G.R. No.

181756 June 15, 2015

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner, vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.

This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade apart, on
the power of local government units to collect real property taxes from airport authorities located within their area, and
the nature or the juridical personality of said airport authorities.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to reverse
and set aside the October 8, 2007 Decision1 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360 and the
February 12, 2008 Resolution2 denying petitioner's motion for reconsideration.

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under
Republic Act No. 69583 to "undertake the economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City x x x and such other
airports as may be established in the Province of Cebu." It is represented in this case by the Office of the Solicitor
General. Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing under
its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her capacity as the
City Treasurer of respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic Act No. 6958:

Section 14. Tax Exemptions. The Authority shall be exempt from realty taxes imposed by the National Government
or any of its political subdivisions, agencies and instrumentalities: Provided, That no tax exemption herein granted
shall extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport Authority v.
Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160 (The Local Government
Code of 1991), petitioner was no longer exempt from real estate taxes. The Court held:

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. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising
the Mactan International Airport in the amount of 162,058,959.52. Petitioner complained that there were
discrepancies in said Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioners real properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental purposes.5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the amount of
151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots utilized solely and exclusively for
public or governmental purposes such as the airfield, runway and taxiway, and the lots on which they are situated.6

Petitioner paid respondent City the amount of four million pesos (4,000,000.00) monthly, which was later increased
to six million pesos (6,000,000.00) monthly. As of December 2003, petitioner had paid respondent City a total of
275,728,313.36.7

Upon request of petitioners General Manager, the Secretary of the Department of Justice (DOJ) issued Opinion No.
50, Series of 1998,8 and we quote the pertinent portions of said Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the airfield, runway, taxiway and
the lots on which the runway and taxiway are situated, the tax declarations of which were transferred in the name of the
MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions of the
Local Government Code.

It is your view that these properties are not subject to real property tax because they are exclusively used for airport
purposes. You said that the runway and taxiway are not only used by the commercial airlines but also by the Philippine
Air Force and other government agencies. As such and in conjunction with the above interpretation of Section 15 of
R.A. No. 6958, you believe that these properties are considered owned by the Republic of the Philippines. Hence, this
request for opinion.

The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield, runway, taxiway and the
lots on which the runway and taxiway are situated) are owned by the Republic of the Philippines.
xxxx

Under the Law on Public Corporations, the legislature has complete control over the property which a municipal
corporation has acquired in its public or governmental capacity and which is devoted to public or governmental use.
The municipality in dealing with said property is subject to such restrictions and limitations as the legislature may
impose. On the other hand, property which a municipal corporation acquired in its private or proprietary capacity, is
held by it in the same character as a private individual. Hence, the legislature in dealing with such property, is subject
to the constitutional restrictions concerning property (Martin, Public Corporations [1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of properties transferred to the
MCIAA and used for airport purposes, such as those involved herein. Since such properties are of public dominion,
they are deemed held by the MCIAA in trust for the Government and can be alienated only as may be provided by law.

Based on the foregoing, it is our considered opinion that the properties used for airport purposes, such as the airfield,
runway and taxiway and the lots on which the runway and taxiway are located, are owned by the State or by the
Republic of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of titles
thereto may have been issued in the name of the MCIAA. (Emphases added.)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the City Treasurer of Lapu-
Lapu dated August 3, 1998,9 which reads:

The distinction as to which among the MCIAA properties are still considered "owned by the State or by the Republic
of the Philippines," such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of real property tax
exemption is hereby deemed tenable considering that the subject "airfield, runway, taxiway and the lots on which the
runway and taxiway are situated" appears to be the subject of real property tax assessment and collection of the city
government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction of Lapu-Lapu City. Moreover,
then Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st Indorsement dated May 18, 1998,
advanced that "this Department (DOF) interposes no objection to the request of Mactan Cebu International Airport Authority
for exemption from payment of real property tax on the property used for airport purposes" mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject airfield, runway, taxiway and
the lots on which the runway and taxiway are situated, from the "Taxable Roll" to the "Exempt Roll" of real properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate action. (Emphases added.)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to the year
2002 reflecting the amount of 246,395,477.20. Petitioner claimed that the statement again included the lots utilized
solely and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which these are
built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner.10

Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer for the
issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-L.
Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought to enjoin
respondent City from issuing a warrant of levy against petitioners properties and from selling them at public auction
for delinquency in realty tax obligations. The petition likewise prayed for a declaration that the airport terminal
building, the airfield, runway, taxiway and the lots on which they are situated are exempted from real estate taxes after
due hearing. Petitioner based its claim of exemption on DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on December10, 2003, respondent City
auctioned 27 of petitioners properties. As there was no interested bidder who participated in the auction sale,
respondent City forfeited and purchased said properties. The corresponding Certificates of Sale of Delinquent Property
were issued to respondent City.12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance authorizing
the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for its nonpayment.
Petitioner argued that without the corresponding tax ordinances, respondent City could not impose and collect real
property tax, an additional tax for the SEF, and penalty interest from petitioner.13

The RTC issued an Order14 on December 28, 2004 granting petitioners application for a writ of preliminary injunction.
The pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation of the ownership of the
auctioned properties be placed on hold. Furthermore, it is the view of the Court that great prejudice and damage will be
suffered by petitioner if it were to lose its dominion over these properties now when the most important legal issue has
still to be resolved by the Court. Besides, the respondents and the intervenor have not sufficiently shown cause why
petitioners application should not be granted.

WHEREFORE, the foregoing considered, petitioners application for a writ of preliminary injunction is granted.
Consequently, upon the approval of a bond in the amount of one million pesos (1,000,000.00), let a writ of
preliminary injunction issue enjoining the respondents, the intervenor, their agents or persons acting in [their] behalf, to
desist from consolidating and exercising ownership over the properties of the petitioner.
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order 15 dated December
5, 2005. The RTC reasoned as follows:

The respondent City, in the courseof the hearing of its motion, presented to this Court a certified copy of its Ordinance
No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the collection of a rate of
one and one-half (1 1/2) [per centum] from owners, executors or administrators of any real estate lying within the
jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government Code of
1991), to the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec. 529 of RA 7160 x
x x [and the] Implementing Rules and Regulations of RA 7160 x x x.

xxxx

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected
is higher than the 2% interest allowed under Sec. 255 of the said law which provides:

In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of the
periods as provided in Section 250, or when due, as the case may be, shall subject the taxpayer to the payment of
interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax
shall have been fully paid: Provided, however, That in no case shall the total interest on the unpaid tax or portion
thereof exceed thirty-six (36) months.

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant
to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this disparity
is simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently,
respondent City [has] to recompute the petitioners tax liability.

It is also the Courts perception that respondent City can still collect the additional 1% tax on real property without an
ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special Education Fund which is
constituted from the proceeds of the additional tax on real property imposed by the law. Respondent City has collected
this tax as mandated by this law without any ordinance for the purpose, as there is no need for it. Even when RA 5447
was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax, as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2) which
concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the additional 1% tax on
real property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed;
there is only a partial repeal.

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the
additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-
reaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place the
collection of the tax at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.

As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition, the Court
deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts which are yet to be
established.

x x x [T]he Courts issuance of a writ of preliminary injunction may appear to be a futile gesture in the light of Section
263 of RA 7160. x x x.

xxxx

It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year period,
ownership fully vests on the local government unit concerned. Thus, when in the present case petitioner failed to
redeem the parcels of land acquired by respondent City, the ownership thereof became fully vested on respondent City
without the latter having to perform any other acts to perfect its ownership. Corollary thereto, ownership on the part of
respondent City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents motion for reconsideration is granted, and the
order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the writ of preliminary injunction
issued by this Court is hereby lifted.

Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with urgent prayer for the
issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360. The Court of Appeals
(Cebu City) issued a TRO17 on January 5, 2006 and shortly thereafter, issued a writ of preliminary injunction 18 on
February 17, 2006.

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that petitioner is a
government-owned or controlled corporation and its properties are subject to realty tax. The dispositive portion of the
questioned Decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are
situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special
Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the
Local Government Code, respondent city can only collect an interest of 2% per month on the unpaid tax which
total interest shall, in no case, exceed thirty-six (36) months; c. We DECLARE the sale in public auction of the
aforesaid properties and the eventual forfeiture and purchase of the subject property by the respondent City of
Lapu-Lapu as NULL and VOID. However, petitioner MCIAAs property is encumbered only by a limited lien
possessed by the respondent City of Lapu-Lapu in accord with Section 257 of the Local Government
Code.19Petitioner filed a Motion for Partial Reconsideration20 of the questioned Decision covering only the
portion of said decision declaring that petitioner is a GOCC and, therefore, not exempt from the realty tax and
special education fund imposed by respondent City. Petitioner cited Manila International Airport Authority v.
Court of Appeals21 (the 2006 MIAA case) involving the City of Paraaque and the Manila International Airport
Authority. Petitioner claimed that it had been described by this Court as a government instrumentality, and that
it followed "as a logical consequence that petitioner is exempt from the taxing powers of respondent City of
Lapu-Lapu."22 Petitioner alleged that the 1996 MCIAA case had been overturned by the Court in the 2006
MIAA case. Petitioner thus prayed that it be declared exempt from paying the realty tax, special education
fund, and interest being collected by respondent City.

On February 12, 2008, the Court of Appeals denied petitioners motion for partial reconsideration in the questioned Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused to apply the
2006 MIAA case. The Court of Appeals wrote in the questioned Decision: "We find that our position is in line with the
coherent and cohesive interpretation of the relevant provisions of the Local Government Code on local taxation
enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the [2006] MIAA case."23

In the questioned Decision, the Court of Appeals held that petitioners airport terminal building, airfield, runway,
taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as follows:

Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local
autonomy, all natural and juridical persons, including government-owned or controlled corporations (GOCCs),
instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The
only exemptions from local taxes are those specifically provided under the Code itself, or those enacted through
subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemptions from local taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units. x x x.
xxxx

The above-stated provision, however, qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise provided herein."

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real property
tax. x x x.
xxxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous
exemptions granted to natural and juridical persons, including government-owned and controlled corporations, except
as provided therein. x x x.

xxxx

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the 2006 MIAA case, it finds
and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National Government, its
agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234 which "otherwise provided"; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons, whether
natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the Code. Further, the
last paragraph of Section 234 of the Code also unequivocally withdrew, upon the Codes effectivity, exemptions from
payment of real property taxes previously granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical person, it
follows that its exemption from such tax granted under Section 14 of R.A. 6958 has been withdrawn.

xxxx

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, 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 local government units 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 of the Code 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 of the LGC.

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only relevant exemption
now applicable to these bodies is what is now provided under Section 234(a) of the Code. It may be noted that the
express withdrawal of previously granted exemptions to persons from the payment of real property tax by the LGC
does not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193
and 234 of the Code both state, the withdrawal applies to "all persons, including GOCCs," thus encompassing the two
classes of persons recognized under our laws, natural persons and juridical persons.

xxxx

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been lengthily but
soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.

xxxx

Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA (and also
petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality based on Section 2(10)
of the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the majority justifies MIAAs
purported exemption on Section 133(o)of the Local Government Code which places "agencies and instrumentalities: as
generally exempt from the taxation powers of the LGUs. It further went on to hold that "By express mandate of the
Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities
like the MIAA." x x x.26 (Citations omitted.)

The Court of Appeals further cited Justice Tingas dissent in the 2006 MIAA case as well as provisions from petitioner
MCIAAs charter to show that petitioner is a GOCC.27 The Court of Appeals wrote:

These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations. Under its
charter, it has the power to acquire, possess and incur obligations. It also has the power to contract in its own name and
to acquire title to movable or immovable property. More importantly, it may likewise exercise powers of a corporation
under the Corporation Code. Moreover, based on its own allegation, it even recognized itself as a GOCC when it
alleged in its petition for prohibition filed before the lower court that it "is a body corporate organized and existing
under Republic Act No. 6958 x x x."

We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer challenge
the tax-exempt character of the properties since it is estopped from doing so when respondent City of Lapu-Lapu,
through its former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioners properties are exempt from
real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr., petitioners
subject properties, specifically the runway and taxiway, as exempt from taxes. However, as astutely pointed out by the
respondent city it "can never be in estoppel, particularly in matters involving taxes. It is a well-known rule that
erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of
the statute, and that the Government is never estopped by mistake or error on the part of its agents." 28 The Court of
Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for the imposition of
realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by law,
Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise [sanctioned] by
respondent Citys ordinance.29

The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance, Ordinance No.
44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of real property tax. The
relevant provision reads:

Chapter 5 Tax on Real Property Ownership

Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be collected from owners, executors
or administrators of any real estate lying within the territorial jurisdiction of the City of Lapu-Lapu, based on the
assessed value as shown in the latest revision.30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it remained
in force and effect, citing Section 529 of the LGC and Article 278 of the LGCs Implementing Rules and Regulations. 31

As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the additional
1% tax on real property even without an ordinance to this effect, as this is authorized by Republic Act No. 5447, as
amended by Presidential Decree No. 464 (the Real Property Tax Code), which does not require an enabling tax
ordinance. The Court of Appeals affirmed the RTCs ruling that Republic Act No. 5447 was still in force and effect
notwithstanding the passing of the LGC, as the latter only partially repealed the former law. What Section 534 of the
LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447, and not the entire law that created the Special
Education Fund.32 The repealed provisions referred to allocation of taxes on Virginia type cigarettes and duties on
imported leaf tobacco and the percentage remittances to the taxing authority concerned. The Court of Appeals, citing
The Commission on Audit of the Province of Cebu v. Province of Cebu, 33 held that "[t]he failure to add a specific
repealing clause particularly mentioning the statute to be repealed indicates that the intent was not to repeal any
existing law on the matter, unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and the
old laws."34 The Court of Appeals quoted the RTCs discussion on this issue, which we reproduce below:

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection of the
additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that this is a tax of far-
reaching importance, to require the passage of an ordinance in order that the tax may be collected would be to place the
collection of the tax at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.35 Regarding the penalty interest, the Court of Appeals
found that Section 30 of Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of the tax due
for a given year. Said provision reads:

Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for under this Chapter within the
time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%), without interest.36

The Court of Appeals however declared that after the effectivity of the Local Government Code, the respondent City
could only collect penalty surcharge up to the extent of 72%, covering a period of three years or 36 months, for the
entire delinquent property.37 This was lower than the 25% per annum surcharge imposed by Ordinance No. 44.38The
Court of Appeals affirmed

the findings of the RTC in the decision quoted below:

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty collected
is higher than the 2% allowed under Sec. 255 of the said law which provides:

xxxx

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44 pursuant
to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of this
disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax. Consequently,
respondent city will have to [recompute] the petitioners tax liability.39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that respondent City has
the power to impose real property taxes over petitioner, "it is also evident and categorical that, under Republic
Act No. 6958, the properties of petitioner MCIAA may not be conveyed or transferred to any person or entity
except to the national government."40 The relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

xxxx

(e) 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: Provided,
That any asset located in the Mactan International Airport important to national security shall not be subject to
alienation or mortgage by the Authority nor to transfer to any entity other than the National Government[.]

Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII of the Constitution and
other existing laws, rules and regulations on local or foreign borrowing, raise funds, either from local or international
sources, by way of loans, credit 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, subject to the prior approval of
the President of the Philippines.

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 asset or property of the Authority. The payment of the
loans or other indebtedness of the Authority may be guaranteed by the National Government subject to the approval of
the President of the Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter the absolute right to
dispose of its property to any person or entity except to the national government and it is not empowered to obtain
loans or encumber its property without the approval of the President." 41 The questioned Decision contained the
following conclusion:

With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively on
Congress. LGUs, through its 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. And one of the most significant provisions of the
LGC is the removal of the blanket inclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. The express withdrawal by the Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the petitioner Mactan-
Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person in view of the withdrawal of
the realty tax exemption that it previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and
categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons,
natural or juridical, are consistent with 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 and make them effective partners in the attainment of national goals.

However, in the case at bench, petitioner MCIAAs charter expressly bars the alienation or mortgage of its property to
any person or entity except to the national government. Therefore, while petitioner MCIAA is a taxable person for
purposes of real property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and owning these
properties by and through a public auction in order to satisfy petitioner MCIAAs tax liability.42 (Citations omitted.)

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioners motion for
reconsideration based on the following grounds:

First, the MCIAA case remains the controlling law on the matter as the same is the established precedent; not the
MIAA case but the MCIAA case since the former, as keenly pointed out by the respondent City of Lapu-Lapu, has not
yet attained finality as there is still yet a pending motion for reconsideration filed with the Supreme Court in the
aforesaid case.

Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be similarly invoked in the
case at bench. The said case cannot be considered as the "law of the case." The "law of the case" doctrine has been
defined as that principle under which determinations of questions of law will generally be held to govern a case
throughout all its subsequent stages where such determination has already been made on a prior appeal to a court of last
resort. It is merely a rule of procedure and does not go to the power of the court, and will not be adhered to where its
application will result in an unjust decision. It relates entirely to questions of law, and is confined in its operation to
subsequent proceedings in the same case. According to said doctrine, whatever has been irrevocably established
constitutes the law of the case only as to the same parties in the same case and not to different parties in an entirely
different case. Besides, pending resolution of the aforesaid motion for reconsideration in the MIAA case, the latter case
has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioners motion for reconsideration, this Court
resolves to deny the same as the matters raised therein had already been exhaustively discussed in the decision sought
to be reconsidered, and that no new matters were raised which would warrant the modification, much less reversal,
thereof.43 (Emphasis added, citations omitted.)
 PETITIONERS THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that petitioner,
while vested with corporate powers, is not considered a government-owned or controlled corporation, but is a
government instrumentality like the Manila International Airport Authority (MIAA), Philippine Ports Authority (PPA),
University of the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by respondent
City.44Petitioner alleges that Republic Act No. 6958 placed "a limitation on petitioners administration of its assets and
properties" as it provides under Section 4(e) that "any asset in the international airport important to national security
cannot be alienated or mortgaged by petitioner or transferred to any entity other than the National Government."45

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the following:

I PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE

HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES
IMPOSED BY RESPONDENT CITY OF LAPULAPU.

II THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD,

RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL
PROPERTY TAXES.

III RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY
APPROPRIATE ORDINANCE.

IV RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL
EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.

V RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANSANY ORDINANCE

MANDATING ITS IMPOSITION.46

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in Paranaque City for public use, while
MCIAA was organized to operate the international and domestic airport in Mactan for public use.
4. Both are attached agencies of the Department of Transportation and Communications.47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).

Section 3 of Executive Order No. 903 provides:

Sec. 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; x x x.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby established a body corporate
to be known as the Mactan-Cebu International Airport Authority which shall be attached to the Department of
Transportation and Communications. The principal office of the Authority shall be located at the Mactan International
Airport, Province of Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.

