather than those who are not.
Our jurisprudence
This court has tackled these issues.
Osmeña v. COMELEC affirmed National Press Club v. COMELEC on the validity of Section
11(b) of the Electoral Reforms Law of 1987.293 This section “prohibits mass media from selling or
giving free of charge print space or air time for campaign or other political purposes, except to
the Commission on Elections.”294 This court explained that this provision only regulates the time
and manner of advertising in order to ensure media equality among candidates. 295 This court
grounded this measure on constitutional provisions mandating political
equality:296chanRoblesvirtualLawlibrary
Article IX-C, Section 4
Section 4. The Commission may, during the election period, supervise or regulate the enjoyment
or utilization of all franchises or permits for the operation of transportation and other public
utilities, media of communication or information, all grants, special privileges, or concessions
granted by the Government or any subdivision, agency, or instrumentality thereof, including any
government-owned or controlled corporation or its subsidiary. Such supervision or regulation
shall aim to ensure equal opportunity, time, and space, and the right to reply, including
reasonable, equal rates therefor, for public information campaigns and forums among
candidates in connection with the objective of holding free, orderly, honest, peaceful, and
credible elections. (Emphasis supplied)

Article XIII, Section 1
Section 1. The Congress shall give highest priority to the enactment of measures that protect
and enhance the right of all the people to human dignity, reduce social, economic, and political
inequalities, and remove cultural inequities by equitably diffusing wealth and political power for
the common good.
To this end, the State shall regulate the acquisition, ownership, use, and disposition of property
and its increments. (Emphasis supplied)
Article II, Section 26
Section 26. The State shall guarantee equal access to opportunities for public service, and
prohibit political dynasties as may be defined by law. (Emphasis supplied)
Thus, in these cases, we have acknowledged the Constitution’s guarantee for more substantive
expressive freedoms that take equality of opportunities into consideration during elections.
The other view
However, there is also the other view. This is that considerations of equality of opportunity or
equality in the ability of citizens as speakers should not have a bearing in free speech doctrine.
Under this view, “members of the public are trusted to make their own individual evaluations of
speech, and government is forbidden to intervene for paternalistic or redistributive reasons . . .
[thus,] ideas are best left to a freely competitive ideological market.”297 This is consistent with the
libertarian suspicion on the use of viewpoint as well as content to evaluate the constitutional
validity or invalidity of speech.
The textual basis of this view is that the constitutional provision uses negative rather than
affirmative language. It uses ‘speech’ as its subject and not ‘speakers’.298 Consequently, the
Constitution protects free speech per se, indifferent to the types, status, or associations of its
speakers.299 Pursuant to this, “government must leave speakers and listeners in the private order
to their own devices in sorting out the relative influence of
speech.”300chanRoblesvirtualLawlibrary
Justice Romero’s dissenting opinion in Osmeña v. COMELEC formulates this view that freedom
of speech includes “not only the right to express one’s views, but also other cognate rights
relevant to the free communication [of] ideas, not excluding the right to be informed on matters
of public concern.”301 She adds:chanroblesvirtuallawlibrary
And since so many imponderables may affect the outcome of elections — qualifications of voters
and candidates, education, means of transportation, health, public discussion, private
animosities, the weather, the threshold of a voter’s resistance to pressure — the utmost
ventilation of opinion of men and issues, through assembly, association and organizations, both
by the candidate and the voter, becomes a sine qua non for elections to truly reflect the will of
the electorate.302 (Emphasis supplied)
Justice Romero’s dissenting opinion cited an American case, if only to emphasize free speech
primacy such that “courts, as a rule are wary to impose greater restrictions as to any attempt to
curtail speeches with political content,”303 thus:chanroblesvirtuallawlibrary
the concept that the government may restrict the speech of some elements in our society in
order to enhance the relative voice of the others is wholly foreign to the First Amendment which
Page 74 of 139
was designed to “secure the widest possible dissemination of information from diverse and
antagonistic sources” and “to assure unfettered interchange of ideas for the bringing about of
political and social changes desired by the people.”304
This echoes Justice Oliver Wendell Holmes’ submission “that the market place of ideas is still
the best alternative to censorship.”305chanRoblesvirtualLawlibrary
Parenthetically and just to provide the whole detail of the argument, the majority of the US
Supreme Court in the campaign expenditures case of Buckley v. Valeo “condemned restrictions
(even if content-neutral) on expressive liberty imposed in the name of ‘enhanc[ing] the relative
voice of others’ and thereby ‘equaliz[ing] access to the political arena.”306 The majority did not
use the equality-based paradigm.
One flaw of campaign expenditure limits is that “any limit placed on the amount which a person
can speak, which takes out of his exclusive judgment the decision of when enough is enough,
deprives him of his free speech.”307chanRoblesvirtualLawlibrary
Another flaw is how “[a]ny quantitative limitation on political campaigning inherently constricts
the sum of public information and runs counter to our ‘profound national commitment that debate
on public issues should be uninhibited, robust, and wide-open.’”308chanRoblesvirtualLawlibrary
In fact, “[c]onstraining those who have funds or have been able to raise funds does not ease the
plight of those without funds in the first place . . . [and] even if one’s main concern is slowing the
increase in political costs, it may be more effective to rely on market forces to achieve that result
than on active legal intervention.”309 According to Herbert Alexander, “[t]o oppose limitations is
not necessarily to argue that the sky’s the limit [because in] any campaign there are saturation
levels and a point where spending no longer pays off in votes per
dollar.”310chanRoblesvirtualLawlibrary
III.C.
When private speech amounts
to election paraphernalia
The scope of the guarantee of free expression takes into consideration the constitutional respect
for human potentiality and the effect of speech. It valorizes the ability of human beings to
express and their necessity to relate. On the other hand, a complete guarantee must also take
into consideration the effects it will have in a deliberative democracy. Skewed distribution of
resources as well as the cultural hegemony of the majority may have the effect of drowning out
the speech and the messages of those in the minority. In a sense, social inequality does have its
effect on the exercise and effect of the guarantee of free speech. Those who have more will
have better access to media that reaches a wider audience than those who have less. Those
who espouse the more popular ideas will have better reception than the subversive and the
dissenters of society. To be really heard and understood, the marginalized view normally
undergoes its own degree of struggle.
The traditional view has been to tolerate the viewpoint of the speaker and the content of his or
her expression. This view, thus, restricts laws or regulation that allows public officials to make
judgments of the value of such viewpoint or message content. This should still be the principal
approach.
However, the requirements of the Constitution regarding equality in opportunity must provide
limits to some expression during electoral campaigns.
Thus clearly, regulation of speech in the context of electoral campaigns made by candidates or
the members of their political parties or their political parties may be regulated as to time, place,
and manner. This is the effect of our rulings in Osmeña v. COMELEC and National Press Club v.
COMELEC.
Regulation of speech in the context of electoral campaigns made by persons who are not
candidates or who do not speak as members of a political party which are, taken as a whole,
principally advocacies of a social issue that the public must consider during elections is
unconstitutional. Such regulation is inconsistent with the guarantee of according the fullest
possible range of opinions coming from the electorate including those that can catalyze candid,
uninhibited, and robust debate in the criteria for the choice of a candidate.
This does not mean that there cannot be a specie of speech by a private citizen which will not
amount to an election paraphernalia to be validly regulated by law.
Regulation of election paraphernalia will still be constitutionally valid if it reaches into speech of
persons who are not candidates or who do not speak as members of a political party if they are
not candidates, only if what is regulated is declarative speech that, taken as a whole, has for its
principal object the endorsement of a candidate only. The regulation (a) should be provided by
law, (b) reasonable, (c) narrowly tailored to meet the objective of enhancing the opportunity of all
candidates to be heard and considering the primacy of the guarantee of free expression, and (d)
demonstrably the least restrictive means to achieve that object. The regulation must only be with
respect to the time, place, and manner of the rendition of the message. In no situation may the
speech be prohibited or censored on the basis of its content. For this purpose, it will not matter
whether the speech is made with or on private property.
This is not the situation, however, in this case for two reasons. First, as discussed, the principal
message in the twin tarpaulins of petitioners consists of a social advocacy.
Second, as pointed out in the concurring opinion of Justice Antonio Carpio, the present law —
Section 3.3 of Republic Act No. 9006 and Section 6(c) of COMELEC Resolution No. 9615 — if
applied to this case, will not pass the test of reasonability. A fixed size for election posters or
tarpaulins without any relation to the distance from the intended average audience will be
arbitrary. At certain distances, posters measuring 2 by 3 feet could no longer be read by the
general public and, hence, would render speech meaningless. It will amount to the abridgement
of speech with political consequences.cralawred
IV
Right to property
Other than the right to freedom of expression311 and the meaningful exercise of the right to
suffrage,312 the present case also involves one’s right to property. 313chanRoblesvirtualLawlibrary
Respondents argue that it is the right of the state to prevent the circumvention of regulations
relating to election propaganda by applying such regulations to private
individuals.314chanRoblesvirtualLawlibrary
Certainly, any provision or regulation can be circumvented. But we are not confronted with this
possibility. Respondents agree that the tarpaulin in question belongs to petitioners. Respondents
have also agreed, during the oral arguments, that petitioners were neither commissioned nor
paid by any candidate or political party to post the material on their walls.
Even though the tarpaulin is readily seen by the public, the tarpaulin remains the private property
of petitioners. Their right to use their property is likewise protected by the Constitution.
In Philippine Communications Satellite Corporation v. Alcuaz:315chanRoblesvirtualLawlibrary
Page 75 of 139
Any regulation, therefore, which operates as an effective confiscation of private property or
constitutes an arbitrary or unreasonable infringement of property rights is void, because it is
repugnant to the constitutional guaranties of due process and equal protection of the
laws.316 (Citation omitted)
This court in Adiong held that a restriction that regulates where decals and stickers should be
posted is “so broad that it encompasses even the citizen’s private property.”317 Consequently, it
violates Article III, Section 1 of the Constitution which provides that no person shall be deprived
of his property without due process of law. This court explained:chanroblesvirtuallawlibrary
Property is more than the mere thing which a person owns, it includes the right to acquire, use,
and dispose of it; and the Constitution, in the 14th Amendment, protects these essential
attributes.
Property is more than the mere thing which a person owns. It is elementary that it includes the
right to acquire, use, and dispose of it. The Constitution protects these essential attributes of
property. Holden v. Hardy, 169 U.S. 366, 391, 41 L. ed. 780, 790, 18 Sup. Ct. Rep. 383.
Property consists of the free use, enjoyment, and disposal of a person’s acquisitions without
control or diminution save by the law of the land. 1 Cooley’s Bl. Com. 127. (Buchanan v. Warley
245 US 60 [1917])[318]
This court ruled that the regulation in Adiong violates private property
rights:chanroblesvirtuallawlibrary
The right to property may be subject to a greater degree of regulation but when this right is
joined by a “liberty” interest, the burden of justification on the part of the Government must be
exceptionally convincing and irrefutable. The burden is not met in this case.
Section 11 of Rep. Act 6646 is so encompassing and invasive that it prohibits the posting or
display of election propaganda in any place, whether public or private, except in the common
poster areas sanctioned by COMELEC. This means that a private person cannot post his own
crudely prepared personal poster on his own front door or on a post in his yard. While the
COMELEC will certainly never require the absurd, there are no limits to what overzealous and
partisan police officers, armed with a copy of the statute or regulation, may do. 319
Respondents ordered petitioners, who are private citizens, to remove the tarpaulin from their
own property. The absurdity of the situation is in itself an indication of the unconstitutionality of
COMELEC’s interpretation of its powers.
Freedom of expression can be intimately related with the right to property. There may be no
expression when there is no place where the expression may be made. COMELEC’s
infringement upon petitioners’ property rights as in the present case also reaches out to
infringement on their fundamental right to speech.
Respondents have not demonstrated that the present state interest they seek to promote
justifies the intrusion into petitioners’ property rights. Election laws and regulations must be
reasonable. It must also acknowledge a private individual’s right to exercise property rights.
Otherwise, the due process clause will be violated.
COMELEC Resolution No. 9615 and the Fair Election Act intend to prevent the posting of
election propaganda in private property without the consent of the owners of such private
property. COMELEC has incorrectly implemented these regulations. Consistent with our ruling
in Adiong, we find that the act of respondents in seeking to restrain petitioners from posting the
tarpaulin in their own private property is an impermissible encroachments on the right to
property.cralawred
V of religion, but to allow individuals and groups to exercise their religion without hindrance. Their
Tarpaulin and its message are not religious speech
We proceed to the last issues pertaining to whether the COMELEC in issuing the questioned
notice and letter violated the right of petitioners to the free exercise of their religion.
At the outset, the Constitution mandates the separation of church and state. 320 This takes many
forms. Article III, Section 5 of the Constitution, for instance provides:chanroblesvirtuallawlibrary
Section 5. No law shall be made respecting an establishment of religion, or prohibiting the free
exercise thereof. The free exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religious test shall be required for the
exercise of civil or political rights.
There are two aspects of this provision.321 The first is the non-establishment clause.322 Second is
the free exercise and enjoyment of religious profession and
worship.323chanRoblesvirtualLawlibrary
The second aspect is at issue in this case.
Clearly, not all acts done by those who are priests, bishops, ustadz, imams, or any other
religious make such act immune from any secular regulation. 324 The religious also have a
secular existence. They exist within a society that is regulated by law.
The Bishop of Bacolod caused the posting of the tarpaulin. But not all acts of a bishop amounts
to religious expression. This notwithstanding petitioners’ claim that “the views and position of the
petitioners, the Bishop and the Diocese of Bacolod, on the RH Bill is inextricably connected to its
Catholic dogma, faith, and moral teachings. . . .”325chanRoblesvirtualLawlibrary
The difficulty that often presents itself in these cases stems from the reality that every act can be
motivated by moral, ethical, and religious considerations. In terms of their effect on the corporeal
world, these acts range from belief, to expressions of these faiths, to religious ceremonies, and
then to acts of a secular character that may, from the point of view of others who do not share
the same faith or may not subscribe to any religion, may not have any religious bearing.
Definitely, the characterizations of the religious of their acts are not conclusive on this court.
Certainly, our powers of adjudication cannot be blinded by bare claims that acts are religious in
nature.
Petitioners erroneously relied on the case of Ebralinag v. The Division Superintendent of
Schools of Cebu326 in claiming that the court “emphatically” held that the adherents of a
particular religion shall be the ones to determine whether a particular matter shall be considered
ecclesiastical in nature.327 This court in Ebralinag exempted Jehovah’s Witnesses from
participating in the flag ceremony “out of respect for their religious beliefs, [no matter how]
“bizarre” those beliefs may seem to others.”328 This court found a balance between the assertion
of a religious practice and the compelling necessities of a secular command. It was an early
attempt at accommodation of religious beliefs.
In Estrada v. Escritor,329 this court adopted a policy of benevolent
neutrality:chanroblesvirtuallawlibrary
Page 76 of 139
With religion looked upon with benevolence and not hostility, benevolent neutrality allows
accommodation of religion under certain circumstances. Accommodations are government
policies that take religion specifically into account not to promote the government’s favored form
purpose or effect therefore is to remove a burden on, or facilitate the exercise of, a person’s or
institution’s religion. As Justice Brennan explained, the “government [may] take religion into
account . . . to exempt, when possible, from generally applicable governmental regulation
individuals whose religious beliefs and practices would otherwise thereby be infringed, or to
create without state involvement an atmosphere in which voluntary religious exercise may
flourish.”330
This court also discussed the Lemon test in that case, such that a regulation is constitutional
when: (1) it has a secular legislative purpose; (2) it neither advances nor inhibits religion; and (3)
it does not foster an excessive entanglement with religion. 331chanRoblesvirtualLawlibrary
As aptly argued by COMELEC, however, the tarpaulin, on its face, “does not convey any
religious doctrine of the Catholic church.”332 That the position of the Catholic church appears to
coincide with the message of the tarpaulin regarding the RH Law does not, by itself, bring the
expression within the ambit of religious speech. On the contrary, the tarpaulin clearly refers to
candidates classified under “Team Patay” and “Team Buhay” according to their respective votes
on the RH Law.
The same may be said of petitioners’ reliance on papal encyclicals to support their claim that the
expression on the tarpaulin is an ecclesiastical matter. With all due respect to the Catholic
faithful, the church doctrines relied upon by petitioners are not binding upon this court. The
position of the Catholic religion in the Philippines as regards the RH Law does not suffice to
qualify the posting by one of its members of a tarpaulin as religious speech solely on such basis.
The enumeration of candidates on the face of the tarpaulin precludes any doubt as to its nature
as speech with political consequences and not religious speech.
Furthermore, the definition of an “ecclesiastical affair” in Austria v. National Labor Relations
Commission333 cited by petitioners finds no application in the present case. The posting of the
tarpaulin does not fall within the category of matters that are beyond the jurisdiction of civil
courts as enumerated in the Austria case such as “proceedings for excommunication,
ordinations of religious ministers, administration of sacraments and other activities with attached
religious significance.”334chanRoblesvirtualLawlibrary
A FINAL NOTE
We maintain sympathies for the COMELEC in attempting to do what it thought was its duty in
this case. However, it was misdirected.
COMELEC’s general role includes a mandate to ensure equal opportunities and reduce
spending among candidates and their registered political parties. It is not to regulate or limit the
speech of the electorate as it strives to participate in the electoral exercise.
The tarpaulin in question may be viewed as producing a caricature of those who are running for
public office. Their message may be construed generalizations of very complex individuals and
party-list organizations. They are classified into black and white: as belonging to “Team Patay”
or “Team Buhay.”
But this caricature, though not agreeable to some, is still protected speech.
That petitioners chose to categorize them as purveyors of death or of life on the basis of a single
issue — and a complex piece of legislation at that — can easily be interpreted as an attempt to
stereotype the candidates and party-list organizations. Not all may agree to the way their
thoughts were expressed, as in fact there are other Catholic dioceses that chose not to follow
the example of petitioners.
Some may have thought that there should be more room to consider being more broad-minded
and non-judgmental. Some may have expected that the authors would give more space to
practice forgiveness and humility.
But, the Bill of Rights enumerated in our Constitution is an enumeration of our fundamental
liberties. It is not a detailed code that prescribes good conduct. It provides space for all to be
guided by their conscience, not only in the act that they do to others but also in judgment of the
acts of others.
Freedom for the thought we can disagree with can be wielded not only by those in the minority.
This can often be expressed by dominant institutions, even religious ones. That they made their
point dramatically and in a large way does not necessarily mean that their statements are true,
or that they have basis, or that they have been expressed in good taste.
Embedded in the tarpaulin, however, are opinions expressed by petitioners. It is a specie of
expression protected by our fundamental law. It is an expression designed to invite attention,
cause debate, and hopefully, persuade. It may be motivated by the interpretation of petitioners of
their ecclesiastical duty, but their parishioner’s actions will have very real secular consequences.
Certainly, provocative messages do matter for the elections.
What is involved in this case is the most sacred of speech forms: expression by the electorate
that tends to rouse the public to debate contemporary issues. This is not speech by candidates
or political parties to entice votes. It is a portion of the electorate telling candidates the conditions
for their election. It is the substantive content of the right to suffrage.
This is a form of speech hopeful of a quality of democracy that we should all deserve. It is
protected as a fundamental and primordial right by our Constitution. The expression in the
medium chosen by petitioners deserves our protection.chanrobleslaw
WHEREFORE, the instant petition is GRANTED. The temporary restraining order previously
issued is hereby made permanent. The act of the COMELEC in issuing the assailed notice
dated February 22, 2013 and letter dated February 27, 2013 is declared unconstitutional. SO
ORDERED.cralawlawlibrary
[G.R. No. 177131 : June 07, 2011]
BOY SCOUTS OF THE PHILIPPINES, PETITIONER, VS. COMMISSION ON AUDIT,
RESPONDENT.
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
Page 77 of 139
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 Commission's policy with respect to the audit of the
Boy Scouts of the Philippines." In its whereas clauses, the COA Resolution stated that the BSP
was created as a public corporation under Commonwealth Act No. 111, as amended by
Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v.
National Labor Relations Commission, [6] the Supreme Court ruled that the BSP, as constituted
under its charter, was a "government-controlled corporation within the meaning of Article
IX(B)(2)(1) of the Constitution"; and that "the BSP is appropriately regarded as a government
instrumentality under the 1987 Administrative Code." [7] The COA Resolution also cited its
constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER
HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of
the Boy Scouts of the Philippines in accordance with generally accepted auditing
standards, and express an opinion on whether the financial statements which include the
Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its
financial position and results of operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of
the Philippines shall be classified among the government corporations belonging to the
Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office
I, to be audited, similar to the subsidiary corporations, by employing the team audit
approach. [8] (Emphases supplied.)
The BSP sought reconsideration of the COA Resolution in a 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 Commission's
jurisdiction on the following grounds:
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs.
National Labor Relations Commission, et al. (G.R. No. 80767) classifying
the BSP as a government-controlled corporation is anchored on the
"substantial Government participation" in the National Executive Board of
the BSP. It is to be noted that the case was decided when the BSP Charter
is defined by Commonwealth Act No. 111 as amended by Presidential
Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which
amended the BSP's charter after the cited case was decided. The most
salient of all amendments in RA No. 7278 is the alteration of the
composition of the National Executive Board of the BSP.
The said RA virtually eliminated the "substantial government participation" in
the National Executive Board by removing: (i) the President of the
Philippines and executive secretaries, with the exception of the Secretary of
Education, as members thereof; and (ii) the appointment and confirmation
 power of the President of the Philippines, as Chief Scout, over the members
of the said Board.
The BSP believes that the cited case has been superseded by RA 7278.
Thereby weakening the case's conclusion that the BSP is a government-
controlled corporation (sic). The 1987 Administrative Code itself, of which
the BSP vs. NLRC relied on for some terms, defines government-owned
and controlled corporations as agencies organized as stock or non-stock
corporations which the BSP, under its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in
the BSP. What RA 7278 only provides is that the Government or any of its
subdivisions, branches, offices, agencies and instrumentalities can from
time to time donate and contribute funds to the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not "appropriately
regarded as a government instrumentality under the 1987 Administrative
Code" as stated in the COA resolution. As defined by Section 2(10) of the
said code, instrumentality refers to "any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy,
usually through a charter."
The BSP is not an entity administering special funds. It is not even included
in the DECS National Budget. x x x
It may be argued also that the BSP is not an "agency" of the Government.
The 1987 Administrative Code, merely referred the BSP as an "attached
agency" of the DECS as distinguished from an actual line agency of
departments that are included in the National Budget. The BSP believes
that an "attached agency" is different from an "agency." Agency, as defined
in Section 2(4) of the Administrative Code, is defined as any of the various
units of the Government including a department, bureau, office,
instrumentality, government-owned or controlled corporation or local
government or distinct unit therein.
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 Court's ruling in Boy Scouts of
the Philippines v. National Labor Relations Commission, even though said law eliminated the
Page 78 of 139
substantial government participation in the selection of members of the National Executive
Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation is only one (1)
of the three (3) grounds relied upon by the Court in the resolution of the case. Other
considerations include the character of the BSP's purposes and functions which has a public
aspect and the statutory designation of the BSP as a "public corporation". These grounds have
not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by
the amendment made relative to BSP's purposes stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately regarded as "a government instrumentality" and
"agency" of the government, such has already been answered and clarified. The Supreme Court
has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a
"government-controlled corporation with an original charter" and as an "instrumentality" of the
Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the
BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not
change its nature as a government-controlled corporation with original charter and, necessarily,
subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides
that COA shall have the power, authority, and duty to examine, audit and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies
or instrumentalities, including government-owned or controlled corporations with original
charters. [14]
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we
have to comply with the provisions of the latter, among which is to conduct an annual financial
audit of the Boy Scouts of the Philippines. [15]
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA
informed the BSP that a preliminary survey of its organizational structure, operations and
accounting system/records shall be conducted on November 21 to 22, 2000. [16]
Upon the BSP's request, the audit was deferred for thirty (30) days. The BSP then filed a Petition
for Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order before the
COA. This was denied by the COA in its questioned Decision, which held that the BSP is under
its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied under its
questioned Resolution. [17]
This led to the filing by the BSP of this petition for prohibition with preliminary injunction and
temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the
COA's audit jurisdiction.
The Parties' Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is
inapplicable for purposes of determining the audit jurisdiction of the COA as the issue therein
was the jurisdiction of the National Labor Relations Commission over a case for illegal dismissal
and unfair labor practice filed by certain BSP employees. [18]
While the BSP concedes that its functions do relate to those that the government might
otherwise completely assume on its own, it avers that this alone was not determinative of the
COA's audit jurisdiction over it. The BSP further avers that the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission "simply stated x x x that in respect of
functions, the BSP is akin to a public corporation" but this was not synonymous to holding that
the BSP is a government corporation or entity subject to audit by the COA. [19]
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter;
hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor Relations
Commission are no longer valid as the government has ceased to play a controlling influence in
it. The BSP claims that the pronouncements of the Court therein must be taken only within the
context of that case; that the Court had categorically found that its assets were acquired from the
Boy Scouts of America and not from the Philippine government, and that its operations are
financed chiefly from membership dues of the Boy Scouts themselves as well as from property
rentals; and that "the BSP may correctly be characterized as non-governmental, and hence,
beyond the audit jurisdiction of the COA." It further claims that the designation by the Court of
the BSP as a government agency or instrumentality is mere obiter dictum. [20]
The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of
BSP has come to be overwhelmingly a private affair or nature, with government participation
restricted to the seat of the Secretary of Education, Culture and Sports." [21] It cites Philippine
Airlines Inc. v. Commission on 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 BSP's corporate identity in the same way that the
government's privatization program changed PAL's, the BSP makes the case that the
government no longer has control over it; thus, the COA cannot use the Boy Scouts of the
Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction
and the issuance of COA Resolution No. 99-011. [24] The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSP's funds and assets are private in character.
Unlike ordinary public corporations, such as provinces, cities, and municipalities, or government-
owned and controlled corporations, such as Land Bank of the Philippines and the Development
Bank of the Philippines, the assets and funds of BSP are not derived from any government
grant. For its operations, BSP is not dependent in any way on any government appropriation; as
a matter of fact, it has not even been included in any appropriations for the government. To be
sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General
Counsel, that BSP received, receives or continues to receive assets and funds from any agency
of the government. The foregoing simply point to the private nature of the funds and assets of
petitioner BSP.
xxxx
As stated in petitioner's third argument, BSP's assets and funds were never acquired from the
government. Its operations are not in any way financed by the government, as BSP has never
been included in any appropriations act for the government. Neither has the government
invested funds with BSP. BSP, has not been, at any time, a user of government property or
funds; nor have properties of the government been held in trust by BSP. This is precisely the
reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x
x. [25]
To summarize its other arguments, the BSP contends that it is not a government-owned or
controlled corporation; neither is it an instrumentality, agency, or subdivision of the government.
Page 79 of 139
In its Comment, [26] the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111
dated October 31, 1936, and whose functions relate to the fostering of
public virtues of citizenship and patriotism and the general improvement of
the moral spirit and fiber of the youth. The manner of creation and the
purpose for which the BSP was created indubitably prove that it is a
government agency.
2. Being a government agency, the funds and property owned or held in trust
by the BSP are subject to the audit authority of respondent Commission on
Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a
government-owned or controlled corporation and government
instrumentality. [27]
The COA maintains that the functions of the BSP that include, among others, the teaching to the
youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign
functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission. The COA contends that any attempt to
classify the BSP as a private corporation would be incomprehensible since no less than the law
which created it had designated it as a public corporation and its statutory mandate embraces
performance of sovereign functions. [28]
The COA claims that the only reason why the BSP employees fell within the scope of the Civil
Service Commission even before the 1987 Constitution was the fact that it was a government-
owned or controlled corporation; that as an attached agency of the Department of Education,
Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a
chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced
under the term government instrumentality. [29]
The COA concludes that being a government agency, the funds and property owned or held by
the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of
the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v.
Reyes, [30] wherein the Court held that among the reasons why the VFP is a public corporation is
that its charter, Republic Act No. 2640, designates it as one. Furthermore, the COA quotes the
Court as saying in that case:
In several cases, we have dealt with the issue of whether certain specific activities can be
classified as sovereign functions. These cases, which deal with activities not immediately
apparent to be sovereign functions, upheld the public sovereign nature of operations needed
either to promote social justice or to stimulate patriotic sentiments and love of country.
xxxx
Petitioner claims that its funds are not public funds because no budgetary appropriations or
government funds have been released to the VFP directly or indirectly from the DBM, and
because VFP funds come from membership dues and lease rentals earned from administering
government lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the VFP does not prove that it
is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to
the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is
mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions
will not prevent future budgetary appropriations to the VFP. The erroneous application of the law
by public officers does not bar a subsequent correct application of the law. [31] (Citations omitted.)
The COA points out that the government is not precluded by law from extending financial
support to the BSP and adding to its funds, and that "as a government instrumentality which
continues to perform a vital function imbued with public interest and reflective of the
government's policy to stimulate patriotic sentiments and love of country, the BSP's funds from
whatever source are public funds, and can be used solely for public purpose in pursuance of the
provisions of Republic Act No. [7278]." [32]
The COA claims that the fact that it has not yet audited the BSP's funds may not bar the
subsequent exercise of its audit jurisdiction.
The BSP filed its 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 COA's audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines v. National
Labor Relations Commission is not applicable anymore because the aspect of government
ownership and control has been removed by Republic Act No. 7278; and concluding that the
funds and property that it either owned or held in trust are not public funds and are not subject to
the COA's audit jurisdiction.
Thereafter, considering the BSP's claim that it is a private corporation, this Court, in
a 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 Court's 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 COA's audit jurisdiction over petitioner, and in fact, the controversy may be
resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set
forth in Commissioner of Internal Revenue v. Court of Tax Appeals,[36] have not been fully
met.[37] Moreover, the COA maintains that behind every law lies the presumption of
constitutionality.[38] The COA likewise argues that contrary to the BSP's position, repeal of a law
by implication is not favored. [39] Lastly, the COA claims that there was no violation of Section 16,
Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government
corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on
Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or private is found in
the totality of the relation of the corporation to the State. If the corporation is created by the State
as the latter's own agency or instrumentality to help it in carrying out its governmental functions,
then that corporation is considered public; otherwise, it is private. x x x. [41]
For its part, in its 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
Page 80 of 139
public corporation within the purview of COA's audit jurisdiction, neither is it a private corporation
created by special law falling within the ambit of the constitutional prohibition x x x." [43] The BSP
further alleges:
Petitioner's purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A.
No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner was created to advance the interest of
the youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately,
the creation of petitioner redounds to the benefit, not only of those boys, but of the public good
or welfare. Hence, it can be said that petitioner's purpose and functions are more of a public
rather than a private character. Petitioner caters to all boys who wish to join the organization
without any distinction. It does not limit its membership to a particular class of boys. Petitioner's
members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to
become model citizens and outstanding leaders of the country. [44]
The BSP reiterates its stand that the public character of its purpose and functions do not place it
within the ambit of the audit jurisdiction of the COA as it lacks the government ownership or
control that the Constitution requires before an entity may be subject of said jurisdiction. [45] It
avers that it merely stated in its Reply that the withdrawal of government control is akin to
privatization, but it does not necessarily mean that petitioner is a private corporation. [46] The BSP
claims that it has a unique characteristic which "neither classifies it as a purely public nor a
purely private corporation"; [47] that it is not a quasi-public corporation; and that it may belong to a
different class altogether.[48]
The BSP claims that assuming arguendo that it is a private corporation, its creation is not
contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil sought to
be avoided by said provision is inexistent in the enactment of the BSP's charter, [49] as, (i) it was
not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation are
not its officers but its entire membership consisting of boys being trained in scoutcraft all over
the country; (iii) it caters to all boys who wish to join the organization without any distinction; and
(iv) it does not limit its membership to a particular class or group of boys. Thus, the enactment
of its charter confers no special privilege to particular individuals, families, or groups; nor does it
bring about the danger of granting undue favors to certain groups to the prejudice of others or of
the interest of the country, which are the evils sought to be prevented by the constitutional
provision involved. [50]
Finally, the BSP states that the presumption of constitutionality of a legislative enactment
prevails absent any clear showing of its repugnancy to the Constitution. [51]
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying the
applicable laws and the arguments of both parties, we find that the BSP is a public corporation
and its funds are subject to the COA's audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act
to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define
its Powers and Purposes" created the BSP as a "public corporation" to serve the following public
interest or purpose:
Sec. 3.The purpose of this corporation shall be to promote through organization and cooperation
with other agencies, the ability of boys to do useful things for themselves and others, to train
them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, using the method which
are in common use by boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111
and provided substantial changes in the BSP organizational structure. Pertinent provisions are
quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National Executive Board
composed of (a) the President of the Philippines or his representative; (b) the charter and life
members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees of the
Philippine Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the
Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the
Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary
of Youth and Sports, and the Secretary of Local Government and Community Development; (f)
an equal number of individuals from the private sector; (g) the National President of the Girl
Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the
boy membership; and (i) three representatives of the cultural minorities. Except for the Regional
Chairman who shall be elected by the Regional Scout Councils during their annual meetings,
and the Scouts of their respective regions, all members of the National Executive Board shall be
either by appointment or cooption, subject to ratification and confirmation by the Chief Scout,
who shall be the Head of State. Vacancies in the Executive Board shall be filled by a majority
vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The
by-laws may prescribe the number of members of the National Executive Board necessary to
constitute a quorum of the board, which number may be less than a majority of the whole
number of the board. The National Executive Board shall have power to make and to amend the
by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may
authorize and cause to be executed mortgages and liens upon the property of the corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act
No. 111 "by strengthening the volunteer and democratic character" of the BSP and reducing
government representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to
read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be
sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and
personal estate, land grants, rights and choses in action as shall be necessary for corporate
purposes, and to accept and receive funds, real and personal property by gift, devise, bequest or
other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter
and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in
the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and
adopt by-laws, rules and regulations not inconsistent with this Act and the laws of the
Philippines, and generally to do all such acts and things, including the establishment of
regulations for the election of associates and successors, as may be necessary to carry into
effect the provisions of this Act and promote the purposes of said corporation: Provided, That
said corporation shall have no power to issue certificates of stock or to declare or pay dividends,
its objectives and purposes being solely of benevolent character and not for pecuniary profit of
Page 81 of 139
its members.
"Sec. 3. The purpose of this corporation shall be to promote through organization and
cooperation with other agencies, the ability of boys to do useful things for themselves
and others, to train them in scoutcraft, and to inculcate in them patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu
thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the
Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended
to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of a National Executive
Board, the members of which shall be Filipino citizens of good moral character. The Board
shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the
members of the National Council at its meeting called for this purpose;
"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all
the local scout councils of the region during its meeting called for this purpose: Provided, That a
candidate for regional chairman need not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the
senior scout delegates of the local scout councils to the scout youth forums in their respective
areas, in its meeting called for this purpose, to represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the National Council in its
meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector
who shall be elected by the members of the National Executive Board referred to in the
immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of
the newly reconstituted National Executive Board which shall be held immediately after the
meeting of the National Council wherein the twelve (12) regular members and the one (1)
charter member were elected.
xxxx
"Sec. 8.Any donation or contribution which from time to time may be made to the Boy Scouts of
the Philippines by the Government or any of its subdivisions, branches, offices, agencies or
instrumentalities or by a foreign government or by private, entities and individuals shall be
expended by the National Executive Board in pursuance of this Act.
The BSP as a Public Corporation under
Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as
presently constituted under Republic Act No. 7278, falls under the second classification.
Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created by
law; their personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner or
member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law
creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed
by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of
this Code concerning partnerships. (Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in order to
implement a State policy declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND
STATE POLICIES
Section 13. The State recognizes the vital role of the youth in nation-building and shall promote
and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in
the youth patriotism and nationalism, and encourage their involvement in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a
constitutional mandate, comes within the class of "public corporations" defined by paragraph 2,
Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of
the same Code.
The BSP's Classification Under the
Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along with
the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under
Executive Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI - EDUCATION, CULTURE AND SPORTS
Chapter 8 - Attached Agencies
Page 82 of 139
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
Page 83 of 139
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 corporation(s)" created by special charter that will not be subject to the test of economic viability,
supplied.) the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the
The existence of public or government corporate or juridical entities or chartered institutions by
framers of the highest law of our land to distinguish between government corporations
legislative fiat distinct from private corporations and government owned or controlled corporation
performing governmental functions and corporations involved in business or proprietary
is best exemplified by the 1987 Administrative Code cited above, which we quote in part:
functions:

Sec. 2. General Terms Defined. - Unless the specific words of the text, or the context as a
THE PRESIDENT. Commissioner Foz is recognized.
whole, or a particular statute, shall require a different meaning:
MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of
xxxx
the grounds for organizing government corporations. x x x.
(10) "Instrumentality" refers to any agency of the National Government, not integrated within
MR. OPLE. Madam President, the reason for this concern is really that when the government
the department framework, vested with special functions or jurisdiction by law, endowed with
creates a corporation, there is a sense in which this corporation becomes exempt from the test
some if not all corporate powers, administering special funds, and enjoying operational
of economic performance. We know what happened in the past. If a government corporation
autonomy, usually through a charter. This term includes regulatory agencies, chartered
loses, then it makes its claim upon the taxpayers' money through new equity infusions from the
institutions and government-owned or controlled corporations.
government and what is always invoked is the common good. x x x
xxxx
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
(12) "Chartered institution" refers to any agency organized or operating under a special
from the responsibility of meeting the market test so that they become viable. x x x.
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
xxxx
the State.
THE PRESIDENT. Commissioner Quesada is recognized.
(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
MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by
whether governmental or proprietary in nature, and owned by the Government directly or
economic viability?
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
THE PRESIDENT. Please proceed.
government-owned or controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit
MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into
for purposes of the exercise and discharge of their respective powers, functions and
consideration all benefits, including economic external as well as internal benefits. These are
responsibilities with respect to such corporations.
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
Assuming for the sake of argument that the BSP ceases to be owned or controlled by the quantifiable in financial terms. x x x.
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 xxxx
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 MS. QUESADA. So, would this particular formulation now really limit the entry of government
government is not constitutionally prohibited and is allowed by the above-mentioned provisions corporations into activities engaged in by corporations?
of the Civil Code and the 1987 Administrative Code.
MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this
Economic Viability and Ownership and Commission approved - that there should be minimum government participation and
Control Tests Inapplicable to Public intervention in the economy.
Corporations
MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the
As presently constituted, the BSP still remains an instrumentality of the national government. It particular requirements when the government would get into corporations. But this time around,
is a public corporation created by law for a public purpose, attached to the DECS pursuant to its we specifically mentioned economic viability. x x x.
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 MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment.
under a special law.
MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment
The dissent of Justice Carpio also submits that by recognizing "a new class of public jointly with Commissioner Foz. During the past three decades, there had been a proliferation of