As to MIAAs purposes and objectives, Section 4 of Executive Order No. 903 reads:

Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and objectives:
(a) To help encourage and promote international and domestic air traffic in the Philippines as a means of making the
Philippines a center of international trade and tourism and accelerating the development of the means of transportation
and communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of airport accommodation
and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter, specifically
Section 3 of Republic Act No. 6958, which reads:
Section 3. Primary Purposes and Objectives. The Authority shall principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, hereinafter collectively referred to as the airports, and such other airports as may be
established in the Province of Cebu. In addition, it shall have the following objectives:
(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and Mindanao
regions as a means of making the regions centers of international trade and tourism, and accelerating the development
of the means of transportation and communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport
accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate government agencies, a
comprehensive and integrated policy and program for the Airport and to implement, review and update such policy and
program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary for
the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the Airport, and to control and/or supervise as may be necessary the construction of any structure or
the rendition of any services within the Airport;
(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;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works, appliances,
facilities or concessions or for any service provided by the Authority, subject to the approval of the Minister of
Transportation and Communications in consultation with the Minister of Finance, and subject further to the provisions
of Batas Pambansa Blg. 325 where applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness of the
government;
(m) To provide services, whether on its own or otherwise, within the Airport and the approaches thereof, which shall
include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and security of passengers,
visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly necessary, incidental or
conducive to the attainment of the purposes and objectives of the Authority, including the adoption of necessary
measures to remedy congestion in the Airport; and
(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.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No. 6958, as
shown in the provision quoted below:

Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:
(a) To formulate a comprehensive and integrated development policy and program for the airports and to implement,
review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary for
the efficient functioning of the airports;
(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the airports, and to control and supervise the construction of any structure or the rendition of any
service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as those powers
are not inconsistent with the provisions of this Act;
(e) 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: Provided,
That any asset located in the Mactan International Airport important to national security shall not be subject to
alienation or mortgage by the Authority nor to transfer to any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works, appliances, facilities
or concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport premises
for such measures as may be necessary to make the Authority more effective and efficient in the discharge of its
assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports and the approaches thereof as may be
necessary or in connection with the maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective charters
quoted below:

EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police authority as may be
necessary within its premises to carry out its functions and attain its purposes and objectives, without prejudice to the
exercise of functions within the same premises by the Ministry of National Defense through the Aviation Security
Command (AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required. x x x.

R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise such police authority as
may be necessary within its premises or areas of operation to carry out its functions and attain its purposes and
objectives: Provided, That the Authority may request the assistance of law enforcement agencies, including request for
deputization as may be required. x x x.

Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive Order
No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14, Republic Act
No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with their
activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958); and
4. Both have borrowing power subject to the approval of the President (Section 16, Executive Order No. 903; Section
13, Republic Act No. 6958).48

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case, placed it in
the same class as MIAA and considered it as a government instrumentality. Petitioner submits that since it is also a
government instrumentality like MIAA, the following conclusion arrived by the Court in the 2006 MIAA case is also
applicable to petitioner:

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
Paraaque.

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.49 (Emphases added.)

Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated are not subject to real property tax because they are actually, solely and exclusively used for
public purposes.50 They are indispensable to the operation of the Mactan International Airport and by their very nature,
these properties are exempt from tax. Said properties belong to the State and are merely held by petitioner in trust. As
earlier mentioned, petitioner claims that these properties are important to national security and cannot be alienated,
mortgaged, or transferred to any entity except the National Government.

Petitioner prays that judgment be rendered:

a) Declaring petitioner exempt from paying real property taxes as it is a government instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic real property tax, the
additional tax for the SEF and the penalty interest for its failure to pass the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real property taxes as they
are used solely and exclusively for public purpose.51

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned the 1996
MCIAA ruling. Petitioner cites Justice Dante O. Tingas dissent in the MIAA ruling, as follows:
[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 Courts
jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government Code.

x x x 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.

xxxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly
situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport.
They are the owners of airport properties they respectively maintain and hold title over these properties in their name.
These entities are both owned by the State, and denied by their respective charters the absolute right to dispose of their
properties without prior approval elsewhere. Both of them are not empowered to obtain loans or encumber their
properties without prior approval the prior approval of the President.52 (Citations omitted.)

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent Citys part that
it must have a tax measure to be able to impose a tax or special assessment. Petitioner avers that assuming that it is a
non-exempt entity or that its airport lands and buildings are not exempt, it was only upon the effectivity of Ordinance
No. 070-2007 on January 1,2008 that respondent City could properly impose the basic real property tax, the additional
tax for the SEF, and the interest in case of nonpayment.53

Petitioner filed its Memorandum54 on June 17, 2009.

RESPONDENTS THEORY

In their Comment,55 respondents point out that petitioner partially moved for a reconsideration of the questioned
Decision only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare that the other portions
of the questioned decision had already attained finality and ought not to be placed in issue in this petition for certiorari.
Thus, respondents discussed the other issues raised by petitioner with reservation as to this objection. Respondents
summarized the issues and the grounds relied upon as follows:

STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL

PROPERTY TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND
PENALTY INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE
LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT
4. CITY CAN COLLECT REALTY TAX AND INTEREST
5. CITY CAN COLLECT SEF
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56

Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make it the
controlling case on the matter."57 Respondents further claim that the 1996 MCIAA case where this Court held that
petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on
DOJ Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the following
statement in the 1996 MCIAA case applies:

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate
and national policy, no one can doubt its wisdom.58 Respondents argue that MCIAA properties such as the terminal
building, taxiway and runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case,
Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision also
provides that the transfer of ownership of the land to petitioner was absolute and petitioner cannot evade payment of
taxes.59

Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned Decision,
and thus the ruling pertaining to these issues in the questioned decision had become final, respondents still discussed its
side over its objections as to the propriety of bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein
the imposition of real property tax was made. This Ordinance was in force and effect by virtue of
Article 278 of the IRR of Republic Act No. 7160.60

c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real
property taxes, special education fund and further provided for the payment of interest and surcharges.
Thus, the issue is pass and is moot and academic.

3. Respondent City can collect Special Education Fund.

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.

b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be
covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions for the
levy and collection of the SEF.61

Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a. Respondents contend that the petition only questions the denial of the writ of preliminary injunction
by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.

b. Comparing the alleged damage that may be caused petitioner and the direct affront and challenge
against the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive relief
should be denied.

2. Petitioner did not comply with LGC provisions on payment under protest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of
Republic Act No. 7160. Section 252 of Republic Act No. 716062 requires that the taxpayers protest
can only be entertained if the tax is first paid under protest.63

Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the 1996 MCIAA case is still
good law, as shown by the following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that the doctrine has
breathed its last" and that the 1996 MCIAA case stands as precedent and is controlling on petitioner MCIAA.65

Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue of whether it is
not liable to pay real property taxes, special education fund (SEF), interests and/or surcharges. 66 Respondents argue
that the Court of Appeals was correct in declaring petitioner liable for realty taxes, etc., on the terminal building,
taxiway, and runway. Respondent City relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes the collection of
real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty taxes, special
education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA; [and]
6. Estoppel does not lie against the government.67
THIS COURTS RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots
on which they are situated, are not subject to real property tax and respondent City is not justified in collecting taxes
from petitioner over said properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a
GOCC. The 2006 MIAA case governs.

The Court of Appeals reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA
case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006
MIAA case on the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the 1996
MCIAA case is still good law.68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases, 69 still, in 2006, the
Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The 2006 MIAA case had, since the
promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or cited
in numerous cases by the Court.70 The decision became final and executory on November 3, 2006.71Furthermore, the
2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a Division. Hence,
the 1996 MCIAA case should be read in light of the subsequent and unequivocal ruling in the 2006 MIAA case.

To recall, in the 2006 MIAA case, we held that MIAAs airport lands and buildings are exempt from real estate tax
imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its real
properties being owned by the Republic of the Philippines, and these are exempt from real estate tax. Specifically
referring to petitioner, we stated as follows:

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.72 (Emphases ours.)

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws."73 We quote the extensive discussion of the Court that led to its finding that
MIAAs lands and buildings were exempt from real estate tax imposed by local governments:

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines
and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

xxxx

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However,
MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. - x x x (13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x.

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided
into shares. MIAA has no stockholders or voting shares. x x x

xxxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares and x
x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual
gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes,
like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public
utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as
follows:

SEC. 2. General Terms Defined. - x x x

(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.

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, police authority and the levying of fees and charges. 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."

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" will make its operation more
"financially viable."

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.74 (Emphases ours, citations omitted.)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local governments as
against the national government or its instrumentality:

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.- Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units. x x x.

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation
as one of the powers of local governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. x x x.

xxxx

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. x x x.75 (Emphases ours, citations omitted.)

The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the
public domain. The Court said:

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. x x x.

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports
and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of
the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State
or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties for public use. x x x.

xxxx

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 users 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 users tax is more equitable - a principle of taxation mandated in the 1987 Constitution.

The Airport Lands and Buildings of MIAA x x x 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.76 (Emphases supplied, citations omitted.)

The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of man.

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:

xxxx

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the object
of a contract, x x x.

xxxx
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject
of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the
auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. x x x.

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1) The President shall have
the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;

xxxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.77

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust for the Republic.
[Under] Section 48, Chapter 12, Book I of the Administrative Code [which] allows instrumentalities like MIAA to hold
title to real properties owned by the Republic."78

The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held that said provision
exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." 79 The Court emphasized,
however, that "portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from
real estate tax." The Court further held:

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. x x x.80

Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International Airport
Authority v. City of Pasay,81 thus:

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands and
buildings located in Paraaque City while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local government can impose real property
tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.

xxxx

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of
1987 uses the phrase "includes x x x government-owned or controlled corporations" which means that a government
"instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation." x x x.

xxxx

The fact that two terms have separate definitions means that while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify as a
"government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that
MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a
"government-owned or controlled corporation." x x x.

xxxx

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt
from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government units is
subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section 133(o) of the Local
Government Code, local government units have no power to tax instrumentalities of the national government like the
MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties. Furthermore, the airport
lands and buildings of MIAA are properties of public dominion intended for public use, and as such are exempt from
real property tax under Section 234(a) of the Local Government Code. However, under the same provision, if MIAA
leases its real property to a taxable person, the specific property leased becomes subject to real property tax. In this
case, only those portions of the NAIA Pasay properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay. (Emphases added, citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several other
government instrumentalities, among which was the Philippine Fisheries Development Authority. Thus, applying the
2006 MIAA ruling, the Court, in Philippine Fisheries Development Authority v. Court of Appeals,82 held:

On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the
national government. As such, it is generally exempt from payment of real property tax, except those portions which
have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities of
the national government. x x x.

xxxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it
is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock corporation.
Neither [is it] a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an 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. 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, the Authority which is tasked with the special public function to carry out the governments policy "to promote
the development of the countrys fishing industry and improve the efficiency in handling, preserving, marketing, and
distribution of fish and other aquatic products," exercises the governmental powers of eminent domain, and the power
to levy fees and charges. At the same time, the Authority exercises "the general corporate powers conferred by laws
upon private and government-owned or controlled corporations."

xxxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national government which is
liable to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in private
entities. 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.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions
leased to private persons.1wphi1 In case the Authority fails to pay the real property taxes due thereon, said portions
cannot be sold at public auction to satisfy the tax delinquency. x x x.

xxxx

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay real
property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to private
entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part thereof, being a
property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax
delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.) Another government
instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports Authority (PPA). Hence, in
Curata v. Philippine Ports Authority,83 the Court held that the PPA is similarly situated as MIAA, and ruled in this
wise:

This Courts disquisition in Manila International Airport Authority v. Court of Appeals ruling that MIAA is not a
government-owned and/or controlled corporation (GOCC), but an instrumentality of the National Government and thus
exempt from local taxation, and that its real properties are owned by the Republic of the Philippines is instructive. x
x x. These findings are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not a
GOCC for not having shares of stocks or members. Second, the docks, piers and buildings it administers are likewise
owned by the Republic and, thus, outside the commerce of man. Third, PPA is a mere trustee of these properties.
Hence, like MIAA, PPA is clearly a government instrumentality, an agency of the government vested with corporate
powers to perform efficiently its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may not be
garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be garnished and its
properties, being government properties, cannot be levied via a writ of execution pursuant to a final judgment, then the
trial court likewise cannot grant discretionary execution pending appeal, as it would run afoul of the established
jurisprudence that government properties are exempt from execution. What cannot be done directly cannot be done
indirectly. (Citations omitted.)

In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila 84 the Court found
that the GSIS was also a government instrumentality and not a GOCC, applying the 2006 MIAA case even though the
GSIS was not among those specifically mentioned by the Court as similarly situated as MIAA. The Court said:

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International Airport Authority v.
Court of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real properties
administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. x x x.

xxxx

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport
Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of man,
the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS being
similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained unchanged
even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the
LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSISs capital is not
divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to those who,
under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory members of the
system who are government employees. Its management is entrusted to a Board of Trustees whose members are
appointed by the President.

Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is but a mere trustee
of the subject properties which have either been ceded to it by the Government or acquired for the enhancement of the
system. This particular property arrangement is clearly shown by the fact that the disposal or conveyance of said
subject properties are either done by or through the authority of the President of the Philippines. x x x. (Emphasis
added, citations omitted.)

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as a
government instrumentality, as its properties are being used for public purposes, and should be exempt from real estate
taxes. This is not to derogate in any way the delegated authority of local government units to collect realty taxes, but to
uphold the fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar authorities, agencies, and instrumentalities, whether covered
by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation, which is
a necessary condition before an agency or instrumentalityis deemed a government-owned or controlled corporation.
Like MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It also has no
stockholders or voting shares. Republic Act No. 6958 provides:

Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized capital stock equal to
and consisting of:

(a) The value of fixed assets (including airport facilities, runways and equipment) and such other properties,
movable and immovable, currently administered by or belonging to the airports as valued on the date of the
effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial balance.1wphi1 Such
initial amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6)
months working capital requirement of the Authority, is hereby authorized to be appropriated in the General
Appropriations Act of the year following its enactment into law. Thereafter, the government contribution to the
capital of the Authority shall be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA 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, and are outside the commerce of man. This, unless petitioner leases its real property to a taxable person,
the specific property leased becomes subject to real property tax; in which case, only those portions of petitioners
properties which are leased to taxable persons like private parties are subject to real property tax by the City of Lapu-
Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the 2006 MIAA case,
and we quote:

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. x x x.

xxxx

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 Paraaque.

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.85 (Emphases added.) WHEREFORE, we hereby GRANT the petition. We REVERSE
and SET ASIDE the Decision dated October 8, 2007 and the Resolution dated February 12, 2008 of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for public purpose, consisting of the
airport terminal building, airfield, runway, taxiway and the lots on which they are situated, EXEMPT from real
property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education fund and
the penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-
Lapu on petitioner's properties, except the assessment covering the portions that petitioner has leased to private
parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual forfeiture and
purchase of the said properties by respondent City of Lapu-Lapu. We likewise declare VOID the
corresponding Certificates of Sale of Delinquent Property issued to respondent City of Lapu-Lapu.

SO ORDERED.
 G.R. No. 177131 June 7, 2011
BOY SCOUTS OF THE PHILIPPINES, Petitioner, vs. COMMISSION ON AUDIT, Respondent.

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 prohibition1 filed by the BSP under Rule 65 of the 1997 Rules of
Court. In this petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision, 2 its
February 21, 2007 Resolution,3 as well as all other issuances arising therefrom, and that all of the foregoing be
rendered null and void. 4

Antecedent Facts and Background of the Case

This case arose when the COA issued Resolution No. 99-0115 on August 19, 1999 ("the COA Resolution"), with the
subject "Defining the Commissions policy with respect to the audit of the Boy Scouts of the Philippines." In its
whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth
Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the
Philippines v. National Labor Relations Commission,6 the Supreme Court ruled that the BSP, as constituted under its
charter, was a "government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution"; and that
"the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code."7 The COA
Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:

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

xxxx

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall
be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research
Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team
audit approach.8 (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter 9 dated November 26, 1999 signed by the BSP
National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote:

It is the position of the BSP, with all due respect, that it is not subject to the Commissions jurisdiction on the following grounds:

1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations
Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored
on the "substantial Government participation" in the National Executive Board of the BSP. It is to be noted that
the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by
Presidential Decree 460.

However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs charter after the cited case
was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National
Executive Board of the BSP.

The said RA virtually eliminated the "substantial government participation" in the National Executive Board by
removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of
Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as
Chief Scout, over the members of the said Board.

The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the cases conclusion that
the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs.
NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized as stock
or non-stock corporations which the BSP, under its present charter, is not.

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

xxxx

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

It may be argued also that the BSP is not an "agency" of the Government. The 1987 Administrative Code, merely
referred the BSP as an "attached agency" of the DECS as distinguished from an actual line agency of departments that
are included in the National Budget. The BSP believes that an "attached agency" is different from an "agency."
Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the
Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or
local government or distinct unit therein.

Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive
department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal
subdivision or unit of any department (Section 2[8], Administrative Code).10

Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon,
Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of
Calbayog City.11

In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished
the BSP with a copy of the Memorandum13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General
Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the
Courts ruling in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law
eliminated the substantial government participation in the selection of members of the National Executive Board of the
BSP. The Memorandum further provides:

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

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

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with
the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.15

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that
a preliminary survey of its organizational structure, operations and accounting system/records shall be conducted on
November 21 to 22, 2000.16

Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with
Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA
in its questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration
but this was likewise denied under its questioned Resolution.17

This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining
order against the COA.

The Issue

As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COAs audit jurisdiction.

The Parties Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for
purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National
Labor Relations Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP
employees.18
While the BSP concedes that its functions do relate to those that the government might otherwise completely assume
on its own, it avers that this alone was not determinative of the COAs audit jurisdiction over it. The BSP further avers
that the Court in Boy Scouts of the Philippines v. National Labor Relations Commission "simply stated x x x that in
respect of functions, the BSP is akin to a public corporation" but this was not synonymous to holding that the BSP is a
government corporation or entity subject to audit by the COA. 19

The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government
has ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be
taken only within the context of that case; that the Court had categorically found that its assets were acquired from the
Boy Scouts of America and not from the Philippine government, and that its operations are financed chiefly from
membership dues of the Boy Scouts themselves as well as from property rentals; and that "the BSP may correctly be
characterized as non-governmental, and hence, beyond the audit jurisdiction of the COA." It further claims that the
designation by the Court of the BSP as a government agency or instrumentality is mere obiter dictum.20

The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of BSP has come to be
overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of
Education, Culture and Sports."21 It cites Philippine Airlines Inc. v. Commission on Audit22 wherein the Court declared
that, "PAL, having ceased to be a government-owned or controlled corporation is no longer under the audit jurisdiction
of the COA."23 Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event
that changed the BSPs corporate identity in the same way that the governments privatization program changed
PALs, the BSP makes the case that the government no longer has control over it; thus, the COA cannot use the Boy
Scouts of the Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction and the
issuance of COA Resolution No. 99-011.24 The BSP further claims as follows:

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

xxxx

As stated in petitioners third argument, BSPs assets and funds were never acquired from the government. Its
operations are not in any way financed by the government, as BSP has never been included in any appropriations act
for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of
government property or funds; nor have properties of the government been held in trust by BSP. This is precisely the
reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x.25

To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation;
neither is it an instrumentality, agency, or subdivision of the government.

In its Comment,26 the COA argues as follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose
functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the
moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably
prove that it is a government agency.
2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit
authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled corporation
and government instrumentality.27

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism,
courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and
discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends
that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which
created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign functions.28

The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission
even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an
attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government;
and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced
under the term government instrumentality.29

The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to
the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes, 30 wherein the
Court held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640,
designates it as one. Furthermore, the COA quotes the Court as saying in that case:

In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign functions.
These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public sovereign
nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of country.

xxxx

Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have
been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues
and lease rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation.
The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP
is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's
incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous
application of the law by public officers does not bar a subsequent correct application of the law.31(Citations omitted.)

The COA points out that the government is not precluded by law from extending financial support to the BSP and
adding to its funds, and that "as a government instrumentality which continues to perform a vital function imbued with
public interest and reflective of the governments policy to stimulate patriotic sentiments and love of country, the
BSPs funds from whatever source are public funds, and can be used solely for public purpose in pursuance of the
provisions of Republic Act No. [7278]."32

The COA claims that the fact that it has not yet audited the BSPs funds may not bar the subsequent exercise of its
audit jurisdiction.

The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory designation as a "public corporation" and
the public character of its purpose and functions are not determinative of the COAs audit jurisdiction; reiterating its
stand that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because
the aspect of government ownership and control has been removed by Republic Act No. 7278; and concluding that the
funds and property that it either owned or held in trust are not public funds and are not subject to the COAs audit
jurisdiction.

Thereafter, considering the BSPs claim that it is a private corporation, this Court, in a Resolution34 dated July 20,
2010, required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective
comments on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional.

In compliance with the Courts resolution, the parties filed their respective Comments.

In its Comment35 dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as
amended, is not determinative of the resolution of the present controversy on the COAs audit jurisdiction over
petitioner, and in fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial inquiry
may be made, as set forth in Commissioner of Internal Revenue v. Court of Tax Appeals, 36 have not been fully
met.37 Moreover, the COA maintains that behind every law lies the presumption of constitutionality.38 The COA
likewise argues that contrary to the BSPs position, repeal of a law by implication is not favored. 39 Lastly, the COA
claims that there was no violation of Section 16, Article XII of the 1987 Constitution with the creation or declaration of
the BSP as a government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit,40 the COA further alleges:

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. x x x.41

For its part, in its Comment42 filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No.
111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the
Constitution. The BSP alleges that "while [it] is not a public corporation within the purview of COAs audit
jurisdiction, neither is it a private corporation created by special law falling within the ambit of the constitutional
prohibition x x x."43 The BSP further alleges:

Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus:

xxxx
A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth, specifically
of young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner redounds to the
benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that petitioners purpose and
functions are more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization
without any distinction. It does not limit its membership to a particular class of boys. Petitioners members are trained in
scoutcraft and taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, preparing them to become model citizens and outstanding leaders of the country.44

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the
audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an
entity may be subject of said jurisdiction.45 It avers that it merely stated in its Reply that the withdrawal of government
control is akin to privatization, but it does not necessarily mean that petitioner is a private corporation. 46The BSP
claims that it has a unique characteristic which "neither classifies it as a purely public nor a purely private
corporation";47 that it is not a quasi-public corporation; and that it may belong to a different class altogether.48

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

Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear
showing of its repugnancy to the Constitution.51

The Ruling of the Court

After looking at the legislative history of its amended charter and carefully studying the applicable laws and the
arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COAs audit
jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create a Public
Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes" created the BSP
as a "public corporation" to serve the following public interest or purpose:

Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies,
the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral
values, using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided
substantial changes in the BSP organizational structure. Pertinent provisions are quoted below:

Section II. Section 5 of the said Act is also amended to read as follows:

The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President
of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the
Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout
Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary
of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the
Secretary of Local Government and Community Development; (f) an equal number of individuals from the private
sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout
Region to represent the boy membership; and (i) three representatives of the cultural minorities. Except for the
Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts
of their respective regions, all members of the National Executive Board shall be either by appointment or cooption,
subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive
Board shall be filled by a majority vote of the remaining members, subject to ratification and confirmation by the Chief
Scout. The by-laws may prescribe the number of members of the National Executive Board necessary to constitute a quorum
of the board, which number may be less than a majority of the whole number of the board. The National Executive Board
shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this
purpose, may authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 "by
strengthening the volunteer and democratic character" of the BSP and reducing government representation in its
governing body, as follows:

Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts;
to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as
shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise,
bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to
have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities,
municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with
this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of
regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this
Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue
certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and
not for pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies,
the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral
values, using the method which are in common use by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4 shall
read as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall consist of a National Executive Board, the members of which
shall be Filipino citizens of good moral character. The Board shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of the National
Council at its meeting called for this purpose;
"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout
councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman need
not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout delegates of
the local scout councils to the scout youth forums in their respective areas, in its meeting called for this purpose, to
represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be elected by
the members of the National Executive Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e)
and (f) at the organizational meeting of the newly reconstituted National Executive Board which shall be held
immediately after the meeting of the National Council wherein the twelve (12) regular members and the one (1) charter
member were elected.

xxxx

"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by
the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government
or by private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code

There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted
under Republic Act No. 7278, falls under the second classification. Article 44 reads:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose created by law; their
personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member.

The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article
45 of the Civil Code, which provides:

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating
or recognizing them.
Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning
partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy
declared in Article II, Section 13 of the Constitution, which reads:

ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their
physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism,
and encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate,
comes within the class of "public corporations" defined by paragraph 2, Article 44 of the Civil Code and governed by
the law which creates it, pursuant to Article 45 of the same Code.

The BSPs Classification Under the Administrative Code of 1987

The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the
Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative
Code of 1987, which states:

TITLE VI EDUCATION, CULTURE AND SPORTS

Chapter 8 Attached Agencies

SEC. 20. Attached Agencies. The following agencies are hereby attached to the Department:

xxxx

(12) Boy Scouts of the Philippines;

(13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987
as follows:

BOOK IV
THE EXECUTIVE BRANCH

Chapter 7 ADMINISTRATIVE RELATIONSHIP

SEC. 38. Definition of Administrative Relationship. Unless otherwise expressly stated in the Code or in other laws
defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as
follows:

xxxx

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

As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved
by having at least one representative of government in its governing board, which in the case of the BSP is the DECS
Secretary. In this sense, the BSP is not under government control or "supervision and control." Still this characteristic
does not make the attached chartered agency a private corporation covered by the constitutional proscription in
question.

Art. XII, Sec. 16 of the Constitution refers to "private corporations" created by government for proprietary or
economic/business purposes
At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution,
entitled "National Economy and Patrimony." Section 1 of Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth;
a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

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

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations,
shall be encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration
of state policies and goals which pertains to national economy and patrimony and the interests of the people in
economic development.

Section 16, Article XII deals with "the formation, organization, or regulation of private corporations," 52 which should
be done through a general law enacted by Congress, provides for an exception, that is: if the corporation is government
owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The
rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on
Audit,53 in the following manner:

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other citizens.54 (Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of "private corporations" by
special law. The said constitutional provision should not be construed so as to prohibit the creation of public
corporations or a corporate agency or instrumentality of the government intended to serve a public interest or purpose,
which should not be measured on the basis of economic viability, but according to the public interest or purpose it
serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the
Administrative Code of 1987.

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability

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

Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution
recognizes only two classes of corporations: private corporations under a general law, and government-owned or
controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy
and Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the
constitutional policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces "a totally different species of corporation, which is
neither a private corporation nor a government owned or controlled corporation" and, in so doing, is missing the fact
that the BSP, "which was created as a non-stock, non-profit corporation, can only be either a private corporation or a
government owned or controlled corporation."

Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter,
was regarded as both a government owned or controlled corporation with original charter and a "public corporation."
The said case pertinently stated:
While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we
believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the Government in the selection of members of the National Executive
Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution.

We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the
attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is
defined as referring to any of the various units of the Government including a department, bureau, office,
instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein.
"Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner:

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

The same Code describes a "chartered institution" in the following terms:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges,
and the monetary authority of the State.

We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative
Code.

It thus appears that the BSP may be regarded as both a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution.
x x x.55(Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct
from private corporations and government owned or controlled corporation is best exemplified by the 1987
Administrative Code cited above, which we quote in part:

Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute,
shall require a different meaning:

xxxx

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

xxxx

(12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges
and the monetary authority of the State.

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

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

Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations

As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation
created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987.
It is not a private corporation which is required to be owned or controlled by the government and be economically
viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing "a new class of public corporation(s)" created by special
charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest
law of our land to distinguish between government corporations performing governmental functions and corporations
involved in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized.

MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of the grounds for
organizing government corporations. x x x.

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

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. x x x.

xxxx

THE PRESIDENT. Commissioner Quesada is recognized.

MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability?

THE PRESIDENT. Please proceed.

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all
benefits, including economic external as well as internal benefits. These are what they call externalities in economics,
so that these are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of
the country that are not quantifiable in financial terms. x x x.

xxxx

MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into
activities engaged in by corporations?

MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved that
there should be minimum government participation and intervention in the economy.

MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements when
the government would get into corporations. But this time around, we specifically mentioned economic viability. x x x.

MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment.

MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with
Commissioner Foz. During the past three decades, there had been a proliferation of government corporations, very few
of which have succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for
liquidation because they failed the economic test. x x x.

xxxx

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

MR. OPLE. That is part of the economic viability, Madam President.

MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-
controlled corporations were given to private hands, and that there will be more goods and services that will be
affordable and within the reach of the ordinary citizens?

MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation
in accordance with a special charter given by Congress. However, we are raising the standard a little bit so that, in the
future, corporations established by the government will meet the test of the common good but within that framework
we should also build a certain standard of economic viability.

xxxx

THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for
government-owned or controlled corporations, will these be in the pioneer fields or in places where the private
enterprise does not or cannot enter? Or is this so general that these government corporations can compete with private
corporations organized under a general law?

MR. MONSOD. Madam President, x x x. There are two types of government corporations those that are involved in
performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government
corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed
for corporations that want to go into business. First is for government corporations to first prove that they can be
efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of
activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the private
sector can do better.

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

MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private
enterprise is engaged in and can do better. x x x.56 (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions,
to which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this
constitutional ban on the creation of public corporations where the economic viability test would be irrelevant. The said
test would only apply if the corporation is engaged in some economic activity or business function for the government.

It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the
consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one
of the bills sponsors, Senator Joey Lina, described the BSP as follows:

Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should
be given this kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of
these two groups, I do not think there are other groups similarly situated.

The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how
huge the population of the young people is, at this point in time, and also considering the importance of having an
organization such as this that will inculcate moral uprightness among the young people, and further considering that the
development of these young people at that tender age of seven to sixteen is vital in the development of the country
producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines
from this general prohibition against providing tax exemption and privileges.57

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic
Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress "to return the BSP to the private
sector." It was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth
organization, which has been its partner in forming responsible citizens for decades.

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

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

The following is another excerpt from the discussion on the House version of the bill, in the Committee on
Government Enterprises:

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

xxxx

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

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

MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?

MR. ESCUDERO: Yes.

HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr. Chairman. x x x. 60 (Emphases
added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board,
this was done to more strongly promote the BSPs objectives, which were not supported under Presidential Decree No.
460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-
being of the youth, the future leaders of the country. The amendments were not done with the view of changing the
character of the BSP into a privatized corporation. The BSP remains an agency attached to a department of the
government, the DECS, and it was not at all stripped of its public character.

The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship
of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code
of 1987. The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary
sits at the BSP Board ex officio, thus facilitating the policy and program coordination between the BSP and the DECS.

Requisites for Declaration of Unconstitutionality Not Met in this Case

The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the
BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone
does not comply with the requisites for judicial review, which were clearly set forth in a recent case:

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

Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota,
or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be
ignored under the dissents rather overreaching view of how this case should have been decided. True, it was the Court
that asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court
chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a law.

Re: the COAs Jurisdiction

Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive
contributions or donations from the government. Section 8 reads:

Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by
the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the
Executive Board in pursuance of this Act.lawph!1

The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises
while the bill was being deliberated, and the pertinent portion of the discussion is quoted below:

MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman,
the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise
its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some
revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time,
Mr. Chairman, when we have special activities we request for assistance or financial assistance from government
agencies, from private business and corporations, but this is only during special activities that the Boy Scouts of the
Philippines would conduct during the year. Otherwise, we have to raise our own funds to support the organization.62

The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought up in said congressional
deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government
corporation classified as such, are your funds or your finances subjected to the COA audit?

MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall under the jurisdiction of the
COA.

HON. AQUINO: All right, but before were you?

MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas
and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual
a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was
and the Boy Scouts then because of this funding partly from government was being subjected to audit in the
contributions being made in the part of the Sweepstakes. But this was removed later during the Martial Law years with
the creation of the Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive
any funding from government, but then in the case of the local councils and this legislative charter, so to speak, enables
the local councils even the national headquarters in view of the provisions in the existing law to receive donations from
the government or any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private
corporation with the Securities and Exchange Commission. Government bodies would be estopped from making
donations to the Boy Scouts, which at present is not the case because there is the Boy Scouts charter, this
Commonwealth Act 111 as amended by PD 463.

xxxx

HON. AMATONG: Mr. Chairman, in connection with that.

THE CHAIRMAN: Yeah, Gentleman from Zamboanga.

HON. AMATONG: There is no auditing being made because theres no money put in the organization, but how about
donated funds to this organization? What are the remedies of the donors of how will they know how their money are
being spent?

MR. ESCUDERO: May I answer, Mr. Chairman?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to
submit a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise
is accounted for at the end of the year by our external auditor. In this case the SGV.63

Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused
thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under
the Constitution, which pertinently provides:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including
government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional
bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state
colleges and universities; (c) other government-owned or controlled corporations with original charters and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through
the Government, which are required by law of the granting institution to submit to such audit as a condition of subsidy
or equity. x x x. 64

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

WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.

SO ORDERED.
 G.R. No. 169752 September 25, 2007
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS, Petitioners, vs.
COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as Director of the Commission on
Audit), MS. MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their official capacities as Team Leader and Team
Member, respectively, of the audit Team of the Commission on Audit), Respondents.

Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court, in relation
to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-0211 dated September 14, 2005 issued
by the respondents which constituted the audit team, as well as its September 23, 2005 Letter2 informing the petitioner
that respondents audit team shall conduct an audit survey on the petitioner for a detailed audit of its accounts,
operations, and financial transactions. No temporary restraining order was issued.

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on
January 19, 1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of animal
aficionados and animal propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be to
enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and
generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote
their welfare.3

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence.
Act No. 1285 antedated both the Corporation Law and the constitution of the Securities and Exchange Commission.
Important to note is that the nature of the petitioner as a corporate entity is distinguished from the sociedad
anonimas under the Spanish Code of Commerce.

For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals,
the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare laws. In
addition, the petitioner was to share one-half (1/2) of the fines imposed and collected through its efforts for violations
of the laws related thereto. As originally worded, Sections 4 and 5 of Act No. 1285 provide:

SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of Manila, and not to exceed two
in each of the provinces of the Philippine Islands who shall have all the power and authority of a police officer to make
arrests for violation of the laws enacted for the prevention of cruelty to animals and the protection of animals, and to
serve any process in connection with the execution of such laws; and in addition thereto, all the police force of the
Philippine Islands, wherever organized, shall, as occasion requires, assist said society, its members or agents, in the
enforcement of all such laws.

SEC. 5. One-half of all the fines imposed and collected through the efforts of said society, its members or its agents, for
violations of the laws enacted for the prevention of cruelty to animals and for their protection, shall belong to said
society and shall be used to promote its objects.

(emphasis supplied)

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for
violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No. 148, 4 which reads, in its
entirety, thus:

Be it enacted by the National Assembly of the Philippines:

Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act Numbered Thirty five
hundred and forty-eight, is hereby further amended so as to read as follows:

Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and not to exceed one in
each municipality of the Philippines who shall have the authority to denounce to regular peace officers any violation of
the laws enacted for the prevention of cruelty to animals and the protection of animals and to cooperate with said peace
officers in the prosecution of transgressors of such laws.

Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals and for the protection
of animals, shall accrue to the general fund of the Municipality where the offense was committed.

Sec. 3. This Act shall take effect upon its approval.

Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated November 12,
1936, portions of which provide:

Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered One Hundred Forty
Eight was enacted depriving the agents of the Society for the Prevention of Cruelty to Animals of their power to arrest
persons who have violated the laws prohibiting cruelty to animals thereby correcting a serious defect in one of the laws
existing in our statute books.

xxxx

Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes, which the
Government is duty bound to enforce;

Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred upon me by the
Constitution, hereby decree, order, and direct the Commissioner of Public Safety, the Provost Marshal General as head
of the Constabulary Division of the Philippine Army, every Mayor of a chartered city, and every municipal president to
detail and organize special members of the police force, local, national, and the Constabulary to watch, capture, and
prosecute offenders against the laws enacted to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of the petitioner
to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November 18, 20035addressed to the
petitioner. The petitioner demurred on the ground that it was a private entity not under the jurisdiction of COA, citing
Section 2(1) of Article IX of the Constitution which specifies the general jurisdiction of the COA, viz:

Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and officers that have been granted fiscal autonomy under the Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or
through the government, which are required by law or the granting institution to submit to such audit as a condition of
subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission
may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts of the Government, and for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)

Petitioner explained thus:

a. Although the petitioner was created by special legislation, this necessarily came about because in January
1905 there was as yet neither a Corporation Law or any other general law under which it may be organized and
incorporated, nor a Securities and Exchange Commission which would have passed upon its organization and
incorporation.

b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the petitioner of
its power to make arrests, and that the petitioner lost its operational funding, underscore the fact that it
exercises no governmental function. In fine, the government itself, by its overt acts, confirmed petitioners
status as a private juridical entity.

The COA General Counsel issued a Memorandum6 dated May 6, 2004, asserting that the petitioner was subject to its
audit authority. In a letter dated May 17, 2004,7 respondent COA informed the petitioner of the result of the evaluation,
furnishing it with a copy of said Memorandum dated May 6, 2004 of the General Counsel.

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004,8 insisting that it
was a private domestic corporation.

Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13, 2004, 9affirmed
her earlier opinion that the petitioner was a government entity that was subject to the audit jurisdiction of respondent
COA. In a letter dated September 14, 2004, the respondent COA informed the petitioner of the result of the re-
evaluation, maintaining its position that the petitioner was subject to its audit jurisdiction, and requested an initial
conference with the respondents.