Page 84 of 139
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.)
Page 85 of 139
Thus, the test of economic viability clearly does not apply to public corporations dealing with
governmental functions, to which category the BSP belongs. The discussion above conveys the
constitutional intent not to apply this constitutional ban on the creation of public corporations
where the economic viability test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business function for the government.
It is undisputed that the BSP performs functions that are impressed with public interest. In fact,
during the consideration of the Senate Bill that eventually became Republic Act No. 7278, which
amended the BSP Charter, one of the bill's sponsors, Senator Joey Lina, described the BSP as
follows:
Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr.
President, that should be given this kind of a privilege - the Boy Scouts of the Philippines and the
Girl Scouts of the Philippines. Outside of these two groups, I do not think there are other groups
similarly situated.
The Boy Scouts of the Philippines has a long history of providing value formation to our
young, and considering how huge the population of the young people is, at this point in
time, and also considering the importance of having an organization such as this that will
inculcate moral uprightness among the young people, and further considering that the
development of these young people at that tender age of seven to sixteen is vital in the
development of the country producing good citizens, I believe that we can make an
exception of the Boy Scouting movement of the Philippines from this general prohibition against
providing tax exemption and privileges. [57]
Furthermore, this Court cannot agree with the dissenting opinion which equates the changes
introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of
Congress "to return the BSP to the private sector." It was not the intent of Congress in enacting
Republic Act No. 7278 to give up all interests in this basic youth organization, which has been its
partner in forming responsible citizens for decades.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic
Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it
back to its former glory reached under its original charter, Commonwealth Act No. 111, and to
correct the perceived ills introduced by the amendments to its Charter under Presidential Decree
No. 460. The BSP suffered from low morale and decrease in number because the Secretaries
of the different departments in government who were too busy to attend the meetings of the
BSP's National Executive Board ("the Board") sent representatives who, as it turned out,
changed from meeting to meeting. Thus, the Scouting Councils established in the provinces and
cities were not in touch with what was happening on the national level, but they were left to
implement what was decided by the Board. [58]
A portion of the legislators' discussion is quoted below to clearly show their intent:
HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that
the Boy Scout Movement has done not only for the youth in particular but for the country
in general. And that is why, if we look around, our past and present national leaders,
prominent men in the various fields of endeavor, public servants in government offices,
and civic leaders in the communities all over the land, and not only in our country but all
over the world many if not most of them have at one time or another been beneficiaries of
the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have
the early approval of this measure if only to pay back what we owe much to the Scouting
Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just - the Scouting
Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x
[W]e were acknowledged as the third biggest scouting organization in the world x x x. And to our
mind, Mr. Chairman, this erratic growth and this decrease in membership [number] is because of
the bad policy measures that were enunciated with the enactment or promulgation by the
President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is
flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr.
Chairman, the disenfranchisement of the National Council in the election of the national board. x
x x. And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of
the Philippines whom we are also confident, have the best interest of the Boy Scout Movement
at heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working
together, the Boy Scout of the Philippines officers working together with the House of
Representatives in coming out with a measure that will put back the vigor and enthusiasm of the
Boy Scout Movement. x x x. [59] (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill, in the
Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created
the Boy Scouts of the Philippines did not provide for any direct government support by way of
appropriation from the national budget to support the activities of this organization. The point
here is, and at the same time they have been subjected to a governmental intervention, which to
their mind has been inimical to the objectives and to the institution per se, that is why they are
seeking legislative fiat to restore back the original mandate that they had under Commonwealth
Act 111. Such having been the experience in the hands of government, meaning, there
has been negative interference on their part and inasmuch as their mandate is coming
from a legislative fiat, then shouldn't it be, this rhetorical question, shouldn't it be better
for this organization to seek a mandate from, let's say, the government the Corporation
Code of the Philippines and register with the SEC as non-profit non-stock corporation so
that government intervention could be very very minimal. Maybe that's a rhetorical
question, they may or they may not answer, ano. I don't know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a registration with the SEC
under the Corporation Code of the Philippines inasmuch as they don't get anything from the
government anyway insofar as direct funding. In fact, the only thing that they got from
government was intervention in their affairs. Maybe we can solicit some commentary comments
from the resource persons. Incidentally, don't take that as an objection, I'm not objecting. I'm all
for the objectives of these two bills. It just occurred to me that since you have had very bad
experience in the hands of government and you will always be open to such possible
intervention even in the future as long as you have a legislative mandate or your mandate or
your charter coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the
Philippines will be required to register with the SEC. If we are registered with the SEC, there
could be a danger of proliferation of scout organization. Anybody can organize and then register
with the SEC. If there will be a proliferation of this, then the organization will lose control of the
entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the
SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or
freeze the assets of the organization and hamper the operation of the organization. I don't know,
Mr. Chairman, how you look at it but there could be a danger for anybody filing a complaint
against the organization in the SEC and the SEC might suspend the registration permit of the
organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations
Page 86 of 139
registered with the SEC because even if you are government corporation, court action may be
taken against you in other judicial bodies because the SEC is simply another quasi-judicial
body. But, I think, the first point would be very interesting, the first point that you raised.
In effect, what you are saying is that with the legislative mandate creating your charter, in
effect, you have been given some sort of a franchise with this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, that's very well taken so I will proceed with other issues, Mr.
Chairman. x x x. [60] (Emphases added.)
Therefore, even though the amended BSP charter did away with most of the governmental
presence in the BSP Board, this was done to more strongly promote the BSP's objectives, which
were not supported under Presidential Decree No. 460. The BSP objectives, as pointed out
earlier, are consistent with the public purpose of the promotion of the well-being of the youth,
the future leaders of the country. The amendments were not done with the view of changing the
character of the BSP into a privatized corporation. The BSP remains an agency attached to a
department of the government, the DECS, and it was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To
reiterate, the relationship of the BSP, an attached agency, to the government, through the
DECS, is defined in the Revised Administrative Code of 1987. The BSP meets the minimum
statutory requirement of an attached government agency as the DECS Secretary sits at the BSP
Board ex officio, thus facilitating the policy and program coordination between the BSP and the
DECS.
Requisites for Declaration of
Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of
certain provisions of the BSP Charter. Even if the parties were asked to Comment on the validity
of the BSP charter by the Court, this alone does not comply with the requisites for judicial
review, which were clearly set forth in a recent case:
When questions of constitutional significance are raised, the Court can exercise its power of
judicial review only if the following requisites are present: (1) the existence of an actual and
appropriate case; (2) the existence of personal and substantial interest on the part of the
party raising the constitutional question; (3) recourse to judicial review is made at the
earliest opportunity; and (4) the constitutional question is the lis mota of the
case. [61] (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the constitutional issue
should be the very lis mota, or threshold issue, of the case, and that it should be raised by either
of the parties. These requirements would be ignored under the dissent's rather overreaching
view of how this case should have been decided. True, it was the Court that asked the parties to
comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court
chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a
law.
Re: the COA's Jurisdiction

Regarding the COA's jurisdiction over the BSP, Section 8 of its amended charter allows the BSP
to receive contributions or donations from the government. Section 8 reads:
Section 8. Any donation or contribution which from time to time may be made to the Boy
Scouts of the Philippines by the Government or any of its subdivisions, branches, offices,
agencies or instrumentalities shall be expended by the Executive Board in pursuance of
this Act.
The sources of funds to maintain the BSP were identified before the House Committee on
Government Enterprises while the bill was being deliberated, and the pertinent portion of the
discussion is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization.
First, Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the
government. The organization has to raise its own funds through fund drives and fund
campaigns or fund raising activities. Aside from this, we have some revenue producing projects
in the organization that gives us funds to support the operation. x x x From time to time, Mr.
Chairman, when we have special activities we request for assistance or financial assistance
from government agencies, from private business and corporations, but this is only during
special activities that the Boy Scouts of the Philippines would conduct during the year.
Otherwise, we have to raise our own funds to support the organization. [62]
The nature of the funds of the BSP and the COA's audit jurisdiction were likewise brought up in
said congressional deliberations, to wit:
HON. AQUINO: x x x Insofar as this organization being a government created organization, in
fact, a government corporation classified as such, are your funds or your finances subjected to
the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We don't fall under the
jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then
Secretary Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was
receiving a subsidy in the form of an annual... a one draw from the Sweepstakes. And, this was
the case also with the Girl Scouts at the Anti-TB, but then this was... and the Boy Scouts then
because of this funding partly from government was being subjected to audit in the
contributions being made in the part of the Sweepstakes. But this was removed later during
the Martial Law years with the creation of the Human Settlements Commission. So the situation
right now is that the Boy Scouts does not receive any funding from government, but then in the
case of the local councils and this legislative charter, so to speak, enables the local councils
even the national headquarters in view of the provisions in the existing law to receive donations
from the government or any of its instrumentalities, which would be difficult if the Boy Scouts is
registered as a private corporation with the Securities and Exchange Commission. Government
bodies would be estopped from making donations to the Boy Scouts, which at present is not the
case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD
463.
Page 87 of 139
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because there's no money put in the
organization, but how about donated funds to this organization? What are the remedies of the
donors of how will they know how their money are being spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter
we are required to submit a financial report at the end of each year to the National Executive
Board. So all the funds donated or otherwise is accounted for at the end of the year by our
external auditor. In this case the SGV. [63]
Historically, therefore, the BSP had been subjected to government audit in so far as public funds
had been infused thereto. However, this practice should not preclude the exercise of the audit
jurisdiction of COA, clearly set forth under the Constitution, which pertinently provides:
Section 2. (1) The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to,
the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-audit
basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy
under this Constitution; (b) autonomous state colleges and universities; (c) other government-
owned or controlled corporations with original charters and their subsidiaries; and (d) such non-
governmental entities receiving subsidy or equity, directly or indirectly, from or through the
Government, which are required by law of the granting institution to submit to such audit as a
condition of subsidy or equity. x x x. [64]
Since the BSP, under its amended charter, continues to be a public corporation or a government
instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA
of its audit jurisdiction in the manner consistent with the provisions of the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED. SO
ORDERED.
[G. R. No. 175352 : January 18, 2011]
DANTE V. LIBAN, REYNALDO M. BERNARDO AND SALVADOR M. VIARI, Petitioners,
v. RICHARD J. GORDON, Respondent.chanrobleslawlibrary
PHILIPPINE NATIONAL RED CROSS, Intervenor.
 DISSENTING OPINION
CARPIO, J.:
I vote to deny the motions for reconsideration filed by Respondent Richard J. Gordon
(respondent Gordon) and movant-intervenor Philippine National Red Cross
(PNRC).chanrobleslawlibrary
Respondent Gordon and the PNRC seek partial reconsideration of the Court's Decision dated 15
July 2009, declaring that Republic Act No. 95 (RA 95), insofar as it creates the PNRC as a
private corporation and grants it corporate powers, is void for being unconstitutional. The
Decision also declared that the Office of the Chairman of the PNRC 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, which reads:
SEC. 13. No Senator or Member of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or instrumentality thereof, including
government-owned or controlled corporations or their subsidiaries, during his term without
forfeiting his seat. Neither shall he be appointed to any office which may have been created or
the emoluments thereof increased during the term for which he was elected.
Respondent Gordon and the PNRC are seeking reconsideration of the portion of the Decision
relating to the unconstitutionality of certain provisions of RA 95.chanrobleslawlibrary
This case originated from a petition filed by petitioners, seeking to declare respondent Gordon
as having forfeited his seat in the Senate when he accepted the chairmanship of the PNRC
Board of Governors.chanrobleslawlibrary
In the assailed Decision, this Court held that the PNRC is a private organization performing
public functions. The Philippine government does not own or control the PNRC and neither the
President nor the head of any department, agency, commission or board appoints the PNRC
Chairman. Thus, the prohibition in Section 13, Article VI of the 1987 Constitution is not
applicable to the office of the PNRC Chairman, which is not a government office or an office in a
government-owned or controlled corporation.chanrobleslawlibrary
Since the PNRC is a private corporation, the creation of the PNRC through a special charter is
violative of the constitutional proscription against the creation of private corporations by special
law. The creation of the PNRC by special charter on 22 March 1947 through RA 95 contravenes
Section 7, Article XIV of the 1935 Constitution, as amended, which
reads:chanroblesvirtualawlibrary
SEC. 7. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations, unless such corporations are owned or controlled by the
Government or any subdivision or instrumentality thereof.
This provision prohibiting Congress from creating private corporations, except by general law, is
reiterated in the 1973[1] and 1987[2] Constitutions.chanrobleslawlibrary
Page 88 of 139
In its Motion for Partial Reconsideration, the PNRC maintains that the decision declaring
unconstitutional certain provisions of RA 95 deprived the PNRC of its right to due process
considering that the PNRC was not a party to the case. Furthermore, the PNRC states that the
constitutionality of RA 95 was never an issue in the case. Similarly, respondent Gordon posits in
his Motion for Clarification and Reconsideration that the Court should not have passed upon the
constitutionality of RA 95 since such issue was not raised by the parties.chanrobleslawlibrary
Generally, the Court will not pass upon a constitutional question unless such question is raised
by the parties.[3] However, as explained by the Court in Fabian v. Hon. Desierto,[4] the rule that a
challenge on constitutional grounds must be raised by a party to the case is not an inflexible
rule. In the Fabian case, the issue of the constitutionality of Section 27 of Republic Act No.
6770[5] (RA 6770) was not presented as an issue by the parties. Nevertheless, the Court ruled
that Section 27 of RA 6770, which provides for appeals in administrative disciplinary cases from
the Office of the Ombudsman to the Supreme Court, infringes on the constitutional proscription
against laws increasing the appellate jurisdiction of the Supreme Court without its advice and
consent.chanrobleslawlibrary
In this case, the constitutional issue was inevitably thrust upon the Court upon its finding that the
PNRC is a private corporation, whose creation by a special charter is proscribed by the
Constitution. In view of the Court's finding that the PNRC is a private corporation, it was
imperative for the Court to address the issue of the creation of the PNRC through a special
charter. The Constitution prohibits the creation of a private corporation through a special law.
The Court could not declare the PNRC a private corporation created by the special law RA 95
without running afoul of Section 16, Article XII of the 1987 Constitution. To declare the PNRC a
private corporation necessarily meant declaring RA 95 unconstitutional. To declare the PNRC, a
creation of RA 95, a private corporation without declaring RA 95 unconstitutional would mean
that Congress can create a private corporation through a special law. This the Court could not
do.chanrobleslawlibrary
The fact that the constitutionality of RA 95 has not been questioned for more than sixty (60)
years does not mean that it could no longer be declared unconstitutional. One is not estopped
from assailing the validity of a law just because such law has been relied upon in the past and all
that time has not been attacked as unconstitutional.[6] Indeed, there is no prescription to declare
a law unconstitutional. Thus, in the case of Moldex Realty, Inc. v. Housing and Land Use
Regulatory Board,[7] this Court held that constitutional challenge can be made
anytime:chanroblesvirtualawlibrary
That the question of constitutionality has not been raised before is not a valid reason for
refusing to allow it to be raised later. A contrary rule would mean that a law, otherwise
unconstitutional, would lapse into constitutionality by the mere failure of the proper party to
promptly file a case to challenge the same. (Emphasis supplied)
More importantly, the Court granted the PNRC's motion to intervene and the PNRC then
filed its Motion for Partial Reconsideration, in which the PNRC argued that its charter is
valid and constitutional. Thus, the PNRC, the entity that is directly affected by the issue of
the constitutionality of RA 95, is in law and in fact a party to this case, raising specifically
the issue that its charter is valid and constitutional. Moreover, although the original parties
did not raise as an issue the constitutionality of RA 95, they were still afforded the opportunity to
be heard on this constitutional issue when they filed their respective motions for
reconsideration.chanrobleslawlibrary
In its Motion for Partial Reconsideration, the PNRC claims that the constitutional proscription
against the creation of private corporations by special law is not applicable in this case since the
PNRC was not created by Congress but by then President Ferdinand Marcos, who issued
Presidential Decree No. 1264[8] (PD 1264) which repealed RA 95. The PNRC insists that PD
1264 repealed and superseded RA 95. The PNRC maintains that since PD 1264 was issued by
President Marcos in the exercise of his legislative power during the martial law period pursuant
to Proclamation 1081, then the constitutional prohibition does not apply. Respondent Gordon
agrees with the position taken by the PNRC.chanrobleslawlibrary
I disagree. Even if the PNRC derived its existence from PD 1264, still the constitutional
prohibition will apply. President Marcos issued PD 1264 on 5 December 1977 during martial law
period when the President assumed extensive legislative power. Such assumption of legislative
power did not place President Marcos above the Constitution. President Marcos could not issue
decrees or orders contrary to the provisions of the Constitution. The exercise of legislative power
by President Marcos under martial law must still be in accordance with the Constitution because
legislative power cannot be exercised in violation of the Constitution from which legislative power
draws its existence. The limits on legislative power is explained by the Court in Government v.
Springer,[9] thus:chanroblesvirtualawlibrary
Someone has said that the powers of the legislative department of the Government, like the
boundaries of the ocean, are unlimited. In constitutional governments, however, as well as
governments acting under delegated authority, the powers of each of the departments of
the same are limited and confined within the four wall of the constitution or the charter,
and each department can only exercise such powers as are expressly given and such
other powers as are necessarily implied from the given powers. The constitution is the
shore of legislative authority against which the waves of legislative enactment may dash,
but over which it cannot leap. (Emphasis supplied)
The 1973 Constitution, as amended, was in force when President Marcos issued PD 1264.
Under Section 1, Article VIII of the 1973 Constitution, legislative power is vested in the National
Assembly. By virtue of Amendment No. 6[10] of the 1973 Constitution, the President was granted
legislative power. Thus, under Amendment No. 6, President Marcos was granted concurrent
legislative authority with the interim Batasang Pambansa.[11] Considering that the legislative
power of the interim Batasang Pambansa and the regular National Assembly is subject to the
limitations imposed by the Constitution, then more so for the emergency legislative power
granted to the President during the period of martial law. In fact, the Court has declared void
several Presidential Decrees or provisions thereof for being
unconstitutional.chanrobleslawlibrary
In Demetria v. Alba,[12] the Court declared void Paragraph 1 of Section 44 of PD 1177 for being
unconstitutional since it empowers the President to indiscriminately transfer funds and unduly
extends the privilege granted under Section 16(5), Article VIII of the 1973 Constitution. In Export
Processing Zone Authority v. Judge Dulay,[13] the Court held that PD 1533 is unconstitutional
because it deprives the courts of their function of determining just compensation in eminent
domain cases and eliminates the courts' discretion to appoint commissioners pursuant to Rule
67 of the Rules of Court. In subsequent cases, similar provisions on just compensation found in
expropriation laws such as PD 42, 76, 464, 794, 1224, 1259, 1313, and 1517 were also declared
void and unconstitutional for the same reason and for being violative of due
process.[14] In Tuason v. Register of Deeds, Caloocan City,[15] PD 293 was declared void and
unconstitutional since it allows the President to exercise judicial function and to take property
without due process and without compensation. In Manotok v. National Housing Authority,[16] the
Court held that PD 1669 and 1670, which expropriated certain properties, were void and
unconstitutional for violating due process of law.chanrobleslawlibrary
In this case, PD 1264 contravenes Section 4, Article XIV of the 1973 Constitution which provides
Page 89 of 139
that "[t]he National Assembly shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or
controlled by the government or any subdivision or instrumentality thereof." This same
prohibition is found in Section 16, Article XII of the present Constitution. Thus, just like RA 95,
PD 1264 is also void insofar as it creates the PNRC as a private
corporation.chanrobleslawlibrary
The PNRC further submits that "due to its peculiar nature, it should be considered as a private,
neutral and separate entity independent of government control and supervision, but acting as an
auxiliary to government when performing humanitarian functions, and specially created pursuant
to the treaty obligations of the Philippines to the Geneva Conventions."[17] Thus, the PNRC
maintains that its structure is sui generis and that it is not strictly private in character since it
performs certain governmental functions. The PNRC posits that its argument is reinforced by the
Position Paper[18] dated 7 December 2009 of the International Federation of Red Cross and Red
Crescent Societies ("International Federation"), which reads in part:chanroblesvirtualawlibrary
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 organizations (NGOs).
This sui generis character is also emphasized by the Fourth Geneva Convention which holds
that an Occupying Property 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.chanrobleslawlibrary
xxx
Once recognized by its Government as an independent National Society auxiliary to the public
authorities in humanitarian field, a National Society, if it fulfills the ten (10) conditions for
recognition, can be recognized by the International Committee of the Red Cross and be admitted
as member of the International Federation of the Red Cross and Red Crescent Societies. No
other organization 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.chanrobleslawlibrary
Furthermore, the National Societies are considered to be auxiliaries to the public authorities in
the humanitarian field. The concept of National Societies auxiliary to the public authorities was
reaffirmed in Resolution 3 of the 30[th] International Conference of the Red Cross and Red
Crescent, on 26-30 November 2007. This status, as you may see, is not only a positive and
distinct feature of any organization, but it is a precondition of its existence and functioning as a
member of the International Red Cross and Red Crescent Movement.chanrobleslawlibrary
The auxiliary status of 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.chanrobleslawlibrary
This is also the essence of the Fundamental Principle of Independence. No other humanitarian
organization gives such interpretation to its independence, although many claim that they are
independent. No other organization has a duty to be its government's humanitarian
partner while remaining independent.chanrobleslawlibrary
The Movement places much importance on the Principle of Independence and the duty of
the States Parties to the Geneva Conventions to respect the adherence by all the
components of the Movement to the Fundamental Principles. Before it can be recognized
by the International Committee, a National Society must have autonomous status which
allows it to operate in conformity with the Fundamental Principles of the Movement.
Thus, in protecting the independence of the National Society in carrying out its
humanitarian mission in a neutral and impartial manner, it is crucial that it must be free
from any form of intervention from the government at the level of the internal organization
of the National Society mainly its governance and management structure. (Boldfacing
supplied. Underscoring in the original.)
3. Be duly recognized by the legal government of its country on the basis of the Geneva
Conventions and of the national legislation as a voluntary aid society, auxiliary to the
public authorities in the humanitarian field.chanrobleslawlibrary
4. Have an autonomous status which allows it to operate in conformity with the
Fundamental Principles of the Movement.
5. Use a name and distinctive emblem in conformity with the Geneva Conventions and
their Additional Protocols.
6. Be so organized as to be able to fulfil the tasks defined in its own statutes, including the
preparation in peace time for its statutory tasks in case of armed conflict.chanrobleslawlibrary

7. Extend its activities to the entire territory of the State.chanrobleslawlibrary

All private charitable organizations are doing public service or activities that also constitute
governmental functions.[19] Hence, the PNRC cannot claim that it is sui generis just because it is
8. Recruit its voluntary members and its staff without consideration of race, sex, class, religion or
a private organization performing certain public or governmental functions. That the PNRC is
political opinions.chanrobleslawlibrary
rendering public service does not exempt it from the constitutional prohibition against the
creation of a private corporation through a special law since the PNRC is, admittedly, still a
9. Adhere to the present Statutes, share in the fellowship which unites the components of the
private organization. The express prohibition against the creation of private corporations by
Movement and cooperate with them.chanrobleslawlibrary
special charter under Section 16, Article XII of the 1987 Constitution cannot be disregarded just
because a private corporation claims to be sui generis. The constitutional prohibition admits of
10. Respect the Fundamental Principles of the Movement and be guided in its work by the
no exception.chanrobleslawlibrary
principles of international humanitarian law.[21]
Even the International Federation specifies the nature of the National Red Cross Society as a
"private institution and a public service organization." Furthermore, it emphasizes the
importance of maintaining and protecting the independence of the National Society, free
from any form of intervention from the government particularly concerning its
governance and management structure. Full independence means that the National Societies
The conditions for recognition of National Societies do not require that the State itself
are prohibited from being owned or controlled by their host government or from becoming
create the National Society through a special charter. The absence of such requirement is
government instrumentalities as this would undermine their independence, neutrality, and
proper and necessary considering the Movement's emphasis on the importance of maintaining
autonomy.chanrobleslawlibrary
the independence of the National Society, free from any form of intervention from the
government. However, it is required that the National Society be officially recognized by the
Indeed, the PNRC, as a member National Society of the International Red Cross and Red
government of its country as auxiliary to the public authorities in the humanitarian
Crescent Movement (Movement) must meet the stringent requirement of independence,
field.chanrobleslawlibrary
autonomy, and neutrality in order to be recognized as a National Society by the International
Committee of the Red Cross (ICRC). The conditions for recognition of National Societies are
A decree granting official recognition to the National Society is essential in order to distinguish it
enumerated in Article 4 of the Statutes of the Movement, thus:chanroblesvirtualawlibrary
from other charitable organizations in the country and to be entitled to the protection of the
Geneva Conventions in the event of armed conflict.[22] The content of the decree of recognition
may vary from one country to another but it should explicitly specify:chanroblesvirtualawlibrary