In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant Commissioner
Juanito Espino, Corporate Government Sector, that the audit survey was not conducted due to the refusal of the
petitioner because the latter maintained that it was a private corporation.

Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14, 2005 and the
COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds:

A. RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT PETITIONER IS
SUBJECT TO ITS AUDIT AUTHORITY.
 B. PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR
ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW
AVAILABLE TO IT.10

The essential question before this Court is whether the petitioner qualifies as a government agency that may be subject
to audit by respondent COA.

Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general law then
existing under which it may be organized or incorporated, it exercises no governmental functions because these have
been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public
corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of the Philippines, defined its powers and
purposes, and specifically stated that it was "An Act to Create a Public Corporation" in which, even as amended by
Presidential Decree No. 460, the law still adverted to the Boy Scouts of the Philippines as a "public corporation," all of
which are not obtaining in the charter of the petitioner; third, if it were a government body, there would have been no
need for the State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so exempted
strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered and covered
by the Social Security System at the latters initiative and not through the Government Service Insurance System,
which should have been the case had the employees been considered government employees; fifth, the petitioner does
not receive any form of financial assistance from the government, since C.A. No. 148, amending Section 5 of Act No.
1285, states that the "full amount of the fines, collected for violation of the laws against cruelty to animals and for the
protection of animals, shall accrue to the general fund of the Municipality where the offense was committed"; sixth,
C.A. No. 148 effectively deprived the petitioner of its powers to make arrests and serve processes as these functions
were placed in the hands of the police force; seventh, no government appointee or representative sits on the board of
trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that any act or
decision of the petitioner is subject to the approval of or control by any government agency, except to the extent that it
is governed by the law on private corporations in general; and finally, ninth, the Committee on Animal Welfare, under
the Animal Welfare Act of 1998, includes members from both the private and the public sectors.

The respondents contend that since the petitioner is a "body politic" created by virtue of a special legislation and
endowed with a governmental purpose, then, indubitably, the COA may audit the financial activities of the latter.
Respondents in effect divide their contentions into six strains: first, the test to determine whether an entity is a
government corporation lies in the manner of its creation, and, since the petitioner was created by virtue of a special
charter, it is thus a government corporation subject to respondents auditing power; second, the petitioner exercises
"sovereign powers," that is, it is tasked to enforce the laws for the protection and welfare of animals which "ultimately
redound to the public good and welfare," and, therefore, it is deemed to be a government "instrumentality" as defined
under the Administrative Code of 1987, the purpose of which is connected with the administration of government, as
purportedly affirmed by American jurisprudence; third, by virtue of Section 23,11Title II, Book III of the same Code,
the Office of the President exercises supervision or control over the petitioner; fourth, under the same Code, the
requirement under its special charter for the petitioner to render a report to the Civil Governor, whose functions have
been inherited by the Office of the President, clearly reflects the nature of the petitioner as a government
instrumentality; fifth, despite the passage of the Corporation Code, the law creating the petitioner had not been
abolished, nor had it been re-incorporated under any general corporation law; and finally, sixth, Republic Act No.
8485, otherwise known as the "Animal Welfare Act of 1998," designates the petitioner as a member of its Committee
on Animal Welfare which is attached to the Department of Agriculture.

In view of the phrase "One-half of all the fines imposed and collected through the efforts of said society," the Court, in
a Resolution dated January 30, 2007, required the Office of the Solicitor General (OSG) and the parties to comment on:
a) petitioner's authority to impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act No.
148 considering that there are no standard measures provided for in the aforecited laws as to the manner of
implementation, the specific violations of the law, the person/s authorized to impose fine and in what amount; and, b)
the effect of the 1935 and 1987 Constitutions on whether petitioner continues to exist or should organize as a private
corporation under the Corporation Code, B.P. Blg. 68 as amended.

Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that since they were
being represented by the OSG which filed its Comment, they opted to dispense with the filing of a separate one and
adopt for the purpose that of the OSG.

The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws; it only
enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the enforcement of animal welfare
laws; such privilege, however, was subsequently abolished by C.A. No. 148; that it continues to exist as a private
corporation since it was created by the Philippine Commission before the effectivity of the Corporation law, Act No.
1459; and the 1935 and 1987 Constitutions.

The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to impose fines for
violation of laws12 relating to the prevention of cruelty to animals and the protection of animals; that even prior to the
amendment of Act No. 1285, petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that
privilege to share in the fines collected; that petitioner is a public corporation and has continued to exist since Act No.
1285; petitioner was not repealed by the 1935 and 1987 Constitutions which contain transitory provisions maintaining
all laws issued not inconsistent therewith until amended, modified or repealed.
The petition is impressed with merit.

The arguments of the parties, interlaced as they are, can be disposed of in five points.

First, the Court agrees with the petitioner that the "charter test" cannot be applied.

Essentially, the "charter test" as it stands today provides:

[T]he test to determine whether a corporation is government owned or controlled, or private in nature is simple. Is it
created by its own charter for the exercise of a public function, or by incorporation under the general corporation
law? Those with special charters are government corporations subject to its provisions, and its employees are under
the jurisdiction of the Civil Service Commission, and are compulsory members of the Government Service Insurance
System. xxx (Emphasis supplied)13

The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime established by the 1935
Constitution, Section 7, Article XIII, which states:

Sec. 7. The National Assembly shall not, except by general law, provide for the formation, organization, or regulation
of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or
instrumentality thereof.14

The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of Article XII of
the present Constitution provides:

Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4 of Article
XIV of the 1973 Constitution.

During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing
proscription to prevent the pressure of special interests upon the lawmaking body in the creation of corporations or in
the regulation of the same. To permit the lawmaking body by special law to provide for the organization, formation, or
regulation of private corporations would be in effect to offer to it the temptation in many cases to favor certain groups,
to the prejudice of others or to the prejudice of the interests of the country.15

And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it follows
that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19,
1905. Settled is the rule that laws in general have no retroactive effect, unless the contrary is provided. 16 All statutes are
to be construed as having only a prospective operation, unless the purpose and intention of the legislature to give them
a retrospective effect is expressly declared or is necessarily implied from the language used. In case of doubt, the doubt
must be resolved against the retrospective effect.17

There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the law itself so
expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in case of laws interpreting
others; and (5) in case of laws creating new rights.18 None of the exceptions is present in the instant case.

The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the Corporation
Law, which had been enacted by virtue of the plenary powers of the Philippine Commission on March 1, 1906, a little
over a year after January 19, 1905, the time the petitioner emerged as a juridical entity. Even the Corporation Law
respects the rights and powers of juridical entities organized beforehand, viz:

SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of the Philippine
Islands and lawfully transacting business in the Philippine Islands on the date of the passage of this Act, shall be
subject to the provisions hereof so far as such provisions may be applicable and shall be entitled at its option either to
continue business as such corporation or to reform and organize under and by virtue of the provisions of this Act,
transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to issue its shares
of stock at par to the stockholders or members of the old corporation according to their interests. (Emphasis supplied).

As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws
issued not inconsistent therewith until amended, modified or repealed.19

In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been created by
virtue of a special law does not necessarily qualify it as a public corporation.

What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights, powers, and duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902, and, emphatically,
as also stated above, no proscription similar to the charter test can be found therein.

The textual foundation of the charter test, which placed a limitation on the power of the legislature, first appeared in the
1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No. 1258, a law antedating the
Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a general
law on the formation and organization of private corporations nor a restriction on the legislature to create private
corporations by direct legislation, the Philippine Commission at that moment in history was well within its powers in
1905 to constitute the petitioner as a private juridical entity.1wphi1

Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on
the danger of imposing legal concepts of a later date on facts of an earlier date.20

The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation and not an
agency of the government. This was evident in Executive Order No. 63, issued by then President of the Philippines
Manuel L. Quezon, declaring that the revocation of the powers of the petitioner to appoint agents with powers of arrest
"corrected a serious defect" in one of the laws existing in the statute books.

As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given retroactive effect,
thereby freeing all doubt as to which class of corporations the petitioner belongs, that is, it is a quasi-public
corporation, a kind of private domestic corporation, which the Court will further elaborate on under the fourth point.

Second, a reading of petitioners charter shows that it is not subject to control or supervision by any agency of the
State, unlike government-owned and -controlled corporations. No government representative sits on the board of
trustees of the petitioner. Like all private corporations, the successors of its members are determined voluntarily and
solely by the petitioner in accordance with its by-laws, and may exercise those powers generally accorded to private
corporations, such as the powers to hold property, to sue and be sued, to use a common seal, and so forth. It may adopt
by-laws for its internal operations: the petitioner shall be managed or operated by its officers "in accordance with its
by-laws in force." The pertinent provisions of the charter provide:

Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson, Amasa S.
Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina R. de Luzuriaga, and
such other persons as may be associated with them in conformity with this act, and their successors, are hereby
constituted and created a body politic and corporate at law, under the name and style of "The Philippines Society for
the Prevention of Cruelty to Animals."

As incorporated by this Act, said society shall have the power to add to its organization such and as many members as
it desires, to provide for and choose such officers as it may deem advisable, and in such manner as it may wish, and to
remove members as it shall provide.

It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations, to conduct social
enterprises for the purpose of obtaining funds, to levy dues upon its members and provide for their collection to hold
real and personal estate such as may be necessary for the accomplishment of the purposes of the society, and to adopt
such by-laws for its government as may not be inconsistent with law or this charter.

xxxx

Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its by-laws in force, and
this charter.

xxxx

Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall have full power to
locate and establish branch offices of the society wherever it may deem advisable in the Philippine Islands, such branch
offices to be under the supervision and control of the principal office.

Third. The employees of the petitioner are registered and covered by the Social Security System at the latters
initiative, and not through the Government Service Insurance System, which should be the case if the employees are
considered government employees. This is another indication of petitioners nature as a private entity. Section 1 of
Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise known as the Social Security Act of 1997,
defines the employer:

Employer Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade, business,
industry, undertaking or activity of any kind and uses the services of another person who is under his orders as regards
the employment, except the Government and any of its political subdivisions, branches or instrumentalities, including
corporations owned or controlled by the Government: Provided, That a self-employed person shall be both employee
and employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a "body politic" because its primary purpose is to secure the
protection and welfare of animals which, in turn, redounds to the public good.

This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest does not, by
that circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although its
charter contains provisions of a public character, incorporated solely for the public good. This class of corporations
may be considered quasi-public corporations, which are private corporations that render public service, supply public
wants,21 or pursue other eleemosynary objectives. While purposely organized for the gain or benefit of its members,
they are required by law to discharge functions for the public benefit. Examples of these corporations are
utility,22 railroad, warehouse, telegraph, telephone, water supply corporations and transportation companies.23 It must
be stressed that a quasi-public corporation is a species of private corporations, but the qualifying factor is the type of
service the former renders to the public: if it performs a public service, then it becomes a quasi-public
corporation.241wphi1

Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is that
almost all corporations are nowadays created to promote the interest, good, or convenience of the public. A bank, for
example, is a private corporation; yet, it is created for a public benefit. Private schools and universities are likewise
private corporations; and yet, they are rendering public service. Private hospitals and wards are charged with heavy
social responsibilities. More so with all common carriers. On the other hand, there may exist a public corporation even
if it is endowed with gifts or donations from private individuals.

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered cities, and barangays can best exemplify public
corporations. They are created by the State as its own device and agency for the accomplishment of parts of its own
public works.25

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

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

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

x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It
received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of
its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right in the
legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the
corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a
refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that a corporation vested with
special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson
v. United States, 55 Law Ed., 771, 780.)27

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation subject to the
jurisdiction of the Securities and Exchange Commission. The respondents are ENJOINED from investigating,
examining and auditing the petitioner's fiscal and financial affairs.

SO ORDERED.
 G.R. No. 149110 April 9, 2003
NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN, respondent.

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March 12, 2001 and
July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to
respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as
amended.4 It is tasked to undertake the "development of hydroelectric generations of power and the production of
electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide
basis."5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain
power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and
supplying such power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government,10 refused to pay the tax
assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also
contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other
Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit and shall
devote all its return from its capital investment, as well as excess revenues from its operation, for expansion.
To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign
goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the
assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest.13Respondent
alleged that petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160, 14 which
reads as follows:

"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 the
effectivity of this Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395
is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act
No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of
legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions
which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be
repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified
by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a
well-settled rule of statutory construction that repeals of statutes by implication are not favored. The
presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws
on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that,
 generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160
from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC
remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs.
Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

'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. xxx 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 mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its
shares of stocks owned by the National Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared
that: 'xxx (2) the total electrification of the Philippines through the development of power from all services to
meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring supplied). To allow plaintiff to subject
defendant to its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that
which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with
doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not
impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in relation to sections
137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.18 It ordered the petitioner to pay
the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on
gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in
all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied
by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing
power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or
corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law
may not impliedly repeal the NPC Charter which is a special lawfinds the answer in Section 193 of the LGC
to the effect that '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 xxx are hereby
withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT
SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES
ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM
ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL
GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL
LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF

POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL
GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose
an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:
 "Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of
one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided
herein." (emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It
contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing power of the respondent city
government to private entities that are engaged in trade or occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is
conferred upon private persons or corporations, under such terms and conditions as the government and its political
subdivisions may impose in the interest of the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when
the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to private
natural persons and to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in
as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as
much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the
accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for
expansion and improvement of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the
respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming Corporation26where
this Court held that local governments have no power to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and 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. (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 seriously burden it from accomplishment of them.' (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics 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 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."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or
controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified
impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from
all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as
much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in
statutory construction that the enactment of a later legislation which is a general law cannot be construed to
have repealed a special law. Where there is a conflict between a general law and a special statute, the special
statute should prevail since it evinces the legislative intent more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the
LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption
from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including
the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor endure. A principal
attribute of sovereignty,31 the exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity;32 without taxes, government cannot fulfill its mandate of promoting the
general welfare and well-being of the people.

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.33 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 charges34 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. 7160,36 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
1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of 196739 and the Local Government Code of
1983.40 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.41

Considered as the most revolutionary piece of legislation on local autonomy,42 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.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on
the aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the 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:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was
decided prior to the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu
International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even
instrumentalities or agencies of the government performing governmental functions may be subject to tax. 46 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, viz:

"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 power of local governments 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 the item (a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government
to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right.48 In its specific sense, a franchise may refer to a general
or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The
right under a primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation
such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires.51 The rights under
a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property, except such special or secondary franchises as are
charged with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly
used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises
granted by the state."53 It is not levied on the corporation simply for existing as a corporation, upon its property54 or its
income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this context that the
phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood.
Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising
its rights or privileges under this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes
petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition,
capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span.57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not
available to ordinary corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;
 (f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the
purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of
just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water
channels intersecting or connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely
affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing hydraulic
power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the
inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of
electric power; to establish, develop, operate, maintain and administer power and lighting systems for the
transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises,
(2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4)
franchise holders, and (5) real estate subdivisions x x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property
incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only
be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof
shall be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or
projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation
of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender
jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights,
the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural
resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This
monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry.
Although Exec. Order No. 21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial
jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. From its operations in
the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites,
petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are
wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to
do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue
and be sued under its own name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that
petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled
corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:
 "A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing
governmental or proprietary functions, which is directly chartered by special law or if organized under the
general corporation law is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock
x x x." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute
obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of
advancing the general interest of society, and are merely optional on the government.64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the
National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance
System (GSIS), and the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of
electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide
basis."66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do
not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit
imbued with public interest. The public interest involved in its activities, however, does not distract from the true
nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power
plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a
"business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction
of its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds
subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and
purposes for which it was organized, or which, from time to time, may be declared by the Board to be
necessary, useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity
requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference
is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from
its operation, for expansion"70 while other franchise holders have the option to distribute their profits to its stockholders
by declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances,
the taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the
passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of
Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government agencies and instrumentalities."
However, section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously
enjoyed by private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:

"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 the
effectivity of this Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.73 Not being a local water
district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax
"notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does
not admit any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the
payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent
case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in both instances,
we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special
laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their
position that MERALCO's tax exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other
special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended
to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit
may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on
(sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an express, albeit general,
withdrawal of such exemptions or privileges. No more unequivocal language could have been
used."76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant
tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No. 165-92 which imposes an annual
franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government
clearly did not intend to exempt the petitioner from the coverage thereof.

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." 78 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.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.
 G.R. No. 149240 July 11, 2002
SOCIAL SECURITY SYSTEM, petitioner, vs. COMMISSION ON AUDIT, respondent.

THE FUNDS contributed to the Social Security System (SSS) are not only imbued with public interest, they are part
and parcel of the fruits of the workers labors pooled into one enormous trust fund under the administration of the
System designed to insure against the vicissitudes and hazards of their working lives. In a very real sense, the trust
funds are the workers property which they could turn to when necessity beckons and are thus more personal to them
than the taxes they pay. It is therefore only fair and proper that charges against the trust fund be strictly scrutinized for
every lawful and judicious opportunity to keep it intact and viable in the interest of enhancing the welfare of their true
and ultimate beneficiaries.

This is a petition for certiorari under Rule 64 of the 1997 Rules of Civil Procedure praying that this Court assess
against the workers social security fund the amount of P5,000.00 as contract signing bonus of each official and
employee of the SSS. The gratuity emanated from the collective negotiation agreement (CNA) executed on 10 July
1996 between the Social Security Commission (SSC) in behalf of the SSS and the Alert and Concerned Employees for
Better SSS (ACCESS), the sole and exclusive negotiating agent for employees of the SSS. 1 In particular, Art. XIII of
the CNA provided -

As a gesture of good will and benevolence, the Management agrees that once the Collective Negotiation
Agreement is approved and signed by the parties, Management shall grant each official and employee of the
SYSTEM the amount of P5,000.00 as contract signing bonus.2

To fund this undertaking, the SSC allocated P15,000,000.00 in the budgetary appropriation of the SSS.3

On 18 February 1997 the Department of Budget and Management (DBM) declared as illegal the contract signing bonus
which the CNA authorized to be distributed among the personnel of the SSS.4 On 1 July 1997 the SSS Corporate
Auditor disallowed fund releases for the signing bonus since it was "an allowance in the form of additional
compensation prohibited by the Constitution."5

Two (2) years later, in a letter dated 29 September 1999, ACCESS appealed the disallowance to the Commission on
Audit (COA).6 On 5 July 2001 despite the delay in the filing of the appeal, a procedural matter which COA considered
to be inconsequential,7 COA affirmed the disallowance and ruled that the grant of the signing bonus was improper.8 It
held that the provision on the signing bonus in the CNA had no legal basis since Sec. 16 of RA 7658 (1989)9 had
repealed the authority of the SSC to fix the compensation of its personnel.10 Hence the instant petition which,
curiously, was filed in the name of the Social Security System (and not ACCESS) by authority of the officer-in-charge
for the SSS11 through its legal staff.12

Petitioner SSS argues that a signing bonus may be granted upon the conclusion of negotiations leading to the execution
of a CNA where it is specifically authorized by law and that in the case at bar such legal authority is found in Sec. 3,
par. (c), of RA 1161 as amended (Charter of the SSS) which allows the SSC to fix the compensation of its personnel.
On the other hand, respondent COA asserts that the authority of the SSC to fix the compensation of its personnel has
been repealed by Secs. 12 and 16 of RA 6758 and is therefore no longer effective.

We find no legitimate and compelling reason to reverse the COA. To begin with, the instant petition is fatally
defective. It was filed in the name of the SSS although no directive from the SSC authorized the instant suit and only
the officer-in-charge in behalf of petitioner executed the purported directive. Clearly, this is irregular since under Sec.
4, par. 10, in relation to par. 7,13 RA 1161 as amended by RA 8282 (The Social Security Act of 1997, which was already
effective14 when the instant petition was filed), it is the SSC as a collegiate body which has the power to approve,
confirm, pass upon or review the action of the SSS to sue in court. Moreover, the appearance of the internal legal staff
of the SSS as counsel in the present proceedings is similarly questionable because under both RA 1161 and RA 8282 it
is the Department of Justice (DoJ) that has the authority to act as counsel of the SSS.15 It is well settled that the legality
of the representation of an unauthorized counsel may be raised at any stage of the proceedings 16 and that such illicit
representation produces no legal effect.17 Since nothing in the case at bar shows that the approval or ratification of the
SSC has been undertaken in the manner prescribed by law and that the DoJ has not delegated the authority to act as
counsel and appear herein, the instant petition must necessarily fail. These procedural deficiencies are serious matters
which this Court cannot take lightly and simply ignore since the SSS is in reality confessing judgment to charge
expenditure against the trust fund under its custodianship.

In Premium Marble Resources v. Court of Appeals18 we held that no person, not even its officers, could validly sue in
behalf of a corporation in the absence of any resolution from the governing body authorizing the filing of such suit.
Moreover, where the corporate officers power as an agent of the corporation did not derive from such resolution, it
would nonetheless be necessary to show a clear source of authority from the charter, the by-laws or the implied acts of
the governing body.19 Unfortunately there is no palpable evidence in the records to show that the officer-in-charge
could all by himself order the filing of the instant petition without the intervention of the SSC, nor that the legal staff of
SSS could act as its counsel and appear therein without the intervention of the DoJ. The power of attorney supposedly
authorizing this suit as well as the signature of the legal counsel appearing on the signing page of the instant petition is
therefore ineffectual.
Indeed we find no merit in the claim that the employees and officers of SSS are entitled to the signing bonus provided
for in the CNA. In the first place, the process of collective negotiations in the public sector does not encompass terms
and conditions of employment requiring the appropriation of public funds -

Sec. 13. Terms and conditions of employment or improvements thereof, except those that are fixed by law,
may be the subject of negotiations between duly recognized employees organizations and appropriate
government authorities.20

More particularly -

Sec. 3. Those that require appropriation of funds, such as the following, are not negotiable: (a) Increase in
salary emoluments and other allowances not presently provided for by law; (b) Facilities requiring capital
outlays; (c) Car plan; (d) Provident fund; (e) Special hospitalization, medical and dental services; (f)
Rice/sugar/other subsidies; (g) Travel expenses; (h) Increase in retirement benefits.

Sec. 4. Matters that involve the exercise of management prerogatives, such as the following, are likewise not
subject to negotiation: (a) Appointment; (b) Promotion; (c) Assignment/Detail; (d) Reclassification/ upgrading
of position; (e) Revision of compensation structure; (f) Penalties imposed as a result of disciplinary actions; (g)
Selection of personnel to attend seminar, trainings, study grants; (h) Distribution of work load; (I) External
communication linkages.21

Petitioner however argues that the charter of SSS authorizes the SSC to fix the compensation of its employees and
officers so that in reality the signing bonus is merely the fruit of the exercise of such fundamental power. On this issue,
we have to explain the relevant amendments to the SSS charter in relation to the passage of RA 6758 (1989)
entitled "An Act Prescribing a Revised Compensation and Position Classification in the Government and for other
Purposes."

When the signing bonus was bestowed upon each employee and officer of the SSS on 10 July 1996, which was earlier
approved by the SSC on 3 July 1996, the governing charter of the SSS was RA 1161 as amended by Sec. 1, RA
2658, and Sec. 1, PD 735. Under this amended statute, the SSC was empowered to "appoint an actuary, and such other
personnel as may be deemed necessary" and to "fix their compensation." 22 The law also provided that "the personnel of
the SSS shall be selected only from civil service eligibles and be subject to civil service rules and regulations." 23

On 9 August 1989 Congress passed RA 6758 which took effect on 1 July 1989.24 Its goal was to "provide equal pay for
substantially equal work and to base differences in pay upon substantive differences in duties and responsibilities, and
qualification requirements of the positions."25 Towards this end, RA 6758 provided for the consolidation of allowances
and compensation in the prescribed standardized salary rates except certain specified allowances 26 and such other
additional compensation as may be determined by the Department of Budget and Management. 27 The law also repealed
"[a]ll laws, decrees, executive orders, corporate charters, and other issuances or parts thereof, that exempt agencies
from the coverage of the System, or that authorize and fix position classification, salaries, pay rates or allowances of
specified positions, or groups of officials and employees or of agencies, which are inconsistent with the System,
including the proviso under Section 2 and Section 16 of Presidential Decree No. 985."28

Although it was the clear policy intent of RA 6758 to standardize salary rates among government personnel, the
Legislature under Secs. 1229 and 1730 of the law nonetheless saw the need for equity and justice in adopting the policy
of non-diminution of pay when it authorized incumbents as of 1 July 1989 to receive salaries and/or allowances over
and above those authorized by RA 6758. In Philippine Ports Authority v. Commission on Audit31 we held that no
financial or non-financial incentive could be awarded to employees of government owned and controlled corporations
aside from benefits which were being received by incumbent officials and employees as of 1 July 1989. This Court also
observed -

The consequential outcome, under sections 12 and 17, is that if the incumbent resigns or is promoted to a
higher position, his successor is no longer entitled to his predecessors RATA privilege x x x or to the
transition allowance x x x x [A]fter July 1, 1989, additional financial incentives such as RATA may no longer
be given by GOCCs with the exception of those which were authorized to be continued under Section 12 of
RA 6758.

Evidently, while RA 6758 intended to do away with multiple allowances and other incentive packages and the resulting
differences in compensation among government personnel, the statute clearly did not revoke existing benefits being
enjoyed by incumbents of government positions at the time of the passage of RA 6758 by virtue of Secs. 12 and 17
thereof. In previous rulings of this Court, among the financial and non-financial incentives which we allowed certain
government employees to enjoy after the effectivity of RA 6758 were car plan benefits32 and educational funding
assistance33 for incumbents of existing positions as of 1 July 1989 until such gratuity packages were gradually phased
out.

We have no doubt that RA 6758 modified, if not repealed, Sec. 3, par. (c), of RA 1161 as amended, at least insofar as it
concerned the authority of SSC to fix the compensation of SSS employees and officers. This means that whatever
salaries and other financial and non-financial inducements that the SSC was minded to fix for them, the compensation
must comply with the terms of RA 6758. Consequently, only the remuneration which was being offered as of 1 July
1989, and which was then being enjoyed by incumbent SSS employees and officers, could be availed of exclusively by
the same employees and officers separate from and independent of the prescribed standardized salary rates.
Unfortunately, however, the signing bonus in question did not qualify under Secs. 12 and 17 of RA 6758. It was non-
existent as of 1 July 1989 as it accrued only in 1996 when the CNA was entered into by and between SSC and
ACCESS. The signing bonus therefore could not have been included in the salutary provisions of the statute nor would
it be legal to disburse to the intended recipients.

Philippine International Trading Corporation v. Commission on Audit34 is instructive on this point. Like the SSS, the
Philippine International Trading Corporation (PITC) is a government-owned and controlled corporation which was
created under PD 252 (1973) primarily for the purpose of promoting and developing Philippine trade in pursuance of
national economic development. In the same judgment which affirmed the car financing program and allied incentives
being implemented prior to 1 July 1989 we held that the charter of PITC was impliedly repealed by RA 6758 -

We deem it necessary though to resolve the third issue as to whether PITC is exempt from PD 985 as
subsequently amended by RA 6758. According to petitioner, PITCs Revised Charter, PD 1071 dated January
25, 1977, as amended by EO 756 dated December 29, 1981, and further amended by EO 1067 dated November
25, 1985, expressly exempted PITC from the Office of the Compensation and Position Classification (OCPC)
rules and regulations. Petitioner cites Section 28 of P.D. 1071; Section 6 of EO 756; and Section 3 of EO 1067.
According to the COA in its Decision No. 98-048 dated January 27, 1998, the exemption granted to the PITC
has been repealed and revoked by the repealing provisions of RA 6758, particularly Section 16 thereof which
provides:

Sec. 16. Repeal of Special Salary Laws and Regulations. - All laws, decrees, executive orders,
corporate charters, and other issuances or parts thereof, that exempt agencies from the coverage of the
System, or that authorize and fix position classifications, salaries, pay rates or allowances of specified
positions, or groups of officials, and employees or of agencies, which are inconsistent with the System,
including the proviso under Section 2 and Section 16 of PD No. 985 are hereby repealed.

To this, [PITC] argues that RA 6758 which is a law of general application cannot repeal provisions of the
Revised Charter of PITC and its amendatory laws expressly exempting PITC from OCPC coverage being
special laws x x x x In the case at bar, the repeal by Section 16 of RA 6758 of "all corporate charters that
exempt agencies from the coverage of the System" was clear and expressed necessarily to achieve the purposes
for which the law was enacted, that is, the standardization of salaries of all employees in government owned
and / or controlled corporations to achieve "equal pay for substantially equal work." Henceforth, PITC should
now be considered as covered by laws prescribing a compensation and position classification system in the
government including RA 6758. This is without prejudice, however, as discussed above, to the non-diminution
of pay of incumbents as of July 1, 1989 as provided in Sections 12 and 17 of said law.

So we also rule in the instant case involving the charter of the SSS or RA 1161 as amended.

The enactment of RA 8282 entitled "The Social Security Act of 1997" does not change our holding. While it is true that
Sec. 3, par. (c), of RA 8282 expressly exempted the SSS from the provisions of RA 6758 and RA 7430 (The Attrition
Law of 1992) thus -

The Commission, upon the recommendation of the SSS President, shall appoint an actuary and such other
personnel as may be deemed necessary; fix their reasonable compensation, allowances and other benefits x x x
x [t]hat the personnel of the SSS shall be selected only from civil service eligibles and be subject to civil
service rules and regulations: Provided, finally, That the SSS shall be exempt from the provisions of Republic
Act No. 6758 and Republic Act No. 7430,

it bears emphasis that RA 8282 took effect only on 23 May 1997, i.e., fifteen (15) days after its complete publication in
two (2) newspapers of general circulation on 7 May 199735 and 8 May 1997.36 It holds to reason that the prospective
application of the statute renders irrelevant to the case at bar whatever effects this exemption may have on the power of
the SSC to fix the compensation of SSS personnel. Ironically, RA 8282 in fact buttresses our ruling that the signing
bonus cannot escape the provisions of RA 6758. The need to expressly stipulate the exemption of the SSS can only
mean that prior to the effectivity of RA 8282, the SSS was subject to RA 6758 and even RA 7430 for, otherwise, there
would have been no reason to rope in such provision in RA 8282.

This Court has been very consistent in characterizing the funds being administered by SSS as a trust fund for the
welfare and benefit of workers and employees in the private sector. 37 In United Christian Missionary v. Social Security
Commission38 we were unequivocal in declaring the funds contributed to the Social Security System by compulsion of
law as funds belonging to the members which were merely held in trust by the government, and resolutely imposed the
duty upon the trustee to desist from any and all acts which would diminish the property rights of owners and
beneficiaries of the trust fund. Consistent with this declaration, it would indeed be very reasonable to construe the
authority of the SSC to provide for the compensation of SSS personnel in accordance with the established rules
governing the remuneration of trustees -

x x x x the modern rule is to give the trustee a reasonable remuneration for his skill and industry x x x x In
deciding what is a reasonable compensation for a trustee the court will consider the amount of income and
capital received and disbursed, the pay customarily given to agents or servants for similar work, the success or
failure of the work of the trustee, any unusual skill which the trustee had and used, the amount of risk and
 responsibility, the time consumed, the character of the work done (whether routine or of unusual difficulty) and
any other factors which prove the worth of the trustees services to the cestuis x x x x The court has power to
make extraordinary compensation allowances, but will not do so unless the trustee can prove that he has
performed work beyond the ordinary duties of his office and has engaged in especially arduous work.39

On the basis of the foregoing pronouncement, we do not find the signing bonus to be a truly reasonable compensation.
The gratuity was of course the SSCs gesture of good will and benevolence for the conclusion of collective
negotiations between SSC and ACCESS, as the CNA would itself state, but for what objective? Agitation and
propaganda which are so commonly practiced in private sector labor-management relations have no place in the
bureaucracy and that only a peaceful collective negotiation which is concluded within a reasonable time must be the
standard for interaction in the public sector. This desired conduct among civil servants should not come, we must
stress, with a price tag which is what the signing bonus appears to be.

WHEREFORE, the instant Petition for Certiorari under Rule 64, 1997 Rules of Civil Procedure, is DISMISSED.
The Decision No. 2001-123 of the Commission on Audit and the Notice of Disallowance No. 97-002-0101 (96) of the
Social Security System Corporate Auditor prohibiting the payment of P5,000.00 signing bonus to each employee and
officer of the Social Security System as stipulated in Art. XIII of the Collective Negotiation Agreement and as
approved in Resolution No. 593 of the Social Security Commission are AFFIRMED. No pronouncement as to costs.

SO ORDERED.
 G.R. Nos. 120865-71 December 7, 1995

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE HERCULANO TECH, PRESIDING JUDGE, BRANCH 70, REGIONAL TRIAL
COURT OF BINANGONAN RIZAL; FLEET DEVELOPMENT, INC. and CARLITO ARROYO; THE MUNICIPALITY
OF BINANGONAN and/or MAYOR ISIDRO B. PACIS, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE AURELIO C. TRAMPE, PRESIDING JUDGE, BRANCH 163, REGIONAL
TRIAL COURT OF PASIG; MANILA MARINE LIFE BUSINESS RESOURCES, INC. represented by, MR. TOBIAS
REYNALD M. TIANGCO; MUNICIPALITY OF TAGUIG, METRO MANILA and/or MAYOR RICARDO D. PAPA,
JR., respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ALEJANDRO A. MARQUEZ, PRESIDING JUDGE, BRANCH 79, REGIONAL
TRIAL COURT OF MORONG, RIZAL; GREENFIELD VENTURES INDUSTRIAL DEVELOPMENT CORPORATION
and R. J. ORION DEVELOPMENT CORPORATION; MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO
M. DE LA VEGA, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE MANUEL S. PADOLINA, PRESIDING JUDGE, BRANCH 162, REGIONAL
TRIAL COURT OF PASIG, METRO MANILA; IRMA FISHING & TRADING CORP.; ARTM FISHING CORP.; BDR
CORPORATION, MIRT CORPORATION and TRIM CORPORATION; MUNICIPALITY OF BINANGONAN and/or
MAYOR ISIDRO B. PACIS, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE, PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL
COURT OF MORONG, RIZAL; BLUE LAGOON FISHING CORP. and ALCRIS CHICKEN GROWERS, INC.;
MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO M. DE LA VEGA, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE ARTURO A. MARAVE, PRESIDING JUDGE, BRANCH 78, REGIONAL TRIAL
COURT OF MORONG, RIZAL; AGP FISH VENTURES, INC., represented by its PRESIDENT ALFONSO PUYAT;
MUNICIPALITY OF JALA-JALA and/or MAYOR WALFREDO M. DE LA VEGA, respondents.

LAGUNA LAKE DEVELOPMENT AUTHORITY, petitioner,

vs.
COURT OF APPEALS; HON. JUDGE EUGENIO S. LABITORIA, PRESIDING JUDGE, BRANCH 161, REGIONAL
TRIAL COURT OF PASIG, METRO MANILA; SEA MAR TRADING CO. INC.; EASTERN LAGOON FISHING
CORP.; MINAMAR FISHING CORP.; MUNICIPALITY OF BINANGONAN and/or MAYOR ISIDRO B.
PACIS, respondents.

It is difficult for a man, scavenging on the garbage dump created by affluence and profligate consumption and
extravagance of the rich or fishing in the murky waters of the Pasig River and the Laguna Lake or making a clearing in
the forest so that he can produce food for his family, to understand why protecting birds, fish, and trees is more
important than protecting him and keeping his family alive.

How do we strike a balance between environmental protection, on the one hand, and the individual personal interests of
people, on the other?

Towards environmental protection and ecology, navigational safety, and sustainable development, Republic Act No.
4850 created the "Laguna Lake Development Authority." This Government Agency is supposed to carry out and
effectuate the aforesaid declared policy, so as to accelerate the development and balanced growth of the Laguna Lake
area and the surrounding provinces, cities and towns, in the act clearly named, within the context of the national and
regional plans and policies for social and economic development.

Presidential Decree No. 813 of former President Ferdinand E. Marcos amended certain sections of Republic Act No.
4850 because of the concern for the rapid expansion of Metropolitan Manila, the suburbs and the lakeshore towns of
Laguna de Bay, combined with current and prospective uses of the lake for municipal-industrial water supply,
irrigation, fisheries, and the like. Concern on the part of the Government and the general public over: the
environment impact of development on the water quality and ecology of the lake and its related river systems; the
inflow of polluted water from the Pasig River, industrial, domestic and agricultural wastes from developed areas
around the lake; the increasing urbanization which induced the deterioration of the lake, since water quality studies
have shown that the lake will deteriorate further if steps are not taken to check the same; and the floods in Metropolitan
Manila area and the lakeshore towns which will influence the hydraulic system of Laguna de Bay, since any scheme of
controlling the floods will necessarily involve the lake and its river systems, likewise gave impetus to the creation of
the Authority.