Article 4 1. That the National Society is the country's only Red Cross or Red Crescent
Conditions for Recognition of National Societies organization;
2. That it is autonomous in relation to the State;
In order to be recognized in terms of Article 5, paragraph 2 b)[20] as a National Society, the 3. That it performs its activities in conformity with the Fundamental Principles; and
Society shall meet the following conditions: 4. The conditions governing the use of the emblem.[23]

1. Be constituted on the territory of an independent State where the Geneva Convention for the
Amelioration of the Condition of the Wounded and Sick in Armed Forces in the Field is in
Thus, there is no specific requirement for the creation of the National Society through a
force.chanrobleslawlibrary
special charter. The State does not have the obligation to create the National Society, in our
case, the PNRC. What is important is that the National Society is officially recognized by the
2. Be the only National Red Cross or Red Crescent Society of the said State and be directed by
government as auxiliary to the public authorities in the humanitarian services of the government.
a central body which shall alone be competent to represent it in its dealings with other
This the Philippine government can accomplish even without creating the PNRC through a
components of the Movement.chanrobleslawlibrary
Page 90 of 139
special charter.chanrobleslawlibrary
Besides, as auxiliaries in the humanitarian services of their host governments, the National
Societies are subject to the laws of their respective countries.[24] Thus, the National
Societies are bound by the laws of their host countries and must submit to the Constitution of
their respective host countries.chanrobleslawlibrary
The Philippine Constitution prohibits Congress from creating private corporations except by
general law. I agree with the PNRC that it is a private organization performing public functions.
Precisely because it is a private organization, the PNRC charter - whether it be RA 95 or PD
1264 - is violative of the constitutional proscription against the creation of private corporations by
special law. Nevertheless, keeping in mind the treaty obligations of the Philippines under the
Geneva Conventions, the assailed Decision only held void those provisions of the PNRC charter
which create PNRC as a private corporation or grant it corporate powers. The other provisions
respecting the government's treaty obligations remain valid, thus:chanroblesvirtualawlibrary
The other provisions[25] of the PNRC Charter remain valid as they can be considered as a
recognition by the State that the unincorporated PNRC is the local National Society of the
International Red Cross and Red Crescent Movement, and thus entitled to the benefits,
exemptions and privileges set forth in the PNRC Charter. The other provisions of the PNRC
Charter implement the Philippine Government's treaty obligations under Article 4(5) of the
Statutes of the International Red Cross and Red Crescent Movement, which provides that to be
recognized as a National Society, the Society must be "duly recognized by the legal government
of its country on the basis of the Geneva Conventions and of the national legislation as a
voluntary aid society, auxiliary to the public authorities in the humanitarian field."[26] (Emphasis
supplied)
This Court's paramount duty is to faithfully apply the provisions of the Constitution to the present
case. The Constitutional prohibition under Section 16, Article XII of the 1987 Constitution is
clear, categorical, and absolute:chanroblesvirtualawlibrary
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 supplied)
Since the constitutional prohibition admits of no exception, this Court has no recourse but to
apply the prohibition to the present case. This Court has no power to make PNRC an exception
to Section 16, Article XII of the 1987 Constitution.chanrobleslawlibrary
The PNRC could either choose to remain unincorporated or it could adopt its own articles of
incorporation and by-laws and incorporate under the Corporation Code and register with the
Securities and Exchange Commission if it wants to be a private corporation.chanrobleslawlibrary
Accordingly, I vote to DENY the Motions for Reconsideration.chanrobleslawlibrary
G. R. No. 136374 - February 9, 2000
FRANCISCA S. BALUYOT, Petitioner, v. PAUL E. HOLGANZA and the OFFICE OF THE
OMBUDSMAN (VISAYAS) represented by its Deputy Ombudsman for the Visayas
Page 91 of 139
ARTURO C. MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft Investigation
Officer I ANNA MARIE P. MILITANTE, Respondents.
DE LEON, JR., J.:
Before us is a special civil action for certiorari, seeking the reversal of the Orders dated August
21, 1998 and October 28, 1998 issued by the Office of the Ombudsman, which denied
petitioner's motion to dismiss and motion for reconsideration, respectively.
The facts are:
During a spot audit conducted on March 21, 1977 by a team of auditors from the Philippine
National Red Cross (PNRC) headquarters, a cash shortage of P154,350.13 was discovered in
the funds of its Bohol chapter. The chapter administrator, petitioner Francisca S. Baluyot, was
held accountable for the shortage. Thereafter, on January 8, 1998, private respondent Paul E.
Holganza, in his capacity as a member of the board of directors of the Bohol chapter, filed an
affidavit-complaint1 before the Office of the Ombudsman charging petitioner of malversation
under Article 217 of the Revised Penal Code. The complaint was docketed as OMB-VIS-CRIM-
98-0022. However, upon recommendation by respondent Anna Marie P. Militante, Graft
Investigation Officer I, an administrative docket for dishonesty was also opened against
petitioner; hence, OMB-VIS-ADM-98-0063.2
On February 6, 1998, public respondent issued an Order3 requiring petitioner to file her counter-
affidavit to the charges of malversation and dishonesty within ten days from notice, with a
warning that her failure to comply would be construed as a waiver on her part to refute the
charges, and that the case would be resolved based on the evidence on record. On March 14,
1998, petitioner filed her counter-affidavit,4 raising principally the defense that public respondent
had no jurisdiction over the controversy. She argued that the Ombudsman had authority only
over government-owned or controlled corporations, which the PNRC was not, or so she claimed.
On August 21, 1998, public respondent issued the first assailed Order5 denying petitioner's
motion to dismiss. It further scheduled a clarificatory hearing on the criminal aspect of the
complaint and a preliminary conference on its administrative aspect on September 2, 1998.
Petitioner received the order on August 26, 1998 and she filed a motion for reconsideration6 the
next day.
On October 28, 1998, public respondent issued the second assailed Order7 denying petitioner's
motion for reconsideration. Hence, this recourse.
We dismiss the petition.
Petitioner contends that the Ombudsman has no jurisdiction over the subject matter of the
controversy since the PNRC is allegedly a private voluntary organization. The following
circumstances, she insists, are indicative of the private character of the organization: (1) the
PNRC does not receive any budgetary support from the government, and that all money given to
it by the latter and its instrumentalities become private funds of the organization; (2) funds for the
payment of personnel's salaries and other emoluments come from yearly fund campaigns,
private contributions and rentals from its properties; and (3) it is not audited by the Commission
on Audit. Petitioner states that the PNRC falls under the International Federation of Red Cross, a
Switzerland-based organization, and that the power to discipline employees accused of
misconduct, malfeasance, or immorality belongs to the PNRC Secretary General by virtue of
Section "G", Article IX of its by-laws.8 She threatens that "to classify the PNRC as a government-
owned or controlled corporation would create a dangerous precedent as it would lose its
neutrality, independence and impartiality . . . .9
Practically the same issue was addressed in Camporedondo v. National Labor Relations
Commission, et. al.,10 where an almost identical set of facts obtained. Petitioner therein was the
administrator of the Surigao del Norte chapter of the PNRC. An audit conducted by a field
auditor revealed a shortage in the chapter funds in the sum of P109,000.00. When required to
restitute the amount of P135,927.78, petitioner therein instead applied for early retirement, which
was denied by the Secretary General of the PNRC. Subsequently, the petitioner filed a
complaint for illegal dismissal and damages against PNRC before the National Labor Relations
Commission. In turn, PNRC moved to dismiss the complaint on the ground of lack of jurisdiction,
averring that PNRC was a government corporation whose employees are embraced by civil
service regulation. The labor arbiter dismissed the complaint, and the Commission sustained his
order. The petitioner assailed the dismissal of his complaint via a petition for certiorari,
contending that the PNRC is a private organization and not a government-owned or controlled
corporation. In dismissing the petition, we ruled thus:
Resolving the issue set out in the opening paragraph of this opinion, we rule that the Philippine
National Red Cross (PNRC) is a government owned and controlled corporation, with an original
charter under Republic Act No. 95, as amended. The test to determine whether a corporation is
government owned or controlled, or private in nature is simple. Is it created by its own charter for
the exercise of a public function, or by incorporation under the general corporation law? Those
with special charters are government corporations subject to its provisions, and its employees
are under the jurisdiction of the Civil Service Commission, and are compulsory members of the
Government Service Insurance System. The PNRC was not "impliedly converted to a private
corporation" simply because its charter was amended to vest in it the authority to secure loans,
be exempted from payment of all duties, taxes, fees and other charges of all kinds on all
importations and purchases for its exclusive use, on donations for its disaster relief work and
other services and in its benefits and fund raising drives, and be allotted one lottery draw a year
by the Philippine Charity Sweepstakes Office for the support of its disaster relief operation in
addition to its existing lottery draws for blood program.
Clearly then, public respondent has jurisdiction over the matter, pursuant to Section 13, of
Republic Act No. 6770, otherwise known as "The Ombudsman Act of 1989", to wit:
Sec. 13. Mandate. The Ombudsman and his Deputies, as protectors of the people, shall act
promptly on complaints filed in any form or manner against officers or employees of the
Government, or of any subdivision, agency or instrumentality thereof, including government-
owned or controlled corporations, and enforce their administrative, civil and criminal liability in
ever case where the evidence warrants in order to promote efficient service by the Government
to the people.11
WHEREFORE, the petition for certiorari is hereby DISMISSED. Costs against petitioner.
SO ORDERED.
[G.R. NO. 155027 : February 28, 2006]
Page 92 of 139
THE VETERANS FEDERATION OF THE PHILIPPINES represented by Esmeraldo R.
Acorda, Petitioner, v. Hon. ANGELO T. REYES in his capacity as Secretary of National
Defense; and Hon. EDGARDO E. BATENGA in his capacity as Undersecretary for Civil
Relations and Administration of the Department of National Defense, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of Civil
Procedure, with a prayer to declare as void Department Circular No. 04 of the Department of
National Defense (DND), dated 10 June 2002.
Petitioner in this case is the Veterans Federation of the Philippines (VFP), a corporate body
organized under Republic Act No. 2640, dated 18 June 1960, as amended, and duly registered
with the Securities and Exchange Commission. Respondent Angelo T. Reyes was the Secretary
of National Defense (DND Secretary) who issued the assailed Department Circular No. 04,
dated 10 June 2002. Respondent Edgardo E. Batenga was the DND Undersecretary for Civil
Relations and Administration who was tasked by the respondent DND Secretary to conduct an
extensive management audit of the records of petitioner.
The factual and procedural antecedents of this case are as follows:
Petitioner VFP was created under Rep. Act No. 2640,1 a statute approved on 18 June 1960.
On 15 April 2002, petitioner's incumbent president received a letter dated 13 April 2002 which
reads:
Col. Emmanuel V. De Ocampo (Ret.)
President
Veterans Federation of the Philippines
Makati, Metro Manila
Dear Col. De Ocampo:
Please be informed that during the preparation of my briefing before the Cabinet and the
President last March 9, 2002, we came across some legal bases which tended to show that
there is an organizational and management relationship between Veterans Federation of the
Philippines and the Philippine Veterans Bank which for many years have been inadvertently
overlooked.
I refer to Republic Act 2640 creating the body corporate known as the VFP and Republic Act
3518 creating the Phil. Vets [sic] Bank.
1. RA 2640 dated 18 June 60 Section 1 ... "hereby created a body corporate, under the control Section 1
and supervision of the Secretary of National Defense."
These rules shall govern and apply to the management and operations of the Veterans
2. RA 2640 Section 12 ... "On or before the last day of the month following the end of each fiscal Federation of the Philippines (VFP) within the context provided by EO 292 s-1987.
year, the Federation shall make and transmit to the President of the Philippines or to the
Secretary of National Defense, a report of its proceedings for the past year, including a full,
Section 2 - DEFINITION OF TERMS - for the purpose of these rules, the terms, phrases or
complete and itemized report of receipts and expenditures of whatever kind."
words used herein shall, unless the context indicates otherwise, mean or be understood as
follows:
3. Republic Act 3518 dated 18 June 1963 (An Act Creating the Philippine Veterans Bank, and for
Other Purposes) provides in Section 6 that ... "the affairs and business of the Philippine
Supervision and Control - it shall include authority to act directly whenever a specific function is
Veterans Bank shall be directed and its property managed, controlled and preserved, unless
entrusted by law or regulation to a subordinate; direct the performance of a duty; restrain the
otherwise provided in this Act, by a Board of Directors consisting of eleven (11) members to be
commission of acts; approve, reverse or modify acts and decisions of subordinate officials or
composed of three ex officio members to wit: the Philippine Veterans Administrator, the
units; determine priorities in the execution of plans and programs; and prescribe standards,
President of the Veteran's Federation of the Philippines and the Secretary of National Defense x
guidelines, plans and programs.
x x.

Power of Control - power to alter, modify, nullify or set aside what a subordinate officer had done
It is therefore in the context of clarification and rectification of what should have been done by
in the performance of his duties and to substitute the judgment of the former to that of the latter.
the DND (Department of National Defense) for and about the VFP and PVB that I am requesting
appropriate information and report about these two corporate bodies.
Supervision - means overseeing or the power of an officer to see to it that their subordinate
officers perform their duties; it does not allow the superior to annul the acts of the subordinate.
Therefore it may become necessary that a conference with your staffs in these two bodies be
set.
Administrative Process - embraces matter concerning the procedure in the disposition of both
routine and contested matters, and the matter in which determinations are made, enforced or
Thank you and anticipating your action on this request.
reviewed.

Very truly yours,

Government Agency - as defined under PD 1445, a government agency or agency of
government or "agency" refers to any department, bureau or office of the national government,
(SGD) ANGELO T. REYES or any of its branches or instrumentalities, of any political subdivision, as well as any government
owned or controlled corporation, including its subsidiaries, or other self-governing board or
commission of the government.
[DND] Secretary

Government Owned and Controlled Corporation (GOCC) - refer to any agency organized as a
On 10 June 2002, respondent DND Secretary issued the assailed DND Department Circular No.
stock or non-stock corporation, vested with functions relating to public needs whether
04 entitled, "Further Implementing the Provisions of Sections 12 and 23 of Republic Act No.
governmental or proprietary in nature, and owned by the government directly or through its
2640," the full text of which appears as follows:
instrumentalities wholly or, where applicable as in the case of stock corporations, to the extent of
at least 50% of its capital stock.
Department of National Defense
Fund - sum of money or other resources set aside for the purpose of carrying out specific
Department Circular No. 04 activities or attaining certain objectives in accordance with special regulations, restrictions or
limitations and constitutes an independent, fiscal and accounting entity.
Subject: Further Implementing the Provisions of Sections 1 & 2 of
Government Fund - includes public monies of every sort and other resources pertaining to any
agency of the government.
Republic Act No. 2640

Veteran - any person who rendered military service in the land, sea or air forces of the
Authority: Republic Act No. 2640
Philippines during the revolution against Spain, the Philippine American War, World War II,
including Filipino citizens who served in Allied Forces in the Philippine territory and foreign
Executive Order No. 292 dated July 25, 1987 nationals who served in Philippine forces; the Korean campaign, the Vietnam campaign, the
Anti-dissidence campaign, or other wars or military campaigns; or who rendered military service
in the Armed Forces of the Philippines and has been honorably discharged or separated after at
Page 93 of 139
least six (6) years total cumulative active service or sooner separated due to the death or
disability arising from a wound or injury received or sickness or disease incurred in line of duty
while in the active service.
Section 3 - Relationship Between the DND and the VFP
3.1 Sec 1 of RA 3140 provides "... the following persons (heads of various veterans associations
and organizations in the Philippines) and their associates and successors are hereby created a
body corporate, under the control and supervision of the Secretary of National Defense, under
the name, style and title of "Veterans Federation of the Philippines ..."
The Secretary of National Defense shall be charged with the duty of supervising the veterans
and allied program under the jurisdiction of the Department. It shall also have the responsibility
of overseeing and ensuring the judicious and effective implementation of veterans assistance,
benefits, and utilization of VFP assets.
3.2 To effectively supervise and control the corporate affairs of the Federation and to safeguard
the interests and welfare of the veterans who are also wards of the State entrusted under the
protection of the DND, the Secretary may personally or through a designated representative,
require the submission of reports, documents and other papers regarding any or all of the
Federation's business transactions particularly those relating to the VFP functions under Section
2 of RA 2640.
The Secretary or his representative may attend conferences of the supreme council of the VFP
and such other activities he may deem relevant.
3.3 The Secretary shall from time to time issue guidelines, directives and other orders governing
vital government activities including, but not limited to, the conduct of elections; the acquisition,
management and dispositions of properties, the accounting of funds, financial interests, stocks
and bonds, corporate investments, etc. and such other transactions which may affect the
interests of the veterans.
3.4 Financial transactions of the Federation shall follow the provisions of the government
auditing code (PD 1445) i.e. government funds shall be spent or used for public purposes; trust
funds shall be available and may be spent only for the specific purpose for which the trust was
created or the funds received; fiscal responsibility shall, to the greatest extent, be shared by all
those exercising authority over the financial affairs, transactions, and operations of the
federation; disbursements or dispositions of government funds or property shall invariably bear
the approval of the proper officials.
Section 4 - Records of the FEDERATION
As a corporate body and in accordance with appropriate laws, it shall keep and carefully
preserve records of all business transactions, minutes of meetings of stockholders/members of
the board of directors reflecting all details about such activity.
All such records and minutes shall be open to directors, trustees, stockholders, and other
members for inspection and copies of which may be requested.
Page 94 of 139
As a body corporate, it shall submit the following: annual report; proceedings of council
meetings; report of operations together with financial statement of its assets and liabilities and
fund balance per year; statement of revenues and expenses per year; statement of cash flows
per year as certified by the accountant; and other documents/reports as may be necessary or
required by the SND.
Section 5 - Submission of Annual and Periodic Report
As mandated under appropriate laws, the following reports shall be submitted to the SND, to wit:
A. Annual Report to be submitted not later than every January 31 of the following year. Said
report shall consist of the following:
1. Financial Report of the Federation, signed by the Treasurer General and Auditor General;
2. Roster of Members of the Supreme Council;
3. Roster of Members of the Executive Board and National Officers; andcralawlibrary
4. Current listing of officers and management of VFP.
b. Report on the proceedings of each Supreme Council Meeting to be submitted not later than
one month after the meeting;
c. Report of the VFP President as may be required by SND or as may be found necessary by
the President of the Federation;
d. Resolutions passed by the Executive Board and the Supreme Council for confirmation to be
submitted not later than one month after the approval of the resolution;
e. After Operation/Activity Reports to be submitted not later than one month after such operation
or activity;
Section 6 - Penal Sanctions
As an attached agency to a regular department of the government, the VFP and all its
instrumentalities, officials and personnel shall be subject to the penal provisions of such laws,
rules and regulations applicable to the attached agencies of the government.
In a letter dated 6 August 2002 addressed to the President of petitioner, respondent DND
Secretary reiterated his instructions in his earlier letter of 13 April 2002.
Thereafter, petitioner's President received a letter dated 23 August 2002 from respondent
Undersecretary, informing him that Department Order No. 129 dated 23 August 2002 directed
"the conduct of a Management Audit of the Veterans Federation of the Philippines." 4 The letter
went on to state that respondent DND Secretary "believes that the mandate given by said law
can be meaningfully exercised if this department can better appreciate the functions,
responsibilities and situation on the ground and this can be done by undertaking a thorough
study of the organization."5
Respondent Undersecretary also requested both for a briefing and for documents on personnel,
ongoing projects and petitioner's financial condition. The letter ended by stating that, after the
briefing, the support staff of the Audit Committee would begin their work to meet the one-month
target within which to submit a report.
A letter dated 28 August 2003 informed petitioner's President that the Management Audit Group
headed by the Undersecretary would be paying petitioner a visit on 30 August 2002 for an
update on VFP's different affiliates and the financial statement of the Federation.
Subsequently, the Secretary General of the VFP sent an undated letter to respondent DND
Secretary, with notice to respondent Undersecretary for Civil Relations and Administration,
complaining about the alleged broadness of the scope of the management audit and requesting
the suspension thereof until such time that specific areas of the audit shall have been agreed
upon.
The request was, however, denied by the Undersecretary in a letter dated 4 September 2002 on
the ground that a specific timeframe had been set for the activity.
Petitioner thus filed this Petition for Certiorari with Prohibition under Rule 65 of the 1997 Rules of
Civil Procedure, praying for the following reliefs:
1. For this Court to issue a temporary restraining order and a writ of preliminary prohibitory and
mandatory injunction to enjoin respondent Secretary and all those acting under his discretion
and authority from: (a) implementing DND Department Circular No. 04; and (b) continuing with
the ongoing management audit of petitioner's books of account;
2. After hearing the issues on notice '
A. Declare DND Department Circular No. 04 as null and void for being ultra vires;
b. Convert the writ of prohibition, preliminary prohibitory and mandatory injunction into a
permanent one.6
GIVING DUE COURSE TO THE PETITION
Petitioner asserts that, although cases which question the constitutionality or validity of
administrative issuances are ordinarily filed with the lower courts, the urgency and substantive
importance of the question on hand and the public interest attendant to the subject matter of the
petition justify its being filed with this Court directly as an original action. 7
It is settled that the Regional Trial Court and the Court of Appeals also exercise original
jurisdiction over petitions for certiorari and prohibition. As we have held in numerous occasions,
however, such concurrence of original jurisdiction does not mean that the party seeking
extraordinary writs has the absolute freedom to file his petition in the court of his choice. 8 Thus,
in Commissioner of Internal Revenue v. Leal,9 we held that:
Page 95 of 139
Such concurrence of original jurisdiction among the Regional Trial Court, the Court of Appeals
and this Court, however, does not mean that the party seeking any of the extraordinary writs has
the absolute freedom to file his petition in the court of his choice. The hierarchy of courts in our
judicial system determines the appropriate forum for these petitions. Thus, petitions for the
issuance of the said writs against the first level (inferior) courts must be filed with the Regional
Trial Court and those against the latter, with the Court of Appeals. A direct invocation of this
Court's original jurisdiction to issue these writs should be allowed only where there are special
and important reasons therefor, specifically and sufficiently set forth in the petition. This is the
established policy to prevent inordinate demands upon the Court's time and attention, which are
better devoted to matters within its exclusive jurisdiction, and to prevent further over-crowding of
the Court's docket. Thus, it was proper for petitioner to institute the special civil action
for certiorari with the Court of Appeals assailing the RTC order denying his motion to dismiss
based on lack of jurisdiction.
The petition itself, in this case, does not specifically and sufficiently set forth the special and
important reasons why the Court should give due course to this petition in the first instance,
hereby failing to fulfill the conditions set forth in Commissioner of Internal Revenue v.
Leal.10 While we reiterate the policies set forth in Leal and allied cases and continue to abhor the
propensity of a number of litigants to disregard the principle of hierarchy of courts in our judicial
system, we, however, resolve to take judicial notice of the fact that the persons who stand to
lose in a possible protracted litigation in this case are war veterans, many of whom have
precious little time left to enjoy the benefits that can be conferred by petitioner corporation. This
bickering for the power over petitioner corporation, an entity created to represent and defend the
interests of Filipino veterans, should be resolved as soon as possible in order for it to once and
for all direct its resources to its rightful beneficiaries all over the country. All these said, we
hereby resolve to give due course to this petition.
ISSUES
Petitioner mainly alleges that the rules and guidelines laid down in the assailed Department
Circular No. 04 expanded the scope of "control and supervision" beyond what has been laid
down in Rep. Act No. 2640.11 Petitioner further submits the following issues to this Court:
1. Was the challenged department circular passed in the valid exercise of the respondent
Secretary's "control and supervision"?cralawlibrary
2. Could the challenged department circular validly lay standards classifying the VFP, an
essentially civilian organization, within the ambit of statutes only applying to government
entities?cralawlibrary
3. Does the department circular, which grants respondent direct management control on the
VFP, unduly encroach on the prerogatives of VFP's governing body?
At the heart of all these issues and all of petitioner's prayers and assertions in this case is
petitioner's claim that it is a private non-government corporation.
CENTRAL ISSUE:
IS THE VFP A PRIVATE CORPORATION?cralawlibrary
Petitioner claims that it is not a public nor a governmental entity but a private organization, and 1. The VFP does not possess the elements which would qualify it as a public office, particularly
advances this claim to prove that the issuance of DND Department Circular No. 04 is an invalid the possession/delegation of a portion of sovereign power of government to be exercised for the
exercise of respondent Secretary's control and supervision. 12 benefit of the public;

This Court has defined the power of control as "the power of an officer to alter or modify or nullify 2. VFP funds are not public funds because '
or set aside what a subordinate has done in the performance of his duties and to substitute the
judgment of the former to that of the latter."13 The power of supervision, on the other hand,
a) No budgetary appropriations or government funds have been released to the VFP directly or
means "overseeing, or the power or authority of an officer to see that subordinate officers
indirectly from the Department of Budget and Management (DBM);
perform their duties. If the latter fail or neglect to fulfill them, the former may take such action or
step as prescribed by law to make them perform their duties."14 These definitions are
synonymous with the definitions in the assailed Department Circular No. 04, while the other b) VFP funds come from membership dues;
provisions of the assailed department circular are mere consequences of control and supervision
as defined.
c) The lease rentals raised from the use of government lands reserved for the VFP are private in
character and do not belong to the government. Said rentals are fruits of VFP's labor and efforts
Thus, in order for petitioner's premise to be able to support its conclusion, petitioners should be in managing and administering the lands for VFP purposes and objectives. A close analogy
deemed to imply either of the following: (1) that it is unconstitutional/impermissible for the law would be any Filipino citizen settling on government land and who tills the land for his livelihood
(Rep. Act No. 2640) to grant control and/or supervision to the Secretary of National Defense and sustenance. The fruits of his labor belong to him and not to the owner of the land. Such
over a private organization, or (2) that the control and/or supervision that can be granted to the fruits are not public funds.
Secretary of National Defense over a private organization is limited, and is not as strong as they
are defined above.
3. Although the juridical personality of the VFP emanates from a statutory charter, the VFP
retains its essential character as a private, civilian federation of veterans voluntarily formed by
The following provision of the 1935 Constitution, the organic act controlling at the time of the the veterans themselves to attain a unity of effort, purpose and objectives, e.g. '
creation of the VFP in 1960, is relevant:
A. The members of the VFP are individual members and retirees from the public and military
Section 7. The Congress shall not, except by general law, provide for the formation, service;
organization, or regulation of private corporations, unless such corporations are owned and
controlled by the Government or any subdivision or instrumentality thereof. 15
b. Membership in the VFP is voluntary, not compulsory;

On the other hand, its counterparts in the 1973 and 1987 constitutions are the following:
c. The VFP is governed, not by the Civil Service Law, the Articles of War nor the GSIS Law, but
by the Labor Code and the SSS Law;
Section 4. The National Assembly shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or
controlled by the government or any subdivision or instrumentality thereof. 16 d. The VFP has its own Constitution and By-Laws and is governed by a Supreme Council who
are elected from and by the members themselves;

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned and controlled corporations may be 4. The Administrative Code of 1987 does not provide that the VFP is an attached agency, nor
created or established by special charters in the interest of the common good and subject to the does it provide that it is an entity under the control and supervision of the DND in the context of
test of economic viability.17 the provisions of said code.

5. The DBM declared that the VFP is a non-government organization and issued a certificate
From the foregoing, it is crystal clear that our constitutions explicitly prohibit the regulation by
special laws of private corporations, with the exception of government-owned or controlled that the VFP has not been a direct recipient of any funds released by the DBM.
corporations (GOCCs). Hence, it would be impermissible for the law to grant control of the VFP
to a public official if it were neither a public corporation, an unincorporated governmental entity, These arguments of petitioner notwithstanding, we are constrained to rule that petitioner is in
nor a GOCC.18 Said constitutional provisions can even be read to prohibit the creation itself of fact a public corporation. Before responding to petitioner's allegations one by one, here are the
the VFP if it were neither of the three mentioned above, but we cannot go into that in this case more evident reasons why the VFP is a public corporation:
since there is no challenge to the creation of the VFP in the petition as to permit this Court from
considering its nullity.
(1) Rep. Act No. 2640 is entitled "An Act to Create a Public Corporation to be Known as the
Veterans Federation of the Philippines, Defining its Powers, and for Other Purposes."
Petitioner vigorously argues that the VFP is a private non-government organization, pressing on
the following contentions:

Page 96 of 139
(2) Any action or decision of the Federation or of the Supreme Council shall be subject to the
approval of the Secretary of Defense.19
(3) The VFP is required to submit annual reports of its proceedings for the past year, including a
full, complete and itemized report of receipts and expenditures of whatever kind, to the President
of the Philippines or to the Secretary of National Defense.20
(4) Under Executive Order No. 37 dated 2 December 1992, the VFP was listed as among the
government-owned and controlled corporations that will not be privatized.
(5) In Ang Bagong Bayani - OFW Labor Party v. COMELEC,21 this Court held in a minute
resolution that the "VFP [Veterans Federation Party] is an adjunct of the government, as it is
merely an incarnation of the Veterans Federation of the Philippines.
And now to answer petitioner's reasons for insisting that it is a private corporation:
1. Petitioner claims that the VFP does not possess the elements which would qualify it as a
public office, particularly the possession/delegation of a portion of sovereign power of
government to be exercised for the benefit of the public;
In Laurel v. Desierto,22 we adopted the definition of Mechem of a public office, that it is "the right,
authority and duty, created and conferred by law, by which, for a given period, either fixed by law
or enduring at the pleasure of the creating power, an individual is invested with some portion of
the sovereign functions of the government, to be exercised by him for the benefit of the public."
In the same case, we went on to adopt Mechem's view that the delegation to the individual of
some of the sovereign functions of government is "[t]he most important characteristic" in
determining whether a position is a public office or not.23 Such portion of the sovereignty of the
country, either legislative, executive or judicial, must attach to the office for the time being, to be
exercised for the public benefit. Unless the powers conferred are of this nature, the individual is
not a public officer. The most important characteristic which distinguishes an office from an
employment or contract is that the creation and conferring of an office involves a delegation to
the individual of some of the sovereign functions of government, to be exercised by him for the
benefit of the public; - that some portion of the sovereignty of the country, either legislative,
executive or judicial, attaches, for the time being, to be exercised for the public benefit. Unless
the powers conferred are of this nature, the individual is not a public officer. 24 The issue,
therefore, is whether the VFA's officers have been delegated some portion of the sovereignty of
the country, to be exercised for the public benefit.
In several cases, we have dealt with the issue of whether certain specific activities can be
classified as sovereign functions. These cases, which deal with activities not immediately
apparent to be sovereign functions, upheld the public sovereign nature of operations needed
either to promote social justice25 or to stimulate patriotic sentiments and love of country.26
As regards the promotion of social justice as a sovereign function, we held in Agricultural Credit
and Cooperative Financing Administration (ACCFA) v. Confederation of Unions in Government
Corporations and Offices (CUGCO),27 that the compelling urgency with which the Constitution
speaks of social justice does not leave any doubt that land reform is not an optional but a
compulsory function of sovereignty. The same reason was used in our declaration that
socialized housing is likewise a sovereign function.28 Highly significant here is the observation of
former Chief Justice Querube Makalintal:
Page 97 of 139
The growing complexities of modern society, however, have rendered this traditional
classification of the functions of government [into constituent and ministrant functions] quite
unrealistic, not to say obsolete. The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and only "because it
was better equipped to administer for the public welfare than is any private individual or group of
individuals," continue to lose their well-defined boundaries and to be absorbed within activities
that the government must undertake in its sovereign capacity if it is to meet the increasing social
challenges of the times. Here[,] as almost everywhere else[,] the tendency is undoubtedly
towards a greater socialization of economic forces. Here, of course, this development was
envisioned, indeed adopted as a national policy, by the Constitution itself in its declaration of
principle concerning the promotion of social justice.29 (Emphasis supplied.)
It was, on the other hand, the fact that the National Centennial Celebrations was calculated to
arouse and stimulate patriotic sentiments and love of country that it was considered as a
sovereign function in Laurel v. Desierto.30 In Laurel, the Court then took its cue from a similar
case in the United States involving a Fourth of July fireworks display. The holding of the
Centennial Celebrations was held to be an executive function, as it was intended to enforce
Article XIV of the Constitution which provides for the conservation, promotion and popularization
of the nation's historical and cultural heritage and resources, and artistic relations.
In the case at bar, the functions of petitioner corporation enshrined in Section 4 of Rep. Act No.
264031 should most certainly fall within the category of sovereign functions. The protection of the
interests of war veterans is not only meant to promote social justice, but is also intended to
reward patriotism. All of the functions in Section 4 concern the well-being of war veterans, our
countrymen who risked their lives and lost their limbs in fighting for and defending our nation. It
would be injustice of catastrophic proportions to say that it is beyond sovereignty's power to
reward the people who defended her.
Like the holding of the National Centennial Celebrations, the functions of the VFP are executive
functions, designed to implement not just the provisions of Rep. Act No. 2640, but also, and
more importantly, the Constitutional mandate for the State to provide immediate and adequate
care, benefits and other forms of assistance to war veterans and veterans of military campaigns,
their surviving spouses and orphans.32
2. Petitioner claims that VFP funds are not public funds.
Petitioner claims that its funds are not public funds because no budgetary appropriations or
government funds have been released to the VFP directly or indirectly from the DBM, and
because VFP funds come from membership dues and lease rentals earned from administering
government lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the VFP does not prove that it
is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to
the VFP, having itself believed that the VFP is a private corporation. 33 If the DBM, however, is
mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions
will not prevent future budgetary appropriations to the VFP. The erroneous application of the law
by public officers does not bar a subsequent correct application of the law.34
Nevertheless, funds in the hands of the VFP from whatever source are public funds, and can be
used only for public purposes. This is mandated by the following provisions of Rep. Act No.
2640:
(1) Section 2 provides that the VFP can only "invest its funds for the exclusive benefit of the
Veterans of the Philippines;"
(2) Section 2 likewise provides that "(a)ny action or decision of the Federation or of the Supreme
Council shall be subject to the approval of the Secretary of National Defense." Hence, all
activities of the VFP to which the Supreme Council can apply its funds are subject to the
approval of the Secretary of National Defense;
(3) Section 4 provides that "the Federation shall exist solely for the purposes of a benevolent
character, and not for the pecuniary benefit of its
members;"ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(4) Section 6 provides that all funds of the VFP in excess of operating expenses are "reserved
for disbursement, as the Supreme Council may authorize, for the purposes stated in Section two
of this Act;"
(5) Section 10 provides that "(a)ny donation or contribution which from time to time may be made
to the Federation by the Government of the Philippines or any of its subdivisions, branches,
offices, agencies or instrumentalities shall be expended by the Supreme Council only for the
purposes mentioned in this Act."; and finally,
(6) Section 12 requires the submission of annual reports of VFP proceedings for the past year,
including a full, complete and itemized report of receipts and expenditures of whatever kind, to
the President of the Philippines or to the Secretary of National Defense.
from raising revenues through non-traditional methods. As remarked by Justice Florentino
Feliciano in his concurring opinion in Kilosbayan, Incorporated v. Guingona, Jr.38 where he
explained that the funds raised by the On-line Lottery System were also public in nature, thus:
x x x [T]he more successful the government is in raising revenues by non-traditional methods
such as PAGCOR operations and privatization measures, the lesser will be the pressure upon
the traditional sources of public revenues, i.e., the pocket books of individual taxpayers and
importers.
Petitioner additionally harps on the inapplicability of the case of Laurel v. Desierto 39 which was
cited by Respondents. Petitioner claims that among the reasons National Centennial
Commission Chair Salvador Laurel was considered a public officer was the fact that his
compensation was derived from public funds. Having ruled that VFP funds from whatever source
are public funds, we can safely conclude that the Supreme Council's compensation, taken as
they are from VFP funds under the term "operating expenses" in Section 6 of Rep. Act No. 2640,
are derived from public funds. The particular nomenclature of the compensation taken from VFP
funds is not even of relevance here. As we said in Laurel concerning compensation as an
element of public office:
Under particular circumstances, "compensation" has been held to include allowance for personal
expenses, commissions, expenses, fees, an honorarium, mileage or traveling expenses,
payments for services, restitution or a balancing of accounts, salary, and wages. 40
3. Petitioner argues that it is a civilian federation where membership is voluntary.

Petitioner claims that the Secretary of National Defense "historically did not indulge in the direct
It is important to note here that the membership dues collected from the individual members of
or 'micromanagement' of the VFP precisely because it is essentially a civilian organization where
VFP's affiliate organizations do not become public funds while they are still funds of the affiliate
membership is voluntary."41 This reliance of petitioner on what has "historically" been done is
organizations. A close reading of Section 135 of Rep. Act No. 2640 reveals that what has been
erroneous, since laws are not repealed by disuse, custom, or practice to the
created as a body corporate is not the individual membership of the affiliate organizations, but
contrary.42 Furthermore, as earlier stated, the erroneous application of the law by public officers
merely the aggregation of the heads of the affiliate organizations. Thus, only the money remitted
does not bar a subsequent correct application of the law.43
by the affiliate organizations to the VFP partake in the public nature of the VFP funds.

Neither is the civilian nature of VFP relevant in this case. The Constitution does not contain any
In Republic v. COCOFED,36 we held that the Coconut Levy Funds are public funds because,
prohibition, express or implied, against the grant of control and/or supervision to the Secretary of
inter alia, (1) they were meant to be for the benefit of the coconut industry, one of the major
National Defense over a civilian organization. The Office of the Secretary of National Defense is
industries supporting the national economy, and its farmers; and (2) the very laws governing
itself a civilian office, its occupant being an alter ego of the civilian Commander-in-Chief. This
coconut levies recognize their public character. The same is true with regard to the VFP funds.
set-up is the manifestation of the constitutional principle that civilian authority is, at all times,
No less public is the use for the VFP funds, as such use is limited to the purposes of the VFP
supreme over the military.44 There being no such constitutional prohibition, the creation of a
which we have ruled to be sovereign functions. Likewise, the law governing VFP funds (Rep. Act
civilian public organization by Rep. Act No. 2640 is not rendered invalid by its being placed
No. 2640) recognizes the public character of the funds as shown in the enumerated provisions
under the control and supervision of the Secretary of National Defense.
above.