Section 1 of Republic Act No. 4850 was amended to read as follows:

Sec. 1. Declaration of Policy. It is hereby declared to be the national policy to promote, and accelerate
the development and balanced growth of the Laguna Lake area and the surrounding provinces, cities
and towns hereinafter referred to as the region, within the context of the national and regional plans
and policies for social and economic development and to carry out the development of the Laguna
Lake region with due regard and adequate provisions for environmental management and control,
preservation of the quality of human life and ecological systems, and the prevention of undue
ecological disturbances, deterioration and pollution.1

Special powers of the Authority, pertinent to the issues in this case, include:

Sec. 3. Section 4 of the same Act is hereby further amended by adding thereto seven new paragraphs to be known
as paragraphs (j), (k), (l), (m), (n), (o), and (p) which shall read as follows:

xxx xxx xxx

(j) The provisions of existing laws to the contrary notwithstanding, to engage in fish production and other
aqua-culture projects in Laguna de Bay and other bodies of water within its jurisdiction and in pursuance
thereof to conduct studies and make experiments, whenever necessary, with the collaboration and assistance
of the Bureau of Fisheries and Aquatic Resources, with the end in view of improving present techniques and
practices. Provided, that until modified, altered or amended by the procedure provided in the following sub-
paragraph, the present laws, rules and permits or authorizations remain in force;

(k) For the purpose of effectively regulating and monitoring activities in Laguna de Bay, the Authority shall
have exclusive jurisdiction to issue new permit for the use of the lake waters for any projects or activities in
or affecting the said lake including navigation, construction, and operation of fishpens, fish enclosures, fish
corrals and the like, and to impose necessary safeguards for lake quality control and management and to
collect necessary fees for said activities and projects: Provided, That the fees collected for fisheries may be
shared between the Authority and other government agencies and political sub-divisions in such proportion as
may be determined by the President of the Philippines upon recommendation of the Authority's
Board: Provided, further, That the Authority's Board may determine new areas of fishery development or
activities which it may place under the supervision of the Bureau of Fisheries and Aquatic Resources taking
into account the overall development plans and programs for Laguna de Bay and related bodies of
water: Provided, finally, That the Authority shall subject to the approval of the President of the Philippines
promulgate such rules and regulations which shall govern fisheries development activities in Laguna de Bay
which shall take into consideration among others the following: socio-economic amelioration of bonafide
resident fishermen whether individually or collectively in the form of cooperatives, lakeshore town
development, a master plan for fishpen construction and operation, communal fishing ground for lake shore
town residents, and preference to lake shore town residents in hiring laborer for fishery projects;

(l) To require the cities and municipalities embraced within the region to pass appropriate zoning ordinances
and other regulatory measures necessary to carry out the objectives of the Authority and enforce the same
with the assistance of the Authority;

(m) The provisions of existing laws to the contrary notwithstanding, to exercise water rights over public
waters within the Laguna de Bay region whenever necessary to carry out the Authority's projects;

(n) To act in coordination with existing governmental agencies in establishing water quality standards for
industrial, agricultural and municipal waste discharges into the lake and to cooperate with said existing
agencies of the government of the Philippines in enforcing such standards, or to separately pursue
enforcement and penalty actions as provided for in Section 4 (d) and Section 39-A of this Act: Provided, That
in case of conflict on the appropriate water quality standard to be enforced such conflict shall be resolved thru
the NEDA Board.2

To more effectively perform the role of the Authority under Republic Act No. 4850, as though Presidential Decree No.
813 were not thought to be completely effective, the Chief Executive, feeling that the land and waters of the Laguna
Lake Region are limited natural resources requiring judicious management to their optimal utilization to insure
renewability and to preserve the ecological balance, the competing options for the use of such resources and conflicting
jurisdictions over such uses having created undue constraints on the institutional capabilities of the Authority in the
light of the limited powers vested in it by its charter, Executive Order No. 927 further defined and enlarged the
functions and powers of the Authority and named and enumerated the towns, cities and provinces encompassed by the
term "Laguna de Bay Region".

Also, pertinent to the issues in this case are the following provisions of Executive Order No. 927 which include in
particular the sharing of fees:
 Sec 2. Water Rights Over Laguna de Bay and Other Bodies of Water within the Lake Region: To
effectively regulate and monitor activities in the Laguna de Bay region, the Authority shall have
exclusive jurisdiction to issue permit for the use of all surface water for any projects or activities in or
affecting the said region including navigation, construction, and operation of fishpens, fish enclosures,
fish corrals and the like.

For the purpose of this Executive Order, the term "Laguna de Bay Region" shall refer to the Provinces
of Rizal and Laguna; the Cities of San Pablo, Pasay, Caloocan, Quezon, Manila and Tagaytay; the
towns of Tanauan, Sto. Tomas and Malvar in Batangas Province; the towns of Silang and Carmona in
Cavite Province; the town of Lucban in Quezon Province; and the towns of Marikina, Pasig, Taguig,
Muntinlupa, and Pateros in Metro Manila.

Sec 3. Collection of Fees. The Authority is hereby empowered to collect fees for the use of the lake
water and its tributaries for all beneficial purposes including but not limited to fisheries, recreation,
municipal, industrial, agricultural, navigation, irrigation, and waste disposal purpose; Provided, that
the rates of the fees to be collected, and the sharing with other government agencies and political
subdivisions, if necessary, shall be subject to the approval of the President of the Philippines upon
recommendation of the Authority's Board, except fishpen fee, which will be shared in the following
manner; 20 percent of the fee shall go to the lakeshore local governments, 5 percent shall go to the
Project Development Fund which shall be administered by a Council and the remaining 75 percent
shall constitute the share of LLDA. However, after the implementation within the three-year period of
the Laguna Lake Fishery Zoning and Management Plan, the sharing will be modified as follows: 35
percent of the fishpen fee goes to the lakeshore local governments, 5 percent goes to the Project
Development Fund and the remaining 60 percent shall be retained by LLDA; Provided, however, that
the share of LLDA shall form part of its corporate funds and shall not be remitted to the National
Treasury as an exception to the provisions of Presidential Decree No. 1234. (Emphasis supplied)

It is important to note that Section 29 of Presidential Decree No. 813 defined the term "Laguna Lake" in this manner:

Sec 41. Definition of Terms.

(11) Laguna Lake or Lake. Whenever Laguna Lake or lake is used in this Act, the same shall refer to
Laguna de Bay which is that area covered by the lake water when it is at the average annual maximum
lake level of elevation 12.50 meters, as referred to a datum 10.00 meters below mean lower low water
(M.L.L.W). Lands located at and below such elevation are public lands which form part of the bed of
said lake.

Then came Republic Act No. 7160, the Local Government Code of 1991. The municipalities in the Laguna Lake
Region interpreted the provisions of this law to mean that the newly passed law gave municipal governments the
exclusive jurisdiction to issue fishing privileges within their municipal waters because R.A. 7160 provides:

Sec. 149. Fishery Rentals, Fees and Charges.

(a) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters
and impose rental fees or charges therefor in accordance with the provisions of this Section.

(b) The Sangguniang Bayan may:

(1) Grant fishing privileges to erect fish corrals, oyster, mussel or other aquatic beds or
bangus fry areas, within a definite zone of the municipal waters, as determined by it; .
...

(2) Grant privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or
fry of other species and fish from the municipal waters by nets, traps or other fishing
gears to marginal fishermen free from any rental fee, charges or any other imposition
whatsoever.

xxx xxx xxx

Sec. 447. Power, Duties, Functions and Compensation. . . . .

xxx xxx xxx

(XI) Subject to the provisions of Book II of this Code, grant exclusive privileges of
constructing fish corrals or fishpens, or the taking or catching of bangus fry, prawn fry
or kawag-kawag or fry of any species or fish within the municipal waters.

xxx xxx xxx

Municipal governments thereupon assumed the authority to issue fishing privileges and fishpen permits. Big fishpen
operators took advantage of the occasion to establish fishpens and fishcages to the consternation of the Authority.
Unregulated fishpens and fishcages, as of July, 1995, occupied almost one-third of the entire lake water surface area,
increasing the occupation drastically from 7,000 hectares in 1990 to almost 21,000 hectares in 1995. The Mayor's
permit to construct fishpens and fishcages were all undertaken in violation of the policies adopted by the Authority on
fishpen zoning and the Laguna Lake carrying capacity.

To be sure, the implementation by the lakeshore municipalities of separate independent policies in the operation of
fishpens and fishcages within their claimed territorial municipal waters in the lake and their indiscriminate grant of
fishpen permits have already saturated the lake area with fishpens, thereby aggravating the current environmental
problems and ecological stress of Laguna Lake.

In view of the foregoing circumstances, the Authority served notice to the general public that:

In compliance with the instructions of His Excellency PRESIDENT FIDEL V. RAMOS given on June
23, 1993 at Pila, Laguna pursuant to Republic Act 4850 as amended by Presidential Decree 813 and
Executive Order 927 series of 1983 and in line with the policies and programs of the Presidential Task
Force on Illegal Fishpens and Illegal Fishing, the general public is hereby notified that:

1. All fishpens, fishcages and other aqua-culture structures in the Laguna de Bay Region, which were
not registered or to which no application for registration and/or permit has been filed with Laguna
Lake Development Authority as of March 31, 1993 are hereby declared outrightly as illegal.

2. All fishpens, fishcages and other aqua-culture structures so declared as illegal shall be subject to
demolition which shall be undertaken by the Presidential Task Force for Illegal Fishpen and Illegal
Fishing.

3. Owners of fishpens, fishcages and other aqua-culture structures declared as illegal shall, without
prejudice to demolition of their structures be criminally charged in accordance with Section 39-A of
Republic Act 4850 as amended by P.D. 813 for violation of the same laws. Violations of these laws
carries a penalty of imprisonment of not exceeding 3 years or a fine not exceeding Five Thousand
Pesos or both at the discretion of the court.

All operators of fishpens, fishcages and other aqua-culture structures declared as illegal in accordance
with the foregoing Notice shall have one (1) month on or before 27 October 1993 to show cause before
the LLDA why their said fishpens, fishcages and other aqua-culture structures should not be
demolished/dismantled.

One month, thereafter, the Authority sent notices to the concerned owners of the illegally constructed fishpens,
fishcages and other aqua-culture structures advising them to dismantle their respective structures within 10 days from
receipt thereof, otherwise, demolition shall be effected.

Reacting thereto, the affected fishpen owners filed injunction cases against the Authority before various regional trial
courts, to wit: (a) Civil Case No. 759-B, for Prohibition, Injunction and Damages, Regional Trial Court, Branch 70,
Binangonan, Rizal, filed by Fleet Development, Inc. and Carlito Arroyo; (b) Civil Case No. 64049, for Injunction,
Regional Trial Court, Branch 162, Pasig, filed by IRMA Fishing and Trading Corp., ARTM Fishing Corp., BDR Corp.,
MIRT Corp. and TRIM Corp.; (c) Civil Case No. 566, for Declaratory Relief and Injunction, Regional Trial Court,
Branch 163, Pasig, filed by Manila Marine Life Business Resources, Inc. and Tobias Reynaldo M. Tianco; (d) Civil
Case No. 556-M, for Prohibition, Injunction and Damages, Regional Trial Court, Branch 78, Morong, Rizal, filed by
AGP Fishing Ventures, Inc.; (e) Civil Case No. 522-M, for Prohibition, Injunction and Damages, Regional Trial Court,
Branch 78, Morong, Rizal, filed by Blue Lagoon and Alcris Chicken Growers, Inc.; (f) Civil Case No. 554-,
for Certiorari and Prohibition, Regional Trial Court, Branch 79, Morong, Rizal, filed by Greenfields Ventures
Industrial Corp. and R.J. Orion Development Corp.; and (g) Civil Case No. 64124, for Injunction, Regional Trial
Court, Branch 15, Pasig, filed by SEA-MAR Trading Co., Inc. and Eastern Lagoon Fishing Corp. and Minamar Fishing
Corporation.

The Authority filed motions to dismiss the cases against it on jurisdictional grounds. The motions to dismiss were
invariably denied. Meanwhile, temporary restraining order/writs of preliminary mandatory injunction were issued in
Civil Cases Nos. 64124, 759 and 566 enjoining the Authority from demolishing the fishpens and similar structures in
question.

Hence, the herein petition for certiorari, prohibition and injunction, G.R. Nos. 120865-71, were filed by the Authority
with this court. Impleaded as parties-respondents are concerned regional trial courts and respective private parties, and
the municipalities and/or respective Mayors of Binangonan, Taguig and Jala-jala, who issued permits for the
construction and operation of fishpens in Laguna de Bay. The Authority sought the following reliefs, viz.:

(A) Nullification of the temporary restraining order/writs of preliminary injunction issued in Civil
Cases Nos. 64125, 759 and 566;
 (B) Permanent prohibition against the regional trial courts from exercising jurisdiction over cases
involving the Authority which is a co-equal body;

(C) Judicial pronouncement that R.A. 7610 (Local Government Code of 1991) did not repeal, alter or
modify the provisions of R.A. 4850, as amended, empowering the Authority to issue permits for
fishpens, fishcages and other aqua-culture structures in Laguna de Bay and that, the Authority the
government agency vested with exclusive authority to issue said permits.

By this Court's resolution of May 2, 1994, the Authority's consolidated petitions were referred to the Court of Appeals.

In a Decision, dated June 29, 1995, the Court of Appeals dismissed the Authority's consolidated petitions, the Court of
Appeals holding that: (A) LLDA is not among those quasi-judicial agencies of government whose decision or order are
appealable only to the Court of Appeals; (B) the LLDA charter does vest LLDA with quasi-judicial functions insofar as
fishpens are concerned; (C) the provisions of the LLDA charter insofar as fishing privileges in Laguna de Bay are
concerned had been repealed by the Local Government Code of 1991; (D) in view of the aforesaid repeal, the power to
grant permits devolved to and is now vested with their respective local government units concerned.

Not satisfied with the Court of Appeals decision, the Authority has returned to this Court charging the following errors:

1. THE HONORABLE COURT OF APPEALS PROBABLY COMMITTED AN ERROR WHEN IT

RULED THAT THE LAGUNA LAKE DEVELOPMENT AUTHORITY IS NOT A QUASI-
JUDICIAL AGENCY.

2. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT

RULED THAT R.A. 4850 AS AMENDED BY P.D. 813 AND E.O. 927 SERIES OF 1983 HAS
BEEN REPEALED BY REPUBLIC ACT 7160. THE SAID RULING IS CONTRARY TO
ESTABLISHED PRINCIPLES AND JURISPRUDENCE OF STATUTORY CONSTRUCTION.

3. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT

RULED THAT THE POWER TO ISSUE FISHPEN PERMITS IN LAGUNA DE BAY HAS BEEN
DEVOLVED TO CONCERNED (LAKESHORE) LOCAL GOVERNMENT UNITS.

We take a simplistic view of the controversy. Actually, the main and only issue posed is: Which agency of the
Government the Laguna Lake Development Authority or the towns and municipalities comprising the region
should exercise jurisdiction over the Laguna Lake and its environs insofar as the issuance of permits for fishery
privileges is concerned?

Section 4 (k) of the charter of the Laguna Lake Development Authority, Republic Act No. 4850, the provisions of
Presidential Decree No. 813, and Section 2 of Executive Order No. 927, cited above, specifically provide that the
Laguna Lake Development Authority shall have exclusive jurisdiction to issue permits for the use of all surface water
for any projects or activities in or affecting the said region, including navigation, construction, and operation of
fishpens, fish enclosures, fish corrals and the like. On the other hand, Republic Act No. 7160, the Local Government
Code of 1991, has granted to the municipalities the exclusive authority to grant fishery privileges in municipal waters.
The Sangguniang Bayan may grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or
bangus fry area within a definite zone of the municipal waters.

We hold that the provisions of Republic Act No. 7160 do not necessarily repeal the aforementioned laws creating the
Laguna Lake Development Authority and granting the latter water rights authority over Laguna de Bay and the lake
region.

The Local Government Code of 1991 does not contain any express provision which categorically expressly repeal the
charter of the Authority. It has to be conceded that there was no intent on the part of the legislature to repeal Republic
Act No. 4850 and its amendments. The repeal of laws should be made clear and expressed.

It has to be conceded that the charter of the Laguna Lake Development Authority constitutes a special law. Republic
Act No. 7160, the Local Government Code of 1991, is a general law. It is basic in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed a special law. It is a well-
settled rule in this jurisdiction that "a special statute, provided for a particular case or class of cases, is not repealed by a
subsequent statute, general in its terms, provisions and application, unless the intent to repeal or alter is manifest,
although the terms of the general law are broad enough to include the cases embraced in the special law."3

Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces
the legislative intent more clearly than the general statute. The special law is to be taken as an exception to the general
law in the absence of special circumstances forcing a contrary conclusion. This is because implied repeals are not
favored and as much as possible, effect must be given to all enactments of the legislature. A special law cannot be
repealed, amended or altered by a subsequent general law by mere implication.4

Thus, it has to be concluded that the charter of the Authority should prevail over the Local Government Code of 1991.
Considering the reasons behind the establishment of the Authority, which are environmental protection, navigational
safety, and sustainable development, there is every indication that the legislative intent is for the Authority to proceed
with its mission.

We are on all fours with the manifestation of petitioner Laguna Lake Development Authority that "Laguna de Bay, like
any other single body of water has its own unique natural ecosystem. The 900 km lake surface water, the eight (8)
major river tributaries and several other smaller rivers that drain into the lake, the 2,920 km basin or watershed
transcending the boundaries of Laguna and Rizal provinces, greater portion of Metro Manila, parts of Cavite, Batangas,
and Quezon provinces, constitute one integrated delicate natural ecosystem that needs to be protected with uniform set
of policies; if we are to be serious in our aims of attaining sustainable development. This is an exhaustible natural
resource a very limited one which requires judicious management and optimal utilization to ensure renewability
and preserve its ecological integrity and balance."

"Managing the lake resources would mean the implementation of a national policy geared towards the protection,
conservation, balanced growth and sustainable development of the region with due regard to the inter-generational use
of its resources by the inhabitants in this part of the earth. The authors of Republic Act 4850 have foreseen this need
when they passed this LLDA law the special law designed to govern the management of our Laguna de Bay lake
resources."

"Laguna de Bay therefore cannot be subjected to fragmented concepts of management policies where lakeshore local
government units exercise exclusive dominion over specific portions of the lake water. The garbage thrown or sewage
discharged into the lake, abstraction of water therefrom or construction of fishpens by enclosing its certain area, affect
not only that specific portion but the entire 900 km of lake water. The implementation of a cohesive and integrated
lake water resource management policy, therefore, is necessary to conserve, protect and sustainably develop Laguna de
Bay."5

The power of the local government units to issue fishing privileges was clearly granted for revenue purposes. This is
evident from the fact that Section 149 of the New Local Government Code empowering local governments to issue
fishing permits is embodied in Chapter 2, Book II, of Republic Act No. 7160 under the heading, "Specific Provisions
On The Taxing And Other Revenue Raising Power Of Local Government Units."

On the other hand, the power of the Authority to grant permits for fishpens, fishcages and other aqua-culture structures
is for the purpose of effectively regulating and monitoring activities in the Laguna de Bay region (Section 2, Executive
Order No. 927) and for lake quality control and management.6 It does partake of the nature of police power which is
the most pervasive, the least limitable and the most demanding of all State powers including the power of taxation.
Accordingly, the charter of the Authority which embodies a valid exercise of police power should prevail over the
Local Government Code of 1991 on matters affecting Laguna de Bay.

There should be no quarrel over permit fees for fishpens, fishcages and other aqua-culture structures in the Laguna de
Bay area. Section 3 of Executive Order No. 927 provides for the proper sharing of fees collected.