Petitioner's stand that the VFP is a private corporation because membership thereto is voluntary
We also observed in the same COCOFED case that "(e)ven if the money is allocated for a
is likewise erroneous. As stated above, the membership of the VFP is not the individual
special purpose and raised by special means, it is still public in character."37 In the case at bar,
membership of the affiliate organizations, but merely the aggregation of the heads of such
some of the funds were raised by even more special means, as the contributions from affiliate
affiliate organizations. These heads forming the VFP then elect the Supreme Council and the
organizations of the VFP can hardly be regarded as enforced contributions as to be considered
other officers,45 of this public corporation.
taxes. They are more in the nature of donations which have always been recognized as a source
of public funding. Affiliate organizations of the VFP cannot complain of their contributions
becoming public funds upon the receipt by the VFP, since they are presumed aware of the 4. Petitioner claims that the Administrative Code of 1987 does not provide that the VFP is an
provisions of Rep. Act No. 2640 which not only specifies the exclusive purposes for which VFP attached agency, and nor does it provide that it is an entity under the control and supervision of
funds can be used, but also provides for the regulation of such funds by the national government the DND in the context of the provisions of said code.
through the Secretary of National Defense. There is nothing wrong, whether legally or morally,

Page 98 of 139
The Administrative Code, by giving definitions of the various entities covered by it,
acknowledges that its enumeration is not exclusive. The Administrative Code could not be said
to have repealed nor enormously modified Rep. Act No. 2640 by implication, as such repeal or
enormous modification by implication is not favored in statutory construction. 46
5. Petitioner offers as evidence the DBM opinion that the VFP is a non-government organization
in its certification that the VFP "has not been a direct recipient of any funds released by the
DBM."
Respondents claim that the supposed declaration of the DBM that petitioner is a non-
government organization is not persuasive, since DBM is not a quasi-judicial agency. They aver
that what we have said of the Bureau of Local Government Finance (BLGF) in Philippine Long
Distance Telephone Company (PLDT) v. City of Davao47 can be applied to DBM:
In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that
petitioner's exemption from local taxes has been restored is a contemporaneous construction of
Section 23 [of R.A. No. 7925 and, as such, is entitled to great weight.
The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals,
which is a special court created for the purpose of reviewing tax cases, the BLGF was created
merely to provide consultative services and technical assistance to local governments and the
general public on local taxation and other related matters. Thus, the rule that the "Court will not
set aside conclusions rendered by the CTA, which is, by the very nature of its function,
dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an abuse or improvident exercise
of authority" cannot apply in the case of the BLGF.
On this score, though, we disagree with respondents and hold that the DBM's appraisal is
considered persuasive. Respondents misread the PLDT case in asserting that only quasi-judicial
agencies' determination can be considered persuasive. What the PLDT case points out is that,
for an administrative agency's opinion to be persuasive, the administrative agency involved
(whether it has quasi-judicial powers or not) must be an expert in the field they are giving their
opinion on.
The DBM is indeed an expert on determining what the various government agencies and
corporations are. This determination is necessary for the DBM to fulfill its mandate:
Sec. 2. Mandate. - The Department shall be responsible for the formulation and implementation
of the National Budget with the goal of attaining our national socio-economic plans and
objectives.
The Department shall be responsible for the efficient and sound utilization of government funds
and revenues to effectively achieve our country's development objectives. 48
The persuasiveness of the DBM opinion has, however, been overcome by all the previous
explanations we have laid so far. It has also been eclipsed by another similarly persuasive
opinion, that of the Department of National Defense embodied in Department Circular No. 04.
The DND is clearly more of an expert with respect to the determination of the entities under it,
and its Administrative Rules and Regulations are entitled to great respect and have in their favor
the presumption of legality.49
Page 99 of 139
The DBM opinion furthermore suffers from its lack of explanation and justification in the
"certification of non-receipt" where said opinion was given. The DBM has not furnished, in said
certification or elsewhere, an explanation for its opinion that VFP is a non-government
organization.
THE FATE OF DEPARTMENT CIRCULAR NO. 04
Our ruling that petitioner is a public corporation is determinative of whether or not we should
grant petitioner's prayer to declare Department Circular No. 04 void.
Petitioner assails Department Circular No. 04 on the ground that it expanded the scope of
control and supervision beyond what has been laid down in Rep. Act No. 2640. Petitioner
alleges that "(t)he equation of the meaning of `control' and `supervision' of the Administrative
Code of 1987 as the same `control and supervision' under Rep. Act No. 2640, takes out the
context of the original legislative intent from the peculiar surrounding circumstances and
conditions that brought about the creation of the VFP."50 Petitioner claims that the VFP "was
intended as a self-governing autonomous body with a Supreme Council as governing authority,"
and that the assailed circular "pre-empts VFP's original self-governance and autonomy (in)
representing veterans organizations, and substitutes government discretion and decisions to that
of the veterans' own determination."51 Petitioner says that the circular's provisions practically
render the Supreme Council inutile, despite its being the statutory governing body of the VFP. 52
As previously mentioned, this Court has defined the power of control as "the power of an officer
to alter or modify or nullify or set aside what a subordinate has done in the performance of his
duties and to substitute the judgment of the former to that of the latter." 53 The power of
supervision, on the other hand, means "overseeing, or the power or authority of an officer to see
that subordinate officers perform their duties."54 Under the Administrative Code of 1987:55
Supervision and control shall include the authority to act directly whenever a specific function is
entrusted by law or regulation to a subordinate; direct the performance of duty; restrain the
commission of acts; review, approve, reverse or modify acts and decisions of subordinate
officials or units; determine priorities in the execution of plans and programs; and prescribe
standards, guidelines, plans and programs. x x x
The definition of the power of control and supervision under Section 2 of the assailed
Department Circular are synonymous with the foregoing definitions. Consequently, and
considering that petitioner is a public corporation, the provisions of the assailed Department
Circular No. 04 did not supplant nor modify the provisions of Republic Act No. 2640, thus not
violating the settled rule that "all such (administrative) issuances must not override, but must
remain consistent and in harmony with the law they seek to apply or implement. Administrative
rules and regulations are intended to carry out, neither to supplant nor to modify, the law." 56
Section 3.2 of the assailed department circular, which authorizes the Secretary of National
Defense to "x x x personally or through a designated representative, require the submission of
reports, documents and other papers regarding any or all of the Federation's business functions,
x x x."
as well as Section 3.3 which allows the Secretary of DND to
x x x [F]rom time to time issue guidelines, directives and other orders governing vital government
activities including, but not limited to, the conduct of elections, the acquisition, management and
dispositions of properties, the accounting of funds, financial interests, stocks and bonds,
corporate investments, etc. and such other transactions which may affect the interests of the
veterans.
are merely consequences of both the power of control and supervision granted by Rep. Act No.
2640. The power to alter or modify or nullify or set aside what a subordinate has done in the
performance of his duties, or to see to it that subordinate officers perform their duties in
accordance with law, necessarily requires the ability of the superior officer to monitor, as closely
as it desires, the acts of the subordinate.
The same is true with respect to Sections 4 and 5 of the assailed Department Circular No. 04,
which requires the preservation of the records of the Federation and the submission to the
Secretary of National Defense of annual and periodic reports.
Petitioner likewise claims that the assailed DND Department Circular No. 04 was never
published, and hence void.57 Respondents deny such non-publication.58
We have put forth both the rule and the exception on the publication of administrative rules and
regulations in the case of Tañada v. Tuvera:59
x x x Administrative rules and regulations must also be published if their purpose is to enforce or
implement existing law pursuant also to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the
personnel of the administrative agency and not the public, need not be published. Neither is
publication required of the so-called letters of instructions issued by administrative superiors
concerning the rules on guidelines to be followed by their subordinates in the performance of
their duties.
Even assuming that the assailed circular was not published, its validity is not affected by such
non-publication for the reason that its provisions fall under two of the exceptions enumerated in
Tañada.
Department Circular No. 04 is an internal regulation. As we have ruled, they are meant to
regulate a public corporation under the control of DND, and not the public in general. As likewise
discussed above, what has been created as a body corporate by Rep. Act No. 2640 is not the
individual membership of the affiliate organizations of the VFP, but merely the aggregation of the
heads of the affiliate organizations. Consequently, the individual members of the affiliate
organizations, who are not public officers, are beyond the regulation of the circular.
Sections 2, 3 and 6 of the assailed circular are additionally merely interpretative in nature. They
add nothing to the law. They do not affect the substantial rights of any person, whether party to
the case at bar or not. In Sections 2 and 3, control and supervision are defined, mentioning
actions that can be performed as consequences of such control and supervision, but without
specifying the particular actions that shall be rendered to control and supervise the VFP. Section
6, in the same vein, merely state what the drafters of the circular perceived to be consequences
of being an attached agency to a regular department of the government, enumerating sanctions
and remedies provided by law that may be availed of whenever desired.
Page 100 of 139
Petitioner then objects to the implementation of Sec. 3.4 of the assailed Department Circular,
which provides that -
3.4 Financial transactions of the Federation shall follow the provisions of the government
auditing code (PD 1445) i.e. government funds shall be spent or used for public purposes; trust
funds shall be available and may be spent only for the specific purpose for which the trust was
created or the funds received; fiscal responsibility shall, to the greatest extent, be shared by all
those exercising authority over the financial affairs, transactions, and operations of the
federation; disbursements or dispositions of government funds or property shall invariably bear
the approval of the proper officials.
Since we have also previously determined that VFP funds are public funds, there is likewise no
reason to declare this provision invalid. Section 3.4 is correct in requiring the VFP funds to be
used for public purposes, but only insofar the term "public purposes" is construed to mean
"public purposes enumerated in Rep. Act No. 2640."
Having in their possession public funds, the officers of the VFP, especially its fiscal officers, must
indeed share in the fiscal responsibility to the greatest extent.
As to petitioner's allegation that VFP was intended as a self-governing autonomous body with a
Supreme Council as governing authority, we find that the provisions of Rep. Act No. 2640
concerning the control and supervision of the Secretary of National Defense clearly withholds
from the VFP complete autonomy. To say, however, that such provisions render the VFP inutile
is an exaggeration. An office is not rendered inutile by the fact that it is placed under the control
of a higher office. These subordinate offices, such as the executive offices under the control of
the President, exercise discretion at the first instance. While their acts can be altered or even set
aside by the superior, these acts are effective and are deemed the acts of the superior until they
are modified. Surely, we cannot say that the offices of all the Department Secretaries are
worthless positions.
In sum, the assailed DND Department Circular No. 04 does not supplant nor modify and is, on
the contrary, perfectly in consonance with Rep. Act No. 2640. Petitioner VFP is a public
corporation. As such, it can be placed under the control and supervision of the Secretary of
National Defense, who consequently has the power to conduct an extensive management audit
of petitioner corporation.
WHEREFORE, the Petition is hereby DISMISSED for lack of merit. The validity of the
Department of National Defense Department Circular No. 04 is AFFIRMED. SO ORDERED.
[G.R. NO. 155650 : July 20, 2006]
MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, v. 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.
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.

As operator of the international airport, MIAA administers the land, improvements and equipment On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of injunction, with prayer for preliminary injunction or temporary restraining order. The petition
land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and
of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R.
to MIAA shall be disposed of through sale or any other mode unless specifically approved by the SP No. 66878.
President of the Philippines.5
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA
from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA filed on 5 December 2002 the present Petition for Review .7
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.
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
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of
Parañaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily
down as follows: 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.
TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
Order. The motion sought to restrain respondents - the City of Parañaque, City Mayor of
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the
93,621,740.00
City Assessor of Parañaque ("respondents") - from auctioning the Airport Lands and Buildings.
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
immediately. The Court ordered respondents to cease and desist from selling at public auction
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the
9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 conclusion of the public auction.
50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
624,506,725.42

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
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

Page 101 of 139

service, the ownership of these properties remains with the State. The Airport Lands and There is no dispute that a government-owned or controlled corporation is not exempt from real
Buildings are thus inalienable and are not subject to real estate tax by local governments. 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:
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 SEC. 2. General Terms Defined. - x x x x
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
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
would not inure to any public advantage, since in such a case the tax debtor is also the tax
non-stock corporation, vested with functions relating to public needs whether governmental or
creditor.
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
Respondents invoke Section 193 of the Local Government Code, which expressly fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)cralawlibrary
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
A government-owned or controlled corporation must be "organized as a stock or non-stock
statutory construction is that the express mention of one person, thing, or act excludes all others.
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
An international airport is not among the exceptions mentioned in Section 193 of the Local
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and
voting shares. Section 10 of the MIAA Charter9 provides:
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.
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.

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
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.

Respondents argue that MIAA, being a government-owned or controlled corporation, is not

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
exempt from real estate tax. Respondents claim that the deletion of the phrase "any
Corporation Code defines a non-stock corporation as "one where no part of its income is
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
distributable as dividends to its members, trustees or officers." A non-stock corporation must
Government Code withdrew the real estate tax exemption of government-owned or controlled
have members. Even if we assume that the Government is considered as the sole member of
corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
enumerating the entities exempt from real estate tax.
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to

Page 102 of 139

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?cralawlibrary
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)cralawlibrary
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.
Page 103 of 139
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:
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)cralawlibrary
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)cralawlibrary
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
Page 104 of 139
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 Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
to do. 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
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
Airport Lands and Buildings are reserved for public use, their ownership remains with the State
man may be the object of a contract, and plazas and streets are outside of this commerce, as
or the Republic of the Philippines.
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, The authority of the President to reserve lands of the public domain for public use, and to
fountains, etc." (Emphasis supplied) 23 withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion
are outside the commerce of man: 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
xxx Town plazas are properties of public dominion, to be devoted to public use and to be
otherwise directed by law. The reserved land shall thereafter remain subject to the
made available to the public in general. They are outside the commerce of man and cannot be
specific public purpose indicated until otherwise provided by law or proclamation;
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 x x x x. (Emphasis supplied)cralawlibrary
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
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
private constructions.24 (Emphasis supplied)cralawlibrary
law or presidential proclamation from public use, they are properties of public dominion, owned
by the Republic and outside the commerce of man.
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
c. MIAA is a Mere Trustee of the Republic

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to
any property of public dominion is void for being contrary to public policy. Essential public
hold title to real properties owned by the Republic, thus:
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. 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:
Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing general law governing the (1) For property belonging to and titled in the name of the Republic of the Philippines, by the
classification and disposition of lands of the public domain other than timber and mineral President, unless the authority therefor is expressly vested by law in another officer.
lands,"27 provide:
(2) For property belonging to the Republic of the Philippines but titled in the name of any
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, political subdivision or of any corporate agency or instrumentality, by the executive head
the President may designate by proclamation any tract or tracts of land of the public domain as of the agency or instrumentality. (Emphasis supplied)cralawlibrary
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-
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer
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 because even its executive head cannot sign the deed of conveyance on behalf of the Republic.
lequas communales, public parks, public quarries, public fishponds, working men's village and Only the President of the Republic can sign such deed of conveyance. 28
other improvements for the public benefit.
d. Transfer to MIAA was Meant to Implement a Reorganization
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 The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
other disposition until again declared alienable under the provisions of this Act or by Buildings from the Bureau of Air Transportation of the Department of Transportation and
proclamation of the President. (Emphasis and underscoring supplied)cralawlibrary Communications. The MIAA Charter provides:

Page 105 of 139

SECTION 3. Creation of the Manila International Airport Authority. - x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to
the ownership and administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall undertake an actual survey of
the area transferred within one year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any portion thereof shall not be
disposed through sale or through any other mode unless specifically approved by the
President of the Philippines. (Emphasis supplied)cralawlibrary
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)cralawlibrary
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;
andcralawlibrary
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)cralawlibrary
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
Page 106 of 139
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)cralawlibrary
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing "[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x." The real properties owned by the
Republic are titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt
from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only if
the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of
the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA
the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court
ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of
the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether
natural or juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges - Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis
supplied)cralawlibrary
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:
Page 107 of 139
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:
xxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring
supplied)cralawlibrary
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)cralawlibrary
The minority's theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not only real estate tax, on
the national government.
Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax. Some of
the national government instrumentalities vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas,30 Philippine Rice Research Institute,31 Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34 Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish,
courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national
government instrumentality under Section 133(o) of the Local Government Code. Section 133(o)
is the specific provision of law prohibiting local governments from imposing any kind of tax on
the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise
provided in this Code." This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and instrumentalities only if the Local
Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of
the Code, which makes the national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government
Code provides:
SEC. 234. Exemptions from Real Property Tax - The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.
x x x. (Emphasis supplied)cralawlibrary
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)cralawlibrary
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
Page 108 of 139
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:
xxx
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.
xxx
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:
Page 109 of 139
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)cralawlibrary
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)cralawlibrary
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)cralawlibrary
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)cralawlibrary
Page 110 of 139
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;
andcralawlibrary
7. The MIAA, to provide the proper premises - such as runway and buildings - for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens.
MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. - x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)cralawlibrary
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)cralawlibrary
Page 111 of 139
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., JJ., concur.
 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 power to tax the national
government, its agencies and instrumentalities."8 Unfortunately, using the definition employed by
Page 112 of 139
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 cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
exceptions in the LGC no longer hold, since "local governments are devoid of power to tax the educational institutions, are hereby withdrawn upon the effectivity of this Code. 26
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.
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,
There are certainly many other precedents affected, perhaps all previous jurisprudence building, machinery, and other improvements not hereafter specifically exempted. 27
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
SECTION 234. Exemptions from Real Property Tax. - - The following are exempted from
proprietary functions (a distinction laid down by this Court as far back as 191624 ). What is the
payment of the real property tax:
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 (a) Real property owned by the Republic of the Philippines or any of its political subdivisions
away if you pretend hard enough that it does not exist. except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person:
I.
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly,
Case Should Have Been Decided Following Mactan Precedent
and exclusively used for religious charitable or educational purposes;

The core issue in this case, whether the MIAA is liable to the City of Parañaque for real property
(c) All machineries and equipment that are actually, directly and exclusively used by local water
taxes under the Local Government Code, has already been decided by this Court in the Mactan
districts and government-owned and controlled corporations engaged in the distribution of water
case, and should have been resolved by simply applying precedent.
and/or generation and transmission of electric power;

Mactan Explained
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
andcralawlibrary
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,
(e) Machinery and equipment used for pollution control and environmental protection.
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 Except as provided herein, any exemption from payment of real property tax previously granted
the same provision utilized by the majority as the basis for MIAA's exemption. Section 133 to, or presently enjoyed by, all persons, whether natural or juridical, including all government-
reads: owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. 28

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:
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).
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:

However, the Court in Mactan noted that Section 133 qualified the exemption of the National
(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
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: (2) "Unless otherwise provided in this Code" in Section 193;

SEC. 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, (3) "not hereafter specifically exempted" in Section 232; andcralawlibrary
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,
(4) "Except as provided herein" in the last paragraph of Section 234

Page 113 of 139

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
Page 114 of 139
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. xxx
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it.32
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.

Basco is as strident a reiteration of the old guard view that frowned on the principle of local
Section 3. The Congress shall enact a local government code which shall provide for a more
autonomy, especially as it interfered with the prerogatives and privileges of the national
responsive and accountable local government structure instituted through a system of
government. Also consider the following citation from Maceda v. Macaraig,33 decided the same
decentralization with effective mechanisms of recall, initiative, and referendum, allocate among
year as Basco. Discussing the rule of construction of tax exemptions on government
the different local government units their powers, responsibilities, and resources, and provide for
instrumentalities, the sentiments are of a similar vein.
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
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the local units.
case of exemptions in favor of a government political subdivision or instrumentality.
xxx
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
Section 5. Each local government unit shall have the power to create its own sources of
provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness,
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the
and equality of treatment among tax payers.
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
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
xxx
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. 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
In the case of property owned by the state or a city or other public corporations, the express
dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment
exemption should not be construed with the same degree of strictness that applies to
of the Local Government Code:
exemptions contrary to the policy of the state, since as to such property "exemption is the rule
and taxation the exception."34
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
Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This
the [Local Government Code]. Besides, nothing can prevent Congress from decreeing that even
evinces the perspective from which the majority is coming from. It is admittedly a viewpoint once
instrumentalities or agencies of the Government performing governmental functions may be
shared by this Court, and en vogue prior to the enactment of the Local Government Code of
subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no
1991.
one can doubt its wisdom.35 (emphasis supplied)

However, the Local Government Code of 1991 ushered in a new ethos on how the art of
The Court Has Repeatedly
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 Reaffirmed Mactan Over the
expected to substitute their personal biases for the legislative will, especially when the 1987
Constitution itself promotes the principle of local autonomy.
Precedents Now Relied Upon

Article II. Declaration of Principles and State Policies

By the Majority

xxx
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
Sec. 25. The State shall ensure the autonomy of local governments. 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
Article X. Local Government
could not be taxed by a city government. To that end, Basco was cited by NPC. The Court had
this to say about Basco.

Page 115 of 139

xxx[T]he doctrine in Basco v. 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) v. 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
Page 116 of 139
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. Dade48 ruled 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 exempt due to some overarching principle of law, then it would be a redundancy or surplusage
ostensible precedent. Perhaps the majority does not simply know how to dispense with the ruling to grant an exemption to an already exempt entity. This fact militates against the claim that MIAA
in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more honorable is preternaturally exempt from realty taxes, since it required the enactment of an express
end than death by amnesia or ignonominous disregard. The majority could have devoted its exemption from such taxes in its charter.
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
Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government
would provide some degree of intellectual clarity for the parties, LGUs and the national
instrumentalities are not taxable persons unless they lease their properties to a taxable person.
government, students of jurisprudence and practitioners. A more meaningful debate on the
The general rule laid down in Section 232 is given short shrift. In arriving at this conclusion,
matter would have been possible, enriching the study of law and the intellectual dynamic of this
several leaps in reasoning are committed.
Court.

Majority's Flawed Definition

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 of GOCCs.
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
The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality.
properties without prior approval elsewhere.54 Both of them are
However, and quite grievously, the supposed foundation of this assertion is an adulteration.

not empowered to obtain loans or encumber their properties without prior approval the prior
The majority gives the impression that a government instrumentality is a distinct concept from a
approval of the President.55
government corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10)
of the Administrative Code of 1987, as follows:
III.
Instrumentality refers to any agency of the National Government not integrated within the
Instrumentalities, Agencies 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. xxx59 (emphasis omitted)
And GOCCs Generally

However, Section 2(10) of the Administrative Code, when read in full, makes an important
Liable for Real Property Tax
clarification which the majority does not show. The portions omitted by the majority are
highlighted below:
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
(10)Instrumentality refers to any agency of the National Government not integrated within the
inconvenient to even grapple with the precedent that is Mactan in the first place.
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,
Mactan held that the prohibition on taxing the national government, its agencies and usually through a charter. This term includes regulatory agencies, chartered institutions and
instrumentalities under Section 133 is qualified by Section 232 and Section 234, and government owned or controlled corporations.60
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
Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is
political subdivisions except when the beneficial use thereof has been granted, for consideration
also worth citing in full:
or otherwise, to a taxable person."

(4) Agency of the Government refers to any of the various units of the Government, including a
It should be noted that the express withdrawal of previously granted exemptions by the Local
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a
Government Code do not even make any distinction as to whether the exempt person is a
local government or a distinct unit therein. (emphasis supplied)61
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 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
The fact that the Local Government Code mandates the withdrawal of previously granted
provision, the material question is whether MIAA is either an instrumentality, an agency, or the
exemptions evinces certain key points. If an entity was previously granted an express exemption
National Government itself. The very provisions of the Administrative Code provide that a GOCC
from real property taxes in the first place, the obvious conclusion would be that such entity would
can be either an instrumentality or an agency, so why even bother to extensively discuss
ordinarily be liable for such taxes without the exemption. If such entities were already deemed
whether or not MIAA is a GOCC?cralawlibrary
Page 117 of 139
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)
Page 118 of 139
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
Page 119 of 139
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.
Page 120 of 139
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.
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?cralawlibrary
Novel Proviso in 1987 Constitution
Prescribing Standards in the
Creation of GOCCs Necessarily
Applies only to GOCCs Created
After 1987.
Page 121 of 139
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"?cralawlibrary
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 power to tax the national government, its agencies and
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:
Page 122 of 139
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 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.
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 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."
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:
Page 123 of 139
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
Page 124 of 139
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 exempted from
payment of the real property tax:
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
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. 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,118 which 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
Page 125 of 139
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
Page 126 of 139
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
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 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?cralawlibrary
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. v. 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 v. 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)
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

Page 127 of 139

xxx 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
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 Appeals 135 the There are several other reasons this statutory limitation should be upheld and applied to this
Court reaffirmed the ruling that the CAA was engaged in "private or non-governmental case. It is at this juncture that the importance of the Manila Airport to our national life and
functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA commerce may be accorded proper consideration. The closure of the airport, even by reason of
was engaged in private or non-governmental functions. These are more precedents ignored by MIAA's legal omission to pay its taxes, will have an injurious effect to our national economy,
the majority. The following observation from the Teodoro case very well applies to MIAA. 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
The Civil Aeronautics Administration comes under the category of a private entity. Although not
MIAA charter specifically forbids the sale or disposition of MIAA properties without the consent of
a body corporate it was created, like the National Airports Corporation, not to maintain a
the President. The prohibition prevents the peremptory closure of the MIAA or the hampering of
necessary function of government, but to run what is essentially a business, even if revenues be
its operations on account of the demands of its creditors. The airport is important enough to be
not its prime objective but rather the promotion of travel and the convenience of the traveling
sheltered by legislation from ordinary legal processes.
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
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
If the determinative point in distinguishing between sovereign functions and proprietary functions
personality, is still subsumed within the executive branch of government. The power of executive
is the vitality of the public service being performed, then it should be noted that there is no more
control by the President should be upheld so long as such exercise does not contravene the
important public service performed than that engaged in by public utilities. But notably, the
Constitution or the law, the President having the corollary duty to faithfully execute the
Constitution itself authorizes private persons to exercise these functions as it allows them to
Constitution and the laws of the land.142 In this case, the exercise of executive control is
operate public utilities in this country138 If indeed such functions are actually sovereign and
precisely recognized and authorized by the legislature, and it should be upheld even if it comes
belonging properly to the government, shouldn't it follow that the exercise of these tasks remain
at the expense of limiting the power of local government units to collect real property taxes.
within the exclusive preserve of the State?cralawlibrary

Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA
There really is no prohibition against the government taxing itself,139 and nothing obscene with
properties could not be subject of execution sale without the consent of the President, I suspect
allowing government entities exercising proprietary functions to be taxed for the purpose of
that the parties would feel little distress. Through such action, both the Local Government Code
raising the coffers of LGUs. On the other hand, it would be an even more noxious proposition
and the MIAA charter would have been upheld. The prerogatives of LGUs in real property
that the government or the instrumentalities that it owns are above the law and may refuse to
taxation, as guaranteed by the Local Government Code, would have been preserved, yet the
pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and
concerns about the ruinous effects of having to close the Manila International Airport would have
not sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that
been averted. The parties would then be compelled to try harder at working out a compromise, a
it is imbued with some of the attributes of government.
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
VII. thousands of LGUs in the country.

MIAA Property Not Subject to Execution Sale Without Consent Of the President. VIII.

Despite the fact that the City of Parañaque ineluctably has the power to impose real property Summary of Points
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,
My points may be summarized as follows:
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 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
Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be
from local taxes even if previously granted an exemption. The only exemptions from local taxes
deemed as repealing this prohibition under Section 3, even if it effectively forecloses one
are those specifically provided under the Local Government Code itself, or those enacted
possible remedy of the LGU in the collection of delinquent real property taxes. While the Local
through subsequent legislation.
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 2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and
on one hand the MIAA to local taxes but on the other hand shielding its properties from any form GOCCs are generally liable for real property taxes. The only exemptions therefrom under the

Page 128 of 139

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
Page 129 of 139
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.
G.R. No. 193462, February 04, 2014
DENNIS A.B. FUNA, Petitioner, v. MANILA ECONOMIC AND CULTURAL OFFICE AND THE
COMMISSION ON AUDIT, Respondents.
DECISION
PEREZ, J.:
This is a petition for mandamus1 to compel:
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila Economic
and Cultural Office (MECO), and
2.) the MECO to submit to such audit and examination.
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a
stalemate espousing competing assertions of sovereignty.3 On one hand is the communist
People’s Republic of China (PROC) which controls the mainland territories, and on the other
hand is the nationalist Republic of China (ROC) which controls the island of Taiwan. For a better
part of the past century, both the PROC and ROC adhered to a policy of “One China” i.e., the
view that there is only one legitimate government in China, but differed in their respective
interpretation as to which that government is.4
With the existence of two governments having conflicting claims of sovereignty over one country,
came the question as to which of the two is deserving of recognition as that country’s legitimate
Page 130 of 139
government. Even after its relocation to Taiwan, the ROC used to enjoy diplomatic recognition
from a majority of the world’s states, partly due to being a founding member of the United
Nations (UN).5 The number of states partial to the PROC’s version of the One China policy,
however, gradually increased in the 1960s and 70s, most notably after the UN General
Assembly adopted the monumental Resolution 2758 in 1971.6 Since then, almost all of the
states that had erstwhile recognized the ROC as the legitimate government of China, terminated
their official relations with the said government, in favor of establishing diplomatic relations with
the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations with the government in Taiwan on
9 June 1975, when the country and the PROC expressed mutual recognition thru the Joint
Communiqué of the Government of the Republic of the Philippines and the Government of the
People’s Republic of China (Joint Communiqué).8
Under the Joint Communiqué, the Philippines categorically stated its adherence to the One
China policy of the PROC. The pertinent portion of the Joint Communiqué reads: 9
The Philippine Government recognizes the Government of the People’s Republic of China as
the sole legal government of China, fully understands and respects the position of the
Chinese Government that there is but one China and that Taiwan is an integral part of
Chinese territory, and decides to remove all its official representations from Taiwan
within one month from the date of signature of this communiqué. (Emphasis supplied)
The Philippines’ commitment to the One China policy of the PROC, however, did not preclude
the country from keeping unofficial relations with Taiwan on a “people–to–people”
basis.10 Maintaining ties with Taiwan that is permissible by the terms of the Joint Communiqué,
however, necessarily required the Philippines, and Taiwan, to course any such relations thru
offices outside of the official or governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines
maintained an unofficial relationship facilitated by the offices of the Taipei Economic and Cultural
Office, for the former, and the MECO, for the latter.11
The MECO12 was organized on 16 December 1997 as a non–stock, non–profit corporation under
Batas Pambansa Blg. 68 or the Corporation Code.13 The purposes underlying the incorporation
of MECO, as stated in its articles of incorporation,14 are as follows:
1. To establish and develop the commercial and industrial interests of Filipino
nationals here and abroad, and assist on all measures designed to promote and
maintain the trade relations of the country with the citizens of other foreign
countries;
2. To receive and accept grants and subsidies that are reasonably necessary in carrying
out the corporate purposes provided they are not subject to conditions defeatist for or
incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title real and personal properties
as may be necessary for the use and need of the corporation, and to dispose of the
same in like manner when they are no longer needed or useful; and
 4. To do and perform any and all acts which are deemed reasonably necessary to carry According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an
out the purposes. (Emphasis supplied) instrumentality under the Executive Order No. (EO) 292, s. 1987 or the Administrative Code: it is
a non–stock corporation vested with governmental functions relating to public needs; it is
controlled by the government thru a board of directors appointed by the President of the
From the moment it was incorporated, the MECO became the corporate entity “entrusted” by the
Philippines; and while not integrated within the executive departmental framework, it is
Philippine government with the responsibility of fostering “friendly” and “unofficial” relations with
nonetheless under the operational and policy supervision of the DTI.24 As petitioner
the people of Taiwan, particularly in the areas of trade, economic cooperation, investment,
substantiates:
cultural, scientific and educational exchanges.15 To enable it to carry out such responsibility, the
MECO was “authorized” by the government to perform certain “consular and other functions”
that relates to the promotion, protection and facilitation of Philippine interests in Taiwan.16 1. The MECO is vested with government functions. It performs functions that are
equivalent to those of an embassy or a consulate of the Philippine government. 25 A
reading of the authorized functions of the MECO as found in EO No. 15, s. 2001,
At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers
reveals that they are substantially the same functions performed by the Department of
(OFWs) in Taiwan; promotes the Philippines as a tourist and investment destination for the
Foreign Affairs (DFA), through its diplomatic and consular missions, per the
Taiwanese; and facilitates the travel of Filipinos and Taiwanese from Taiwan to the Philippines,
Administrative Code.26]
and vice versa.17

Facts Leading to the Mandamus Petition
On 23 August 2010, petitioner sent a letter18 to the COA requesting for a “copy of the latest
financial and audit report” of the MECO invoking, for that purpose, his “constitutional right to
information on matters of public concern.” The petitioner made the request on the belief that the
MECO, being under the “operational supervision” of the Department of Trade and Industry (DTI),
is a government owned and controlled corporation (GOCC) and thus subject to the audit
jurisdiction of the COA.19
Petitioner’s letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following
day.
20
On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum referring the
petitioner’s request to COA Assistant Commissioner Emma M. Espina for “further disposition.” In
this memorandum, however, Assistant Commissioner Naranjo revealed that the MECO was “not
among the agencies audited by any of the three Clusters of the Corporate Government
Sector.”21
2. The MECO is controlled by the government. It is the President of the Philippines that
actually appoints the directors of the MECO, albeit indirectly, by way of “desire letters”
addressed to the MECO’s board of directors.27 An illustration of this exercise is the
assumption by Mr. Antonio Basilio as chairman of the board of directors of the MECO
in 2001, which was accomplished when former President Gloria Macapagal–Arroyo,
through a memorandum28 dated 20 February 2001, expressed her “desire” to the
board of directors of the MECO for the election of Mr. Basilio as chairman. 29]
3. The MECO is under the operational and policy supervision of the DTI. The MECO was
placed under the operational supervision of the DTI by EO No. 328, s. of 2004, and
again under the policy supervision of the same department by EO No. 426, s. 2005. 30
To further bolster his position that the accounts of the MECO ought to be audited by the COA,
the petitioner calls attention to the practice, allegedly prevailing in the United States of America,
wherein the American Institute in Taiwan (AIT)—the counterpart entity of the MECO in the
United States—is supposedly audited by that country’s Comptroller General.31 Petitioner claims
that this practice had been confirmed in a decision of the United States Court of Appeals for the
District of Columbia Circuit, in the case of Wood, Jr., ex rel. United States of America v. The
American Institute in Taiwan, et al.32

On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its
The Position of the MECO
contents.

The MECO prays for the dismissal of the mandamus petition on procedural and substantial
Mandamus Petition
grounds.

Taking the 25 August 2010 memorandum as an admission that the COA had never audited and
On procedure, the MECO argues that the mandamus petition was prematurely filed.33
examined the accounts of the MECO, the petitioner filed the instant petition for mandamus on 8
September 2010. Petitioner filed the suit in his capacities as “taxpayer, concerned citizen, a
member of the Philippine Bar and law book author.”22 He impleaded both the COA and the The MECO posits that a cause of action for mandamus to compel the performance of a
MECO. ministerial duty required by law only ripens once there has been a refusal by the tribunal, board
or officer concerned to perform such a duty.34 The MECO claims that there was, in this case, no
such refusal either on its part or on the COA’s because the petitioner never made any demand
Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its duty
for it to submit to an audit by the COA or for the COA to perform such an audit, prior to filing the
under Section 2(1), Article IX–D of the Constitution to audit the accounts of an otherwise bona
instant mandamus petition.35 The MECO further points out that the only “demand” that the
fide GOCC or government instrumentality. It is the adamant claim of the petitioner that the
petitioner made was his request to the COA for a copy of the MECO’s latest financial and audit
MECO is a GOCC without an original charter or, at least, a government instrumentality, the
report—which request was not even finally disposed of by the time the instant petition was
funds of which partake the nature of public funds.23
filed.36