In respect to the question as to whether the Authority is a quasi-judicial agency or not, it is our holding that,
considering the provisions of Section 4 of Republic Act No. 4850 and Section 4 of Executive Order No. 927, series of
1983, and the ruling of this Court in Laguna Lake Development Authority vs. Court of Appeals, 231 SCRA 304, 306,
which we quote:

xxx xxx xxx

As a general rule, the adjudication of pollution cases generally pertains to the Pollution Adjudication
Board (PAB), except in cases where the special law provides for another forum. It must be recognized
in this regard that the LLDA, as a specialized administrative agency, is specifically mandated under
Republic Act No. 4850 and its amendatory laws to carry out and make effective the declared national
policy of promoting and accelerating the development and balanced growth of the Laguna Lake area
and the surrounding provinces of Rizal and Laguna and the cities of San Pablo, Manila, Pasay, Quezon
and Caloocan with due regard and adequate provisions for environmental management and control,
preservation of the quality of human life and ecological systems, and the prevention of undue
ecological disturbances, deterioration and pollution. Under such a broad grant of power and authority,
the LLDA, by virtue of its special charter, obviously has the responsibility to protect the inhabitants of
the Laguna Lake region from the deleterious effects of pollutants emanating from the discharge of
wastes from the surrounding areas. In carrying out the aforementioned declared policy, the LLDA is
mandated, among others, to pass upon and approve or disapprove all plans, programs, and projects
proposed by local government offices/agencies within the region, public corporations, and private
persons or enterprises where such plans, programs and/or projects are related to those of the LLDA for
the development of the region.

xxx xxx xxx

. . . . While it is a fundamental rule that an administrative agency has only such powers as are expressly
granted to it by law, it is likewise a settled rule that an administrative agency has also such powers as
are necessarily implied in the exercise of its express powers. In the exercise, therefore, of its express
 powers under its charter, as a regulatory and quasi-judicial body with respect to pollution cases in the
Laguna Lake region, the authority of the LLDA to issue a "cease and desist order" is, perforce,
implied. Otherwise, it may well be reduced to a "toothless" paper agency.

there is no question that the Authority has express powers as a regulatory and quasi-judicial body in respect to
pollution cases with authority to issue a "cease and desist order" and on matters affecting the construction of
illegal fishpens, fishcages and other aqua-culture structures in Laguna de Bay. The Authority's pretense,
however, that it is co-equal to the Regional Trial Courts such that all actions against it may only be instituted
before the Court of Appeals cannot be sustained. On actions necessitating the resolution of legal questions
affecting the powers of the Authority as provided for in its charter, the Regional Trial Courts have jurisdiction.

In view of the foregoing, this Court holds that Section 149 of Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, has not repealed the provisions of the charter of the Laguna Lake Development Authority,
Republic Act No. 4850, as amended. Thus, the Authority has the exclusive jurisdiction to issue permits for the
enjoyment of fishery privileges in Laguna de Bay to the exclusion of municipalities situated therein and the authority to
exercise such powers as are by its charter vested on it.

Removal from the Authority of the aforesaid licensing authority will render nugatory its avowed purpose of protecting
and developing the Laguna Lake Region. Otherwise stated, the abrogation of this power would render useless its reason
for being and will in effect denigrate, if not abolish, the Laguna Lake Development Authority. This, the Local
Government Code of 1991 had never intended to do.

WHEREFORE, the petitions for prohibition, certiorari and injunction are hereby granted, insofar as they relate to the
authority of the Laguna Lake Development Authority to grant fishing privileges within the Laguna Lake Region.

The restraining orders and/or writs of injunction issued by Judge Arturo Marave, RTC, Branch 78, Morong, Rizal;
Judge Herculano Tech, RTC, Branch 70, Binangonan, Rizal; and Judge Aurelio Trampe, RTC, Branch 163, Pasig,
Metro Manila, are hereby declared null and void and ordered set aside for having been issued with grave abuse of
discretion.

The Municipal Mayors of the Laguna Lake Region are hereby prohibited from issuing permits to construct and operate
fishpens, fishcages and other aqua-culture structures within the Laguna Lake Region, their previous issuances being
declared null and void. Thus, the fishing permits issued by Mayors Isidro B. Pacis, Municipality of Binangonan;
Ricardo D. Papa, Municipality of Taguig; and Walfredo M. de la Vega, Municipality of Jala-jala, specifically, are
likewise declared null and void and ordered cancelled.

The fishpens, fishcages and other aqua-culture structures put up by operators by virtue of permits issued by Municipal
Mayors within the Laguna Lake Region, specifically, permits issued to Fleet Development, Inc. and Carlito Arroyo;
Manila Marine Life Business Resources, Inc., represented by, Mr. Tobias Reynald M. Tiangco; Greenfield Ventures
Industrial Development Corporation and R.J. Orion Development Corporation; IRMA Fishing And Trading
Corporation, ARTM Fishing Corporation, BDR Corporation, Mirt Corporation and Trim Corporation; Blue Lagoon
Fishing Corporation and ALCRIS Chicken Growers, Inc.; AGP Fish Ventures, Inc., represented by its President
Alfonso Puyat; SEA MAR Trading Co., Inc., Eastern Lagoon Fishing Corporation, and MINAMAR Fishing
Corporation, are hereby declared illegal structures subject to demolition by the Laguna Lake Development Authority.

SO ORDERED.
 G.R. No. 113375 May 5, 1994
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE
TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P. ARROYO, petitioners, vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO CORONA, in his
capacity as Assistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto, Office of the
President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT
CORPORATION, respondents.

This is a special civil action for prohibition and injunction, with a prayer for a temporary restraining order and
preliminary injunction, which seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by
the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in
connection with the on- line lottery system, also known as "lotto."

Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic corporation composed of
civic-spirited citizens, pastors, priests, nuns, and lay leaders who are committed to the cause of truth, justice, and
national renewal. The rest of the petitioners, except Senators Freddie Webb and Wigberto Taada and Representative
Joker P. Arroyo, are suing in their capacities as members of the Board of Trustees of KILOSBAYAN and as taxpayers
and concerned citizens. Senators Webb and Taada and Representative Arroyo are suing in their capacities as members
of Congress and as taxpayers and concerned citizens of the Philippines.

The pleadings of the parties disclose the factual antecedents which triggered off the filing of this petition.

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the
authority to hold and conduct "charity sweepstakes races, lotteries and other similar activities," the PCSO decided to
establish an on- line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds.
Sometime before March 1993, after learning that the PCSO was interested in operating an on-line lottery system, the
Berjaya Group Berhad, "a multinational company and one of the ten largest public companies in Malaysia," long
"engaged in, among others, successful lottery operations in Asia, running both Lotto and Digit games, thru its
subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator Systems, Inc., . . . an American
public company engaged in the international sale or provision of computer systems, softwares, terminals, training and
other technical services to the gaming industry," "became interested to offer its services and resources to PCSO." As an
initial step, Berjaya Group Berhad (through its individual nominees) organized with some Filipino investors in March
1993 a Philippine corporation known as the Philippine Gaming Management Corporation (PGMC), which "was
intended to be the medium through which the technical and management services required for the project would be
offered and delivered to PCSO." 1

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line
lottery system for the PCSO. 2 Relevant provisions of the RFP are the following:

16. DEFINITION OF TERMS1. EXECUTIVE SUMMARY

xxx xxx xxx

1.2. PCSO is seeking a suitable contractor which shall build, at its own expense, all the facilities
('Facilities') needed to operate and maintain a nationwide on-line lottery system. PCSO shall lease the
Facilities for a fixed percentage ofquarterly gross receipts. All receipts from ticket sales shall be turned
over directly to PCSO. All capital, operating expenses and expansion expenses and risks shall be for
the exclusive account of the Lessor.

xxx xxx xxx

1.4. The lease shall be for a period not exceeding fifteen (15) years.

1.5. The Lessor is expected to submit a comprehensive nationwide lottery development plan
("Development Plan") which will include the game, the marketing of the games, and the logistics to
introduce the games to all the cities and municipalities of the country within five (5) years.

xxx xxx xxx

1.7. The Lessor shall be selected based on its technical expertise, hardware and software capability,
maintenance support, and financial resources. The Development Plan shall have a substantial bearing
on the choice of the Lessor. The Lessor shall be a domestic corporation, with at least sixty percent
(60%) of its shares owned by Filipino shareholders.

xxx xxx xxx

 The Office of the President, the National Disaster Control Coordinating Council, the Philippine
National Police, and the National Bureau of Investigation shall be authorized to use the nationwide
telecommunications system of the Facilities Free of Charge.

1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO without any additional
consideration. 3

xxx xxx xxx

2.2. OBJECTIVES

The objectives of PCSO in leasing the Facilities from a private entity are as follows:

xxx xxx xxx

2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no expense or risk to the
government.

xxx xxx xxx

2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR

xxx xxx xxx

2.4.2. THE LESSOR

The Proponent is expected to furnish and maintain the Facilities, including the personnel needed to
operate the computers, the communications network and sales offices under a build-lease basis. The
printing of tickets shall be undertaken under the supervision and control of PCSO. The Facilities shall
enable PCSO to computerize the entire gaming system.

The Proponent is expected to formulate and design consumer-oriented Master Games Plan suited to the
marketplace, especially geared to Filipino gaming habits and preferences. In addition, the Master
Games Plan is expected to include a Product Plan for each game and explain how each will be
introduced into the market. This will be an integral part of the Development Plan which PCSO will
require from the Proponent.

xxx xxx xxx

The Proponent is expected to provide upgrades to modernize the entire gaming system over the life
ofthe lease contract.

The Proponent is expected to provide technology transfer to PCSO technical personnel. 4

7. GENERAL GUIDELINES FOR PROPONENTS

xxx xxx xxx

Finally, the Proponent must be able to stand the acid test of proving that it is an entity able to take on
the role of responsible maintainer of the on-line lottery system, and able to achieve PSCO's goal of
formalizing an on-line lottery system to achieve its mandated objective. 5

xxx xxx xxx

Facilities: All capital equipment, computers, terminals, software, nationwide telecommunication

network, ticket sales offices, furnishings, and fixtures; printing costs; cost of salaries and wages;
advertising and promotion expenses; maintenance costs; expansion and replacement costs; security and
insurance, and all other related expenses needed to operate nationwide on-line lottery system.6

Considering the above citizenship requirement, the PGMC claims that the Berjaya Group "undertook to reduce its
equity stakes in PGMC to 40%," by selling 35% out of the original 75% foreign stockholdings to local investors.

On 15 August 1993, PGMC submitted its bid to the PCSO.7

The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line lottery
and its Bid Report was thereafter submitted to the Office of the President. 8 The submission was preceded by
complaints by the Committee's Chairperson, Dr. Mita Pardo de Tavera. 9

On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to
operate the country's on-line lottery system and that the corresponding implementing contract would be submitted not
later than 8 November 1993 "for final clearance and approval by the Chief Executive." 10 This announcement was
published in the Manila Standard, Philippine Daily Inquirer, and the Manila Times on 29 October 1993. 11

On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos strongly opposing the setting
up to the on-line lottery system on the basis of serious moral and ethical considerations. 12

At the meeting of the Committee on Games and Amusements of the Senate on 12 November 1993, KILOSBAYAN
reiterated its vigorous opposition to the on-line lottery on account of its immorality and illegality. 13

On 19 November 1993, the media reported that despite the opposition, "Malacaang will push through with the
operation of an on-line lottery system nationwide" and that it is actually the respondent PCSO which will operate the
lottery while the winning corporate bidders are merely "lessors." 14

On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award from
Executive Secretary Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive Secretary informed
KILOSBAYAN that the requested documents would be duly transmitted before the end of the month. 15. However, on
that same date, an agreement denominated as "Contract of Lease" was finally executed by respondent PCSO and
respondent PGMC. 16 The President, per the press statement issued by the Office of the President, approved it on 20
December 1993.17

In view of their materiality and relevance, we quote the following salient provisions of the Contract of Lease:

1. DEFINITIONS

The following words and terms shall have the following respective meanings:

1.1 Rental Fee Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of the
obligations of the LESSOR under this Contract, including, but not limited to the lease of the Facilities.

xxx xxx xxx

1.3 Facilities All capital equipment, computers, terminals, software (including source codes for the On-Line
Lottery application software for the terminals, telecommunications and central systems), technology, intellectual
property rights, telecommunications network, and furnishings and fixtures.

1.4 Maintenance and Other Costs All costs and expenses relating to printing, manpower, salaries and wages,
advertising and promotion, maintenance, expansion and replacement, security and insurance, and all other
related expenses needed to operate an On-Line Lottery System, which shall be for the account of the LESSOR.
All expenses relating to the setting-up, operation and maintenance of ticket sales offices of dealers and retailers
shall be borne by PCSO's dealers and retailers.

1.5 Development Plan The detailed plan of all games, the marketing thereof, number of players, value of
winnings and the logistics required to introduce the games, including the Master Games Plan as approved by
PCSO, attached hereto as Annex "A", modified as necessary by the provisions of this Contract.

xxx xxx xxx

1.8 Escrow Deposit The proposal deposit in the sum of Three Hundred Million Pesos (P300,000,000.00)
submitted by the LESSOR to PCSO pursuant to the requirements of the Request for Proposals.

2. SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for the On-Line Lottery
System of PCSO in the Territory on an exclusive basis. The LESSOR shall bear all Maintenance and Other
Costs as defined herein.

xxx xxx xxx

3. RENTAL FEE

For and in consideration of the performance by the LESSOR of its obligations herein, PCSO shall pay LESSOR
a fixed Rental Fee equal to four point nine percent (4.9%) of gross receipts from ticket sales, payable net of taxes
required by law to be withheld, on a semi-monthly basis. Goodwill, franchise and similar fees shall belong to
PCSO.

4. LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of effectivity of this Contract and shall
run for a period of eight (8) years thereafter, unless sooner terminated in accordance with this Contract.

5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE LOTTERY SYSTEM

PCSO shall be the sole and individual operator of the On-Line Lottery System. Consequently:

5.1 PCSO shall have sole responsibility to decide whether to implement, fully or partially, the Master Games
Plan of the LESSOR. PCSO shall have the sole responsibility to determine the time for introducing new games
to the market. The Master Games Plan included in Annex "A" hereof is hereby approved by PCSO.

5.2 PCSO shall have control over revenues and receipts of whatever nature from the On-Line Lottery System.
After paying the Rental Fee to the LESSOR, PCSO shall have exclusive responsibility to determine the Revenue
Allocation Plan; Provided, that the same shall be consistent with the requirement of R.A. No. 1169, as amended,
which fixes a prize fund of fifty five percent (55%) on the average.

5.3 PCSO shall have exclusive control over the printing of tickets, including but not limited to the design, text,
and contents thereof.

5.4 PCSO shall have sole responsibility over the appointment of dealers or retailers throughout the country.
PCSO shall appoint the dealers and retailers in a timely manner with due regard to the implementation timetable
of the On-Line Lottery System. Nothing herein shall preclude the LESSOR from recommending dealers or
retailers for appointment by PCSO, which shall act on said recommendation within forty-eight (48) hours.

5.5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line
Lottery System. For this purpose, PCSO designees shall be given, free of charge, suitable and adequate space,
furniture and fixtures, in all offices of the LESSOR, including but not limited to its headquarters, alternate site,
regional and area offices.

5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all matters involving the
operation of the On-Line Lottery System not otherwise provided in this Contract.

5.7 PCSO shall promulgate procedural and coordinating rules governing all activities relating to the On-Line
Lottery System.

5.8 PCSO will be responsible for the payment of prize monies, commissions to agents and dealers, and taxes and
levies (if any) chargeable to the operator of the On-Line Lottery System. The LESSOR will bear all other
Maintenance and Other Costs, except as provided in Section 1.4.

5.9 PCSO shall assist the LESSOR in the following:

5.9.1 Work permits for the LESSOR's staff;

5.9.2 Approvals for importation of the Facilities;

5.9.3 Approvals and consents for the On-Line Lottery System; and

5.9.4 Business and premises licenses for all offices of the LESSOR and licenses for the telecommunications
network.

5.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation of the On-Line Lottery
System, in breach of this Contract and through no fault of the LESSOR, PCSO shall promptly, and in any event
not later than sixty (60) days, reimburse the LESSOR the amount of its total investment cost associated with the
On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the
LESSOR for loss of expected net profit after tax, computed over the unexpired term of the lease.

6. DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery
System of PCSO. It is understood that the rights of the LESSOR are primarily those of a lessor of the Facilities,
and consequently, all rights involving the business aspects of the use of the Facilities are within the jurisdiction
of PCSO. During the term of the lease, the LESSOR shall.
6.1 Maintain and preserve its corporate existence, rights and privileges, and conduct its business in an orderly,
efficient, and customary manner.

6.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.

6.3 Comply with all laws, statues, rules and regulations, orders and directives, obligations and duties by which it
is legally bound.

6.4 Duly pay and discharge all taxes, assessments and government charges now and hereafter imposed of
whatever nature that may be legally levied upon it.

6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace and improve the Facilities
from time to time as new technology develops, in order to make the On-Line Lottery System more cost-effective
and/or competitive, and as may be required by PCSO shall not impose such requirements unreasonably nor
arbitrarily.

6.6 Provide PCSO with management terminals which will allow real-time monitoring of the On-Line Lottery
System.

6.7 Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer
of technology and expertise, such that at the end of the term of this Contract, PCSO will be able to effectively
take-over the Facilities and efficiently operate the On-Line Lottery System.

6.8 Undertake a positive advertising and promotions campaign for both institutional and product lines without
engaging in negative advertising against other lessors.

6.9 Bear all expenses and risks relating to the Facilities including, but not limited to, Maintenance and Other
Costs and:

xxx xxx xxx

6.10 Bear all risks if the revenues from ticket sales, on an annualized basis, are insufficient to pay the entire prize
money.

6.11 Be, and is hereby, authorized to collect and retain for its own account, a security deposit from dealers and
retailers, in an amount determined with the approval of PCSO, in respect of equipment supplied by the LESSOR.
PCSO's approval shall not be unreasonably withheld.

xxx xxx xxx

6.12 Comply with procedural and coordinating rules issued by PCSO.

7. REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

7.1 The LESSOR is corporation duly organized and existing under the laws of the Republic of the Philippines, at
least sixty percent (60%) of the outstanding capital stock of which is owned by Filipino shareholders. The
minimum required Filipino equity participation shall not be impaired through voluntary or involuntary transfer,
disposition, or sale of shares of stock by the present stockholders.

7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate
their properties and to carry on their business in the place where such properties are now or may be conducted. . .
.

7.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively
carry out the terms of this Contract. . . .

7.4 The LESSOR has or has access to all the managerial and technical expertise to promptly and effectively
carry out the terms of this Contract. . . .

xxx xxx xxx

10. TELECOMMUNICATIONS NETWORK

The LESSOR shall establish a telecommunications network that will connect all municipalities and cities in the
Territory in accordance with, at the LESSOR's option, either of the LESSOR's proposals (or a combinations of
both such proposals) attached hereto as Annex "B," and under the following PCSO schedule:
xxx xxx xxx

PCSO may, at its option, require the LESSOR to establish the telecommunications network in accordance with
the above Timetable in provinces where the LESSOR has not yet installed terminals. Provided, that such
provinces have existing nodes. Once a municipality or city is serviced by land lines of a licensed public
telephone company, and such lines are connected to Metro Manila, then the obligation of the LESSOR to
connect such municipality or city through a telecommunications network shall cease with respect to such
municipality or city. The voice facility will cover the four offices of the Office of the President, National
Disaster Control Coordinating Council, Philippine National Police and the National Bureau of Investigation, and
each city and municipality in the Territory except Metro Manila, and those cities and municipalities which have
easy telephone access from these four offices. Voice calls from the four offices shall be transmitted via radio or
VSAT to the remote municipalities which will be connected to this voice facility through wired network or by
radio. The facility shall be designed to handle four private conversations at any one time.

xxx xxx xxx

13. STOCK DISPERSAL PLAN

Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to be listed in the local
stock exchange and offer at least twenty five percent (25%) of its equity to the public.

14. NON-COMPETITION

The LESSOR shall not, directly or indirectly, undertake any activity or business in competition with or adverse
to the On-Line Lottery System of PCSO unless it obtains the latter's prior written consent thereto.

15. HOLD HARMLESS CLAUSE

15.1 The LESSOR shall at all times protect and defend, at its cost and expense, PCSO from and against any and
all liabilities and claims for damages and/or suits for or by reason of any deaths of, or any injury or injuries to
any person or persons, or damages to property of any kind whatsoever, caused by the LESSOR, its
subcontractors, its authorized agents or employees, from any cause or causes whatsoever.

15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless from all liabilities,
charges, expenses (including reasonable counsel fees) and costs on account of or by reason of any such death or
deaths, injury or injuries, liabilities, claims, suits or losses caused by the LESSOR's fault or negligence.

15.3 The LESSOR shall at all times protect and defend, at its own cost and expense, its title to the facilities and
PCSO's interest therein from and against any and all claims for the duration of the Contract until transfer to
PCSO of ownership of the serviceable Facilities.

16. SECURITY

16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the LESSOR shall secure a
Performance Bond from a reputable insurance company or companies acceptable to PCSO.

16.2 The Performance Bond shall be in the initial amount of Three Hundred Million Pesos (P300,000,000.00), to
its U.S. dollar equivalent, and shall be renewed to cover the duration of the Contract. However, the Performance
Bond shall be reduced proportionately to the percentage of unencumbered terminals installed; Provided, that the
Performance Bond shall in no case be less than One Hundred Fifty Million Pesos (P150,000,000.00).

16.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance Bond. . . .

17. PENALTIES

17.1 Except as may be provided in Section 17.2, should the LESSOR fail to take remedial measures within seven
(7) days, and rectify the breach within thirty (30) days, from written notice by PCSO of any wilfull or grossly
negligent violation of the material terms and conditions of this Contract, all unencumbered Facilities shall
automatically become the property of PCSO without consideration and without need for further notice or
demand by PCSO. The Performance Bond shall likewise be forfeited in favor of PCSO.

17.2 Should the LESSOR fail to comply with the terms of the Timetables provided in Section 9 and
10, it shall be subject to an initial Penalty of Twenty Thousand Pesos (P20,000.00), per city or
municipality per every month of delay; Provided, that the Penalty shall increase, every ninety (90)
days, by the amount of Twenty Thousand Pesos (P20,000.00) per city or municipality per month,
whilst shall failure to comply persists. The penalty shall be deducted by PCSO from the rental fee.

xxx xxx xxx

 20. OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities directly required for the On-Line
Lottery System mentioned in Section 1.3 shall automatically belong in full ownership to PCSO without any
further consideration other than the Rental Fees already paid during the effectivity of the lease.

21. TERMINATION OF THE LEASE

PCSO may terminate this Contract for any breach of the material provisions of this Contract, including the
following:

21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or suspends or threatens to stop or
suspend payment of all or a material part of its debts, or proposes or makes a general assignment or an
arrangement or compositions with or for the benefit of its creditors; or

21.2 An order is made or an effective resolution passed for the winding up or dissolution of the LESSOR or
when it ceases or threatens to cease to carry on all or a material part of its operations or business; or

21.3 Any material statement, representation or warranty made or furnished by the LESSOR proved to be
materially false or misleading;

said termination to take effect upon receipt of written notice of termination by the LESSOR and failure to
take remedial action within seven (7) days and cure or remedy the same within thirty (30) days from
notice.

Any suspension, cancellation or termination of this Contract shall not relieve the LESSOR of any liability
that may have already accrued hereunder.

xxx xxx xxx

Considering the denial by the Office of the President of its protest and the statement of Assistant Executive Secretary
Renato Corona that "only a court injunction can stop Malacaang," and the imminent implementation of the Contract
of Lease in February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.

In support of the petition, the petitioners claim that:

. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS EXECUTIVE

SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR LEGAL AFFAIRS, AND THE
PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO
LACK OF JURISDICTION AND/OR AUTHORITY IN RESPECTIVELY: (A) APPROVING THE
AWARD OF THE CONTRACT TO, AND (B) ENTERING INTO THE SO-CALLED "CONTRACT OF
LEASE" WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT AND
OPERATION OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED
AND/OR AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING THAT:

a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting lotteries "in
collaboration, association or joint venture with any person, association, company or entity";

b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before any person
may be allowed to establish and operate said telecommunications system;

c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlled
corporation, like the PGMC, is disqualified from operating a public service, like the said telecommunications
system; and

d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A. No. 7042) to
install, establish and operate the on-line lotto and telecommunications systems.18

Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC because it is
an arrangement wherein the PCSO would hold and conduct the on-line lottery system in "collaboration" or
"association" with the PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting charity sweepstakes races, lotteries, and other similar activities "in
collaboration, association or joint venture with any person, association, company or entity, foreign or domestic." Even
granting arguendo that a lease of facilities is not within the contemplation of "collaboration" or "association," an
analysis, however, of the Contract of Lease clearly shows that there is a "collaboration, association, or joint venture
between respondents PCSO and PGMC in the holding of the On-Line Lottery System," and that there are terms and
conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not respondent PCSO." 19
The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes PGMC to establish a
telecommunications network that will connect all the municipalities and cities in the territory. However, PGMC cannot
do that because it has no franchise from Congress to construct, install, establish, or operate the network pursuant to
Section 1 of Act No. 3846, as amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation and
cannot, therefore, be granted a franchise for that purpose because of Section 11, Article XII of the 1987 Constitution.
Furthermore, since "the subscribed foreign capital" of the PGMC "comes to about 75%, as shown by paragraph EIGHT
of its Articles of Incorporation," it cannot lawfully enter into the contract in question because all forms of gambling
and lottery is one of them are included in the so-called foreign investments negative list under the Foreign
Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allowed. 20

Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish and operate an
on-line lottery and telecommunications systems.21

Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of preliminary injunction
commanding the respondents or any person acting in their places or upon their instructions to cease and desist from
implementing the challenged Contract of Lease and, after hearing the merits of the petition, that we render judgment
declaring the Contract of Lease void and without effect and making the injunction permanent. 22

We required the respondents to comment on the petition.

In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is merely an independent
contractor for a piece of work, (i.e., the building and maintenance of a lottery system to be used by PCSO in the
operation of its lottery franchise); and (2) as such independent contractor, PGMC is not a co-operator of the lottery
franchise with PCSO, nor is PCSO sharing its franchise, 'in collaboration, association or joint venture' with PGMC
as such statutory limitation is viewed from the context, intent, and spirit of Republic Act 1169, as amended by Batas
Pambansa 42." It further claims that as an independent contractor for a piece of work, it is neither engaged in
"gambling" nor in "public service" relative to the telecommunications network, which the petitioners even consider as
an "indispensable requirement" of an on-line lottery system. Finally, it states that the execution and implementation of
the contract does not violate the Constitution and the laws; that the issue on the "morality" of the lottery franchise
granted to the PCSO is political and not judicial or legal, which should be ventilated in another forum; and that the
"petitioners do not appear to have the legal standing or real interest in the subject contract and in obtaining the reliefs
sought." 23

In their Comment filed by the Office of the Solicitor General, public respondents Executive Secretary Teofisto
Guingona, Jr., Assistant Executive Secretary Renato Corona, and the PCSO maintain that the contract of lease in
question does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's
interpretation of the phrase "in collaboration, association or joint venture" in Section 1 is "much too narrow, strained
and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate entity, is vested with the basic and
essential prerogative to enter into all kinds of transactions or contracts as may be necessary for the attainment of its
purposes and objectives." What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint venture" or
partnership where there is "community of interest in the business, sharing of profits and losses, and a mutual right of
control," a characteristic which does not obtain in a contract of lease." With respect to the challenged Contract of
Lease, the "role of PGMC is limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical
and legal sense," said contract "can be categorized as a contract for a piece of work as defined in Articles 1467, 1713
and 1644 of the Civil Code."

They further claim that the establishment of the telecommunications system stipulated in the Contract of Lease does
not require a congressional franchise because PGMC will not operate a public utility; moreover, PGMC's
"establishment of a telecommunications system is not intended to establish a telecommunications business," and it has
been held that where the facilities are operated "not for business purposes but for its own use," a legislative franchise is
not required before a certificate of public convenience can be granted. 24 Even granting arguendo that PGMC is a
public utility, pursuant to Albano S.
Reyes, 25 "it can establish a telecommunications system even without a legislative franchise because not every public
utility is required to secure a legislative franchise before it could establish, maintain, and operate the service"; and, in
any case, "PGMC's establishment of the telecommunications system stipulated in its contract of lease with PCSO falls
within the exceptions under Section 1 of Act No. 3846 where a legislative franchise is not necessary for the
establishment of radio stations."

They also argue that the contract does not violate the Foreign Investment Act of 1991; that the Articles of Incorporation
of PGMC authorize it to enter into the Contract of Lease; and that the issues of "wisdom, morality and propriety of acts
of the executive department are beyond the ambit of judicial review."

Finally, the public respondents allege that the petitioners have no standing to maintain the instant suit, citing our
resolution in Valmonte vs. Philippine Charity Sweepstakes Office. 26

Several parties filed motions to intervene as petitioners in this case, 27 but only the motion of Senators Alberto Romulo,
Arturo Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto III, John Osmea, Ramon Revilla, and
Jose Lina 28 was granted, and the respondents were required to comment on their petition in intervention, which the
public respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a petition
against PGMC for the nullification of the latter's General Information Sheets. That case, however, has no bearing in
this petition.

On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to consider the matter submitted for
resolution and pending resolution of the major issues in this case, to issue a temporary restraining order commanding
the respondents or any person acting in their place or upon their instructions to cease and desist from implementing the
challenged Contract of Lease.

In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) the locus standi of the
petitioners, and (b) the legality and validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or entity, whether domestic or foreign." On the first
issue, seven Justices voted to sustain the locus standi of the petitioners, while six voted not to. On the second issue, the
seven Justices were of the opinion that the Contract of Lease violates the exception to Section 1(B) of R.A. No. 1169,
as amended by B.P. Blg. 42, and is, therefore, invalid and contrary to law. The six Justices stated that they wished to
express no opinion thereon in view of their stand on the first issue. The Chief Justice took no part because one of the
Directors of the PCSO is his brother-in-law.

This case was then assigned to this ponente for the writing of the opinion of the Court.

The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in their favor. A party's standing
before this Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the
importance of the issues raised. In the landmark Emergency Powers Cases, 29 this Court brushed aside this technicality
because "the transcendental importance to the public of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as
taxpayers' suits are concerned, this Court had declared that it "is not devoid of discretion as to whether or not it should
be entertained," 30 or that it "enjoys an open discretion to entertain the same or not." 31 In De La Llana vs. Alba, 32 this
Court declared:

1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana is
concerned, he certainly falls within the principle set forth in Justice Laurel's opinion in People vs. Vera [65 Phil.
56 (1937)]. Thus: "The unchallenged rule is that the person who impugns the validity of a statute must have a
personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its
enforcement [Ibid, 89]. The other petitioners as members of the bar and officers of the court cannot be considered
as devoid of "any personal and substantial interest" on the matter. There is relevance to this excerpt from a
separate opinion in Aquino, Jr. v. Commission on Elections [L-40004, January 31, 1975, 62 SCRA 275]: "Then
there is the attack on the standing of petitioners, as vindicating at most what they consider a public right and not
protecting their rights as individuals. This is to conjure the specter of the public right dogma as an inhibition to
parties intent on keeping public officials staying on the path of constitutionalism. As was so well put by Jaffe;
"The protection of private rights is an essential constituent of public interest and, conversely, without a well-
ordered state there could be no enforcement of private rights. Private and public interests are, both in a substantive
and procedural sense, aspects of the totality of the legal order." Moreover, petitioners have convincingly shown
that in their capacity as taxpayers, their standing to sue has been amply demonstrated. There would be a retreat
from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by the very decision
of People v. Vera where the doctrine was first fully discussed, if we act differently now. I do not think we are
prepared to take that step. Respondents, however, would hard back to the American Supreme Court doctrine
in Mellon v. Frothingham, with their claim that what petitioners possess "is an interest which is shared in common
by other people and is comparatively so minute and indeterminate as to afford any basis and assurance that the
judicial process can act on it." That is to speak in the language of a bygone era, even in the United States. For as
Chief Justice Warren clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not breached
has definitely been lowered.

In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan,33 reiterated in Basco vs. Philippine
Amusements and Gaming Corporation,34 this Court stated:

Objections to taxpayers' suits for lack of sufficient personality standing or interest are, however, in the main
procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept
themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to
them, this Court has brushed aside technicalities of procedure and has taken cognizance of these petitions.

and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform,35 it declared:

With particular regard to the requirement of proper party as applied in the cases before us, we hold that the same is
satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an
immediate injury as a result of the acts or measures complained of. [Ex ParteLevitt, 303 US 633]. And even if,
strictly speaking, they are not covered by the definition, it is still within the wide discretion of the Court to waive
the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions
raised.
 In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were invoking only an
indirect and general interest shared in common with the public. The Court dismissed the objective that they were
not proper parties and ruled that the transcendental importance to the public of these cases demands that they be
settled promptly and definitely, brushing aside, if we must, technicalities of procedure. We have since then applied
this exception in many other cases. (Emphasis supplied)

In Daza vs. Singson, 36 this Court once more said:

. . . For another, we have early as in the Emergency Powers Cases that where serious constitutional questions are
involved, "the transcendental importance to the public of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure." The same policy has since then been
consistently followed by the Court, as in Gonzales vs. Commission on Elections [21 SCRA 774] . . .

The Federal Supreme Court of the United States of America has also expressed its discretionary power to liberalize the
rule on locus standi. In United States vs. Federal Power Commission and Virginia Rea Association vs. Federal Power
Commission,37 it held:

We hold that petitioners have standing. Differences of view, however, preclude a single opinion of the Court as to
both petitioners. It would not further clarification of this complicated specialty of federal jurisdiction, the solution
of whose problems is in any event more or less determined by the specific circumstances of individual situations,
to set out the divergent grounds in support of standing in these cases.

In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even
association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this
Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government
agencies or instrumentalities. Among such cases were those assailing the constitutionality of (a) R.A. No. 3836 insofar
as it allows retirement gratuity and commutation of vacation and sick leave to Senators and Representatives and to
elective officials of both Houses of Congress;38 (b) Executive Order No. 284, issued by President Corazon C. Aquino
on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries to hold other
government offices or positions; 39 (c) the automatic appropriation for debt service in the General Appropriations
Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41 (d) R.A. No. 1869 (the charter of the
Philippine Amusement and Gaming Corporation) on the ground that it is contrary to morals, public policy, and
order; 42 and (f) R.A. No. 6975, establishing the Philippine National
Police. 43

Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or
legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452; 44 (b)
P.D. Nos. 991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it
directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976; 45(c)
the bidding for the sale of the 3,179 square meters of land at Roppongi, Minato-ku, Tokyo, Japan; 46 (d) the approval
without hearing by the Board of Investments of the amended application of the Bataan Petrochemical Corporation to
transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of feedstock from
naphtha only to naphtha and/or liquefied petroleum gas; 47 (e) the decisions, orders, rulings, and resolutions of the
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the
Fiscal Incentives Review Board exempting the National Power Corporation from indirect tax and duties; 48 (f) the
orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings conducted on the
second provisional increase in oil prices did not allow the petitioner substantial cross-examination; 49 (g) Executive
Order No. 478 which levied a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and P1.00 per
liter of imported oil products; 50 (h) resolutions of the Commission on Elections concerning the apportionment, by
district, of the number of elective members of Sanggunians; 51 and (i) memorandum orders issued by a Mayor affecting
the Chief of Police of Pasay City.52

In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its unequivocal ruling that the petitioners
therein had no personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-
reaching implications of the petition. We did no less in De Guia vs. COMELEC 54 where, although we declared that De
Guia "does not appear to have locus standi, a standing in law, a personal or substantial interest," we brushed aside the
procedural infirmity "considering the importance of the issue involved, concerning as it does the political exercise of
qualified voters affected by the apportionment, and petitioner alleging abuse of discretion and violation of the
Constitution by respondent."

We find the instant petition to be of transcendental importance to the public. The issues it raised are of paramount
public interest and of a category even higher than those involved in many of the aforecited cases. The ramifications of
such issues immeasurably affect the social, economic, and moral well-being of the people even in the remotest
barangays of the country and the counter-productive and retrogressive effects of the envisioned on-line lottery system
are as staggering as the billions in pesos it is expected to raise. The legal standing then of the petitioners deserves
recognition and, in the exercise of its sound discretion, this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.

And now on the substantive issue.

Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO from holding and conducting lotteries
"in collaboration, association or joint venture with any person, association, company or entity, whether domestic or
foreign." Section 1 provides:

Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity Sweepstakes Office, hereinafter
designated the Office, shall be the principal government agency for raising and providing for funds for health
programs, medical assistance and services and charities of national character, and as such shall have the general
powers conferred in section thirteen of Act Numbered One thousand four hundred fifty-nine, as amended, and
shall have the authority:

A. To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such frequency
and manner, as shall be determined, and subject to such rules and regulations as shall be promulgated by the
Board of Directors.

B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related
investments, programs, projects and activities which may be profit-oriented, by itself or in collaboration,
association or joint venture with any person, association, company or entity, whether domestic or
foreign, except for the activities mentioned in the preceding paragraph (A), for the purpose of providing for
permanent and continuing sources of funds for health programs, including the expansion of existing ones,
medical assistance and services, and/or charitable grants: Provided, That such investment will not compete
with the private sector in areas where investments are adequate as may be determined by the National
Economic and Development Authority. (emphasis supplied)

The language of the section is indisputably clear that with respect to its franchise or privilege "to hold and conduct
charity sweepstakes races, lotteries and other similar activities," the PCSO cannot