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On the petition’s merits, the MECO denies the petitioner’s claim that it is a GOCC or a
government instrumentality.37 While performing public functions, the MECO maintains that it is
not owned or controlled by the government, and its funds are private funds.38 The MECO
explains:
1. It is not owned or controlled by the government. Contrary to the allegations of the
petitioner, the President of the Philippines does not appoint its board of
directors.39 The “desire letter” that the President transmits is merely recommendatory
and not binding on the corporation.40 As a corporation organized under the
Corporation Code, matters relating to the election of its directors and officers, as well
as its membership, are governed by the appropriate provisions of the said code, its
articles of incorporation and its by–laws.41 Thus, it is the directors who elect the
corporation’s officers; the members who elect the directors; and the directors who
admit the members by way of a unanimous resolution. All of its officers, directors, and
members are private individuals and are not government officials.42]
2. The government merely has policy supervision over it. Policy supervision is a lesser
form of supervision wherein the government’s oversight is limited only to ensuring that
the corporation’s activities are in tune with the country’s commitments under the One
China policy of the PROC.43 The day–to–day operations of the corporation, however,
remain to be controlled by its duly elected board of directors. 44
The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can
potentially violate the country’s commitment to the One China policy of the PROC.45 Thus, the
MECO cautions against applying to the present mandamus petition the pronouncement in
the Wood decision regarding the alleged auditability of the AIT in the United States. 46
The Position of the COA
The COA, on the other hand, advances that the mandamus petition ought to be dismissed on
procedural grounds and on the ground of mootness.
The COA argues that the mandamus petition suffers from the following procedural defects:
1. The petitioner lacks locus standi to bring the suit. The COA claims that the petitioner
has not shown, at least in a concrete manner, that he had been aggrieved or
prejudiced by its failure to audit the accounts of the MECO.47]
2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA faults
the filing of the instant mandamus petition directly with this Court, when such petition
could have very well been presented, at the first instance, before the Court of Appeals
or any Regional Trial Court.48 The COA claims that the petitioner was not able to
provide compelling reasons to justify a direct resort to the Supreme Court. 49
At any rate, the COA argues that the instant petition already became moot when COA
Chairperson Maria Gracia M. Pulido–Tan (Pulido–Tan) issued Office Order No. 2011–69850 on 6
October 2011.51 The COA notes that under Office Order No. 2011–698, Chairperson Pulido–Tan
already directed a team of auditors to proceed to Taiwan, specifically for the purpose of auditing
the accounts of, among other government agencies based therein, the MECO. 52
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In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA
clarifies that it does not consider the former as a GOCC or a government instrumentality. On the
contrary, the COA maintains that the MECO is a non–governmental entity.53
The COA argues that, despite being a non–governmental entity, the MECO may still be audited
with respect to the “verification fees” for overseas employment documents that it collects from
Taiwanese employers on behalf of the DOLE.54 The COA claims that, under Joint Circular No.
3–99,55 the MECO is mandated to remit to the Department of Labor and Employment (DOLE) a
portion of such “verification fees.”56 The COA, therefore, classifies the MECO as a non–
governmental entity “required to pay xxx government share” subject to a partial audit of its
accounts under Section 26 of the Presidential Decree No. 1445 or the State Audit Code of the
Philippines (Audit Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non–governmental entity. However,
under existing laws, the accounts of the MECO pertaining to the “verification fees” it collects on
behalf of the DOLE as well as the fees it was authorized to collect under Section 2(6) of EO No.
15, s. 2001, are subject to the audit jurisdiction of the COA. Such fees pertain to the government
and should be audited by the COA.
I
We begin with the preliminary issues.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the instant mandamus petition,
occasioned by the COA’s issuance of Office Order No. 2011–698. The COA claims that by
issuing Office Order No. 2011–698, it had already conceded its jurisdiction over the accounts of
the MECO and so fulfilled the objective of the instant petition. 58 The COA thus urges that the
instant petition be dismissed for being moot and academic.59
We decline to dismiss the mandamus petition on the ground of mootness.
A case is deemed moot and academic when, by reason of the occurrence of a supervening
event, it ceases to present any justiciable controversy.60 Since they lack an actual controversy
otherwise cognizable by courts, moot cases are, as a rule, dismissible.61
The rule that requires dismissal of moot cases, however, is not absolute. It is subject to
exceptions. In David v. Macapagal–Arroyo,62 this Court comprehensively captured these
exceptions scattered throughout our jurisprudence:
The “moot and academic” principle is not a magical formula that can automatically dissuade the
courts in resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there
is a grave violation of the Constitution;63second, the exceptional character of the situation and
the paramount public interest is involved;64third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public; 65 and fourth, the
case is capable of repetition yet evading review.66
In this case, We find that the issuance by the COA of Office Order No. 2011–698 indeed
qualifies as a supervening event that effectively renders moot and academic the main prayer of
the instant mandamus petition. A writ of mandamus to compel the COA to audit the accounts of
the MECO would certainly be a mere superfluity, when the former had already obliged itself to
do the same.
Be that as it may, this Court refrains from dismissing outright the petition. We believe that
the mandamus petition was able to craft substantial issues presupposing the commission of a
grave violation of the Constitution and involving paramount public interest, which need to
be resolved nonetheless:
First. The petition makes a serious allegation that the COA had been remiss in its constitutional
or legal duty to audit and examine the accounts of an otherwise auditable entity in the MECO.
Second. There is paramount public interest in the resolution of the issue concerning the failure of
the COA to audit the accounts of the MECO. The propriety or impropriety of such a refusal is
determinative of whether the COA was able to faithfully fulfill its constitutional role as the
guardian of the public treasury, in which any citizen has an interest.
Third. There is also paramount public interest in the resolution of the issue regarding the legal
status of the MECO; a novelty insofar as our jurisprudence is concerned. We find that the status
of the MECO—whether it may be considered as a government agency or not—has a direct
bearing on the country’s commitment to the One China policy of the PROC.67
An allegation as serious as a violation of a constitutional or legal duty, coupled with the pressing
public interest in the resolution of all related issues, prompts this Court to pursue a definitive
ruling thereon, if not for the proper guidance of the government or agency concerned, then for
the formulation of controlling principles for the education of the bench, bar and the public
in general.68 For this purpose, the Court invokes its symbolic function.69
If the foregoing reasons are not enough to convince, We still add another:
Assuming that the allegations of neglect on the part of the COA were true, Office Order No.
2011–698 does not offer the strongest certainty that they would not be replicated in the future. In
the first place, Office Order No. 2011–698 did not state any legal justification as to why, after
decades of not auditing the accounts of the MECO, the COA suddenly decided to do so. Neither
does it state any determination regarding the true status of the MECO. The justifications
provided by the COA, in fact, only appears in the memorandum 70 it submitted to this Court for
purposes of this case.
Thus, the inclusion of the MECO in Office Order No. 2011–698 appears to be entirely dependent
upon the judgment of the incumbent chairperson of the COA; susceptible of being undone, with
or without reason, by her or even her successor. Hence, the case now before this Court is
dangerously capable of being repeated yet evading review.
Verily, this Court should not dismiss the mandamus petition on the ground of mootness.
Standing of Petitioner
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The second preliminary issue is concerned with the standing of the petitioner to file the
instant mandamus petition. The COA claims that petitioner has none, for the latter was not able
to concretely establish that he had been aggrieved or prejudiced by its failure to audit the
accounts of the MECO.71
Related to the issue of lack of standing is the MECO’s contention that petitioner has no cause of
action to file the instant mandamus petition. The MECO faults petitioner for not making any
demand for it to submit to an audit by the COA or for the COA to perform such an audit, prior to
filing the instant petition.72
We sustain petitioner’s standing, as a concerned citizen, to file the instant petition.
The rules regarding legal standing in bringing public suits, or locus standi, are already well–
defined in our case law. Again, We cite David, which summarizes jurisprudence on this point:73
By way of summary, the following rules may be culled from the cases decided by this Court.
Taxpayers, voters, concerned citizens, and legislators may be accorded standing to sue,
provided that the following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in
question;
(4) for concerned citizens, there must be a showing that the issues raised are
of transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon
their prerogatives as legislators.
We rule that the instant petition raises issues of transcendental importance, involved as they
are with the performance of a constitutional duty, allegedly neglected, by the COA. Hence, We
hold that the petitioner, as a concerned citizen, has the requisite legal standing to file the
instant mandamus petition.
To be sure, petitioner does not need to make any prior demand on the MECO or the COA in
order to maintain the instant petition. The duty of the COA sought to be compelled
by mandamus, emanates from the Constitution and law, which explicitly require, or “demand,”
that it perform the said duty. To the mind of this Court, petitioner already established his cause
of action against the COA when he alleged that the COA had neglected its duty in violation of
the Constitution and the law.
Principle of Hierarchy of Courts
The last preliminary issue is concerned with the petition’s non–observance of the principle of
hierarchy of courts. The COA assails the filing of the instant mandamus petition directly with this
Court, when such petition could have very well been presented, at the first instance, before the
Court of Appeals or any Regional Trial Court.74 The COA claims that the petitioner was not able
to provide compelling reasons to justify a direct resort to the Supreme Court.75
In view of the transcendental importance of the issues raised in the mandamus petition, as
earlier mentioned, this Court waives this last procedural issue in favor of a resolution on the
merits.76
II
To the merits of this petition, then.
The single most crucial question asked by this case is whether the COA is, under prevailing law,
mandated to audit the accounts of the MECO. Conversely, are the accounts of the MECO
subject to the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction of
the COA.
Under Section 2(1) of Article IX–D of the Constitution,77 the COA was vested with the “power,
authority and duty” to “examine, audit and settle” the “accounts” of the following entities:
1. The government, or any of its subdivisions, agencies and instrumentalities;
2. GOCCs with original charters;
3. GOCCs without original charters;
4. Constitutional bodies, commissions and offices that have been granted fiscal
autonomy under the Constitution; and
5. Non–governmental entities receiving subsidy or equity, directly or indirectly, from or
through the government, which are required by law or the granting institution to submit
to the COA for audit as a condition of subsidy or equity.78
The term “accounts” mentioned in the subject constitutional provision pertains to the “revenue,”
“receipts,” “expenditures” and “uses of funds and property” of the foregoing entities.79
Complementing the constitutional power of the COA to audit accounts of “non–governmental
entities receiving subsidy or equity xxx from or through the government” is Section 29(1)80 of the
Audit Code, which grants the COA visitorial authority over the following non–governmental
entities:
1. Non–governmental entities “subsidized by the government”;
2. Non–governmental entities “required to pay levy or government share”;
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3. Non–governmental entities that have “received counterpart funds from the
government”; and
4. Non–governmental entities “partly funded by donations through the government.”
Section 29(1) of the Audit Code, however, limits the audit of the foregoing non–governmental
entities only to “funds xxx coming from or through the government.”81 This section of the Audit
Code is, in turn, substantially reproduced in Section 14(1), Book V of the Administrative Code. 82
In addition to the foregoing, the Administrative Code also empowers the COA to examine and
audit “the books, records and accounts” of public utilities “in connection with the fixing of rates of
every nature, or in relation to the proceedings of the proper regulatory agencies, for purposes of
determining franchise tax.”83
Both petitioner and the COA claim that the accounts of the MECO are within the audit jurisdiction
of the COA, but vary on the extent of the audit and on what type of auditable entity the MECO is.
The petitioner posits that all accounts of the MECO are auditable as the latter is a bona
fide GOCC or government instrumentality.84 On the other hand, the COA argues that only the
accounts of the MECO that pertain to the “verification fees” it collects on behalf of the DOLE are
auditable because the former is merely a non–governmental entity “required to pay xxx
government share” per the Audit Code.85
We examine both contentions.
The MECO Is Not a GOCC or
Government Instrumentality
We start with the petitioner’s contention.
Petitioner claims that the accounts of the MECO ought to be audited by the COA because the
former is a GOCC or government instrumentality. Petitioner points out that the MECO is a non–
stock corporation “vested with governmental functions relating to public needs”; it is “controlled
by the government thru a board of directors appointed by the President of the Philippines”; and it
operates “outside of the departmental framework,” subject only to the “operational and policy
supervision of the DTI.”86 The MECO thus possesses, petitioner argues, the essential
characteristics of a bona fide GOCC and government instrumentality.87
We take exception to petitioner’s characterization of the MECO as a GOCC or government
instrumentality. The MECO is not a GOCC or government instrumentality.
Government instrumentalities are agencies of the national government that, by reason of some
“special function or jurisdiction” they perform or exercise, are allotted “operational autonomy”
and are “not integrated within the department framework.”88 Subsumed under the rubric
“government instrumentality” are the following entities:89
1. regulatory agencies,
2. chartered institutions,
3. government corporate entities or government instrumentalities with corporate
powers (GCE/GICP),90 and
4. GOCCs
The Administrative Code defines a GOCC:91
(13) Government–owned or controlled corporation refers to any agency organized as a stock or
non–stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty–one (51) per cent of its capital stock: x x x.
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the
GOCC Governance Act of 2011, to wit:92
(o) Government–Owned or –Controlled Corporation (GOCC) refers to any agency organized as
a stock or non–stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government of the Republic of the
Philippines directly or through its instrumentalities either wholly or, where applicable as in the
case of stock corporations, to the extent of at least a majority of its outstanding capital stock: x x
x.
GOCCs, therefore, are “stock or non–stock” corporations “vested with functions relating to public
needs” that are “owned by the Government directly or through its instrumentalities.”93 By
definition, three attributes thus make an entity a GOCC: first, its organization as stock or non–
stock corporation;94second, the public character of its function; and third, government ownership
over the same.
Possession of all three attributes is necessary to deem an entity a GOCC.
In this case, there is not much dispute that the MECO possesses the first and second attributes.
It is the third attribute, which the MECO lacks.
The MECO Is Organized as a Non–Stock Corporation
The organization of the MECO as a non–stock corporation cannot at all be denied. Records
disclose that the MECO was incorporated as a non–stock corporation under the Corporation
Code on 16 December 1977.95 The incorporators of the MECO were Simeon R. Roxas,
Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B. Ledesma, who also served as
the corporation’s original members and directors.96
The purposes for which the MECO was organized also establishes its non–profit character, to
wit:97
1. To establish and develop the commercial and industrial interests of Filipino
nationals here and abroad and assist on all measures designed to promote and
maintain the trade relations of the country with the citizens of other foreign
countries;
2. To receive and accept grants and subsidies that are reasonably necessary in carrying
out the corporate purposes provided they are not subject to conditions defeatist for or
incompatible with said purpose;
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3. To acquire by purchase, lease or by any gratuitous title real and personal properties
as may be necessary for the use and need of the corporation, and in like manner
when they are
4. To do and perform any and all acts which are deemed reasonably necessary to carry
out the purposes. (Emphasis supplied)
The purposes for which the MECO was organized are somewhat analogous to those of a trade,
business or industry chamber,98 but only on a much larger scale i.e., instead of furthering the
interests of a particular line of business or industry within a local sphere, the MECO seeks to
promote the general interests of the Filipino people in a foreign land.
Finally, it is not disputed that none of the income derived by the MECO is distributable as
dividends to any of its members, directors or officers.
Verily, the MECO is organized as a non–stock corporation.
The MECO Performs Functions with a Public Aspect.
The public character of the functions vested in the MECO cannot be doubted either. Indeed, to a
certain degree, the functions of the MECO can even be said to partake of the nature
of governmental functions. As earlier intimated, it is the MECO that, on behalf of the people of
the Philippines, currently facilitates unofficial relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was “authorized” by the Philippine
government to perform certain “consular and other functions” relating to the promotion,
protection and facilitation of Philippine interests in Taiwan.99 The full extent of such authorized
functions are presently detailed in Sections 1 and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in
Section 3 hereof, MECO is hereby authorized to assist in the performance of the following
functions:
1. Formulation and implementation of a program to attract and promote investments from
Taiwan to Philippine industries and businesses, especially in manufacturing, tourism,
construction and other preferred areas of investments;
2. Promotion of the export of Philippine products and Filipino manpower services, including
Philippine management services, to Taiwan;
3. Negotiation and/or assistance in the negotiation and conclusion of agreements or other
arrangements concerning trade, investment, economic cooperation, technology transfer, banking
and finance, scientific, cultural, educational and other modes of cooperative endeavors between
the Philippines and Taiwan, on a people–to–people basis, in accordance with established rules
and regulations;
4. Reporting on, and identification of, employment and business opportunities in Taiwan for the
promotion of Philippine exports, manpower and management services, and tourism;
5. Dissemination in Taiwan of information on the Philippines, especially in the fields of trade,
tourism, labor, economic cooperation, and cultural, educational and scientific endeavors;
6. Conduct of periodic assessment of market conditions in Taiwan, including submission of trade
statistics and commercial reports for use of Philippine industries and businesses; and
7. Facilitation, fostering and cultivation of cultural, sports, social, and educational exchanges
between the peoples of the Philippines and Taiwan.
SECTION 2. In addition to the above–mentioned authority and subject to the conditions stated in
Section 3 hereof, MECO, through its branch offices in Taiwan, is hereby authorized to perform
the following functions:
1. Issuance of temporary visitors’ visas and transit and crew list visas, and such other visa
services as may be authorized by the Department of Foreign Affairs;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance
with existing regulations, and provision of such other passport services as may be required
under the circumstances;
3. Certification or affirmation of the authenticity of documents submitted for authentication;
4. Providing translation services;
5. Assistance and protection to Filipino nationals and other legal/juridical persons working or
residing in Taiwan, including making representations to the extent allowed by local and
international law on their behalf before civil and juridical authorities of Taiwan; and
6. Collection of reasonable fees on the first four (4) functions enumerated above to defray the
cost of its operations.
A perusal of the above functions of the MECO reveals its uncanny similarity to some of the
functions typically performed by the DFA itself, through the latter’s diplomatic and consular
missions.100 The functions of the MECO, in other words, are of the kind that would otherwise be
performed by the Philippines’ own diplomatic and consular organs, if not only for the
government’s acquiescence that they instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a public aspect.
The MECO Is Not Owned or Controlled by the Government
Organization as a non–stock corporation and the mere performance of functions with a public
aspect, however, are not by themselves sufficient to consider the MECO as a GOCC. In order to
qualify as a GOCC, a corporation must also, if not more importantly, be owned by the
government.
The government owns a stock or non–stock corporation if it has controlling interest in the
corporation. In a stock corporation, the controlling interest of the government is assured by its
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ownership of at least fifty–one percent (51%) of the corporate capital stock.101 In a non–stock
corporation, like the MECO, jurisprudence teaches that the controlling interest of the government
is affirmed when “at least majority of the members are government officials holding such
membership by appointment or designation”102 or there is otherwise “substantial participation of
the government in the selection” of the corporation’s governing board.103
In this case, the petitioner argues that the government has controlling interest in the MECO
because it is the President of the Philippines that indirectly appoints the directors of the
corporation.104 The petitioner claims that the President appoints directors of the MECO thru
“desire letters” addressed to the corporation’s board.105 As evidence, the petitioner cites the
assumption of one Mr. Antonio Basilio as chairman of the board of directors of the MECO in
2001, which was allegedly accomplished when former President Macapagal–Arroyo, through a
memorandum dated 20 February 2001, expressed her “desire” to the board of directors of the
MECO for the election of Mr. Basilio as chairman.106
The MECO, however, counters that the “desire letters” that the President transmits are merely
recommendatory and not binding on it.107 The MECO maintains that, as a corporation organized
under the Corporation Code, matters relating to the election of its directors and officers, as well
as its membership, are ultimately governed by the appropriate provisions of the said code, its
articles of incorporation and its by–laws.108
As between the contrasting arguments, We find the contention of the MECO to be the one more
consistent with the law.
The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was
correct in postulating that, as a corporation organized under the Corporation Code, it is governed
by the appropriate provisions of the said code, its articles of incorporation and its by–laws. In this
case, it is the by–laws109 of the MECO that stipulates that its directors are elected by its
members; its officers are elected by its directors; and its members, other than the original
incorporators, are admitted by way of a unanimous board resolution, to wit:
SECTION II. MEMBERSHIP
Article 2. Members shall be classified as (a) Regular and (b) Honorary.
(a) Regular members – shall consist of the original incorporators and such other members who,
upon application for membership, are unanimously admitted by the Board of Directors.
(b) Honorary member – A person of distinction in business who as sympathizer of the objectives
of the corporation, is invited by the Board to be an honorary member.
SECTION III. BOARD OF DIRECTORS
Article 3. At the first meeting of the regular members, they shall organize and constitute
themselves as a Board composed of five (5) members, including its Chairman, each of whom as
to serve until such time as his own successor shall have been elected by the regular members in
an election called for the purpose. The number of members of the Board shall be increased to
seven (7) when circumstances so warrant and by means of a majority vote of the Board
members and appropriate application to and approval by the Securities and Exchange
Commission. Unless otherwise provided herein or by law, a majority vote of all Board members
present shall be necessary to carry out all Board resolutions.
During the same meeting, the Board shall also elect its own officers, including the designation of
the principal officer who shall be the Chairman. In line with this, the Chairman shall also carry
the title Chief Executive Officer. The officer who shall head the branch or office for the agency
that may be established abroad shall have the title of Director and Resident Representative. He
will also be the Vice–Chairman. All other members of the Board shall have the title of Director.
xxxx
SECTION IV. EXECUTIVE COMMITTEE
Article 5. There shall be established an Executive Committee composed of at least three (3)
members of the Board. The members of the Executive Committee shall be elected by the
members of the Board among themselves.
xxxx
SECTION VI. OFFICERS: DUTIES, COMPENSATION
Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice–
Chairman, Chief Finance Officer, and a Secretary. Except for the Secretary, who is appointed by
the Chairman of the Board, other officers and employees of the corporation shall be appointed
by the Board.
The Deputy Representative and other officials and employees of a branch office or agency
abroad are appointed solely by the Vice Chairman and Resident Representative concerned. All
such appointments however are subject to ratification by the Board.
It is significant to note that none of the original incorporators of the MECO were shown to be
government officials at the time of the corporation’s organization. Indeed, none of the members,
officers or board of directors of the MECO, from its incorporation up to the present day, were
established as government appointees or public officers designated by reason of their office.
There is, in fact, no law or executive order that authorizes such an appointment or designation.
Hence, from a strictly legal perspective, it appears that the presidential “desire letters” pointed
out by petitioner—if such letters even exist outside of the case of Mr. Basilio—are, no matter
how strong its persuasive effect may be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.
The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from
any other class of government instrumentality. The other government instrumentalities i.e., the
regulatory agencies, chartered institutions and GCE/GICP are all, by explicit or implicit definition,
creatures of the law.110 The MECO cannot be any other instrumentality because it was, as
mentioned earlier, merely incorporated under the Corporation Code.
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Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is
operating under the policy supervision of the DTI is no longer a relevant issue to be reckoned
with for purposes of this case.
For whatever it is worth, however, and without justifying anything, it is easy enough for this Court
to understand the rationale, or necessity even, of the executive branch placing the MECO under
the policy supervision of one of its agencies.
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was
not intended to operate as any other ordinary corporation. And it is not. Despite its private
origins, and perhaps deliberately so, the MECO was “entrusted”111 by the government with the
“delicate and precarious”112 responsibility of pursuing “unofficial”113 relations with the people of a
foreign land whose government the Philippines is bound not to recognize. The intricacy involved
in such undertaking is the possibility that, at any given time in fulfilling the purposes for which it
was incorporated, the MECO may find itself engaged in dealings or activities that can directly
contradict the Philippines’ commitment to the One China policy of the PROC. Such a scenario
can only truly be avoided if the executive department exercises some form of oversight, no
matter how limited, over the operations of this otherwise private entity.
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other
private corporations. From its over–reaching corporate objectives, its special duty and authority
to exercise certain consular functions, up to the oversight by the executive department over its
operations—all the while maintaining its legal status as a non–governmental entity—the
MECO is, for all intents and purposes, sui generis.
Certain Accounts of the MECO May
Be Audited By the COA.
We now come to the COA’s contention.
The COA argues that, despite being a non–governmental entity, the MECO may still be audited
with respect to the “verification fees” for overseas employment documents that the latter collects
from Taiwanese employers on behalf of the DOLE.114 The COA claims that, under Joint Circular
No. 3–99, the MECO is mandated to remit to the national government a portion of such
“verification fees.”115 The COA, therefore, classifies the MECO as a non–governmental entity
“required to pay xxx government share” per the Audit Code.116
We agree that the accounts of the MECO pertaining to its collection of “verification fees” is
subject to the audit jurisdiction of the COA. However, We digress from the view that such
accounts are the only ones that ought to be audited by the COA. Upon careful evaluation of the
information made available by the records vis–à–vis the spirit and the letter of the laws and
executive issuances applicable, We find that the accounts of the MECO pertaining to the fees it
was authorized to collect under Section 2(6) of EO No. 15, s. 2001, are likewise subject to
the audit jurisdiction of the COA.
Verification Fees Collected by the MECO
In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share in
the “verification fees” for overseas employment documents it collects on behalf of the DOLE.
The “verification fees” mentioned here refers to the “service fee for the verification of overseas
employment contracts, recruitment agreement or special powers of attorney” that the DOLE was
authorized to collect under Section 7 of EO No. 1022,118 which was issued by President
Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE
from the foreign employers of OFWs and are intended to be used for “the promotion of overseas
employment and for welfare services to Filipino workers within the area of jurisdiction
of [concerned] foreign missions under the administration of the [DOLE].”119
Joint Circular 3–99 was issued by the DOLE, DFA, the Department of Budget Management, the
Department of Finance and the COA in an effort to implement Section 7 of Executive Order No.
1022.120 Thus, under Joint Circular 3–99, the following officials have been tasked to be the
“Verification Fee Collecting Officer” on behalf of the DOLE:121
1. The labor attaché or duly authorized overseas labor officer at a given foreign post, as
duly designated by the DOLE Secretary;
2. n foreign posts where there is no labor attaché or duly authorized overseas labor
officer, the finance officer or collecting officer of the DFA duly deputized by the DOLE
Secretary as approved by the DFA Secretary;
3. In the absence of such finance officer or collecting officer, the alternate duly
designated by the head of the foreign post.
Since the Philippines does not maintain an official post in Taiwan, however, the DOLE entered
into a “series” of Memorandum of Agreements with the MECO, which made the latter the
former’s collecting agent with respect to the “verification fees” that may be due from Taiwanese
employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement between DOLE
and the MECO, the “verification fees” to be collected by the latter are to be allocated as follows:
(a) US$ 10 to be retained by the MECO as administrative fee, (b) US $10 to be remitted to the
DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO and DOLE. 123
Evidently, the entire “verification fees” being collected by the MECO are receivables of the
DOLE.124 Such receipts pertain to the DOLE by virtue of Section 7 of EO No. 1022.
Consular Fees Collected by the MECO
Aside from the DOLE “verification fees,” however, the MECO also collects “consular fees,” or
fees it collects from the exercise of its delegated consular functions.
The authority behind “consular fees” is Section 2(6) of EO No. 15, s. 2001. The said section
authorizes the MECO to collect “reasonable fees” for its performance of the following consular
functions:
1. Issuance of temporary visitors’ visas and transit and crew list visas, and such other
visa services as may be authorized by the DFA;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in
accordance with existing regulations, and provision of such other passport services as
may be required under the circumstances;
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3. Certification or affirmation of the authenticity of documents submitted for
authentication; and
4. Providing translation services.
Evidently, and just like the peculiarity that attends the DOLE “verification fees,” there is no
consular office for the collection of the “consular fees.” Thus, the authority for the MECO to
collect the “reasonable fees,” vested unto it by the executive order.
The “consular fees,” although held and expended by the MECO by virtue of EO No. 15, s. 2001,
are, without question, derived from the exercise by the MECO of consular functions—functions it
performs by and only through special authority from the government. There was never any doubt
that the visas, passports and other documents that the MECO issues pursuant to its authorized
functions still emanate from the Philippine government itself.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under
EO No. 15, s. 2001. They must be reasonable as the authorization requires. It is the government
that has ultimate control over the disposition of the “consular fees,” which control the
government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001 that such funds
may be kept by the MECO “to defray the cost of its operations.”
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be
Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non–
governmental entities “required to pay xxx or have government share” but only with respect to
“funds xxx coming from or through the government.” This provision of law perfectly fits the
MECO:
First. The MECO receives the “verification fees” by reason of being the collection agent of the
DOLE—a government agency. Out of its collections, the MECO is required, by agreement, to
remit a portion thereof to the DOLE. Hence, the MECO is accountable to the government for its
collections of such “verification fees” and, for that purpose, may be audited by the COA.
Second. Like the “verification fees,” the “consular fees” are also received by the
MECO through the government, having been derived from the exercise of consular functions
entrusted to the MECO by the government. Hence, the MECO remains accountable to the
government for its collections of “consular fees” and, for that purpose, may be audited by the
COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the
MECO and Section 2(6) of EO No. 15, s. 2001, vis–à–vis, respectively, the “verification fees”
and the “consular fees,” grant and at the same time limit the authority of the MECO to collect
such fees. That grant and limit require the audit by the COA of the collections thereby generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity
especially entrusted by the government with the facilitation of unofficial relations with the people
in Taiwan without jeopardizing the country’s faithful commitment to the One China policy of the
PROC. However, despite its non–governmental character, the MECO handles government funds
in the form of the “verification fees” it collects on behalf of the DOLE and the “consular fees” it
collects under Section 2(6) of EO No. 15, s. 2001. Hence, under existing laws, the accounts of
the MECO pertaining to its collection of such “verification fees” and “consular fees” should be
audited by the COA.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila

Economic and Cultural Office is hereby declared a non–governmental entity. However, the
accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former
collects on behalf of the Department of Labor and Employment, and the fees it was authorized
to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001, are subject to the
audit jurisdiction of the COA.

No costs.

SO ORDERED.

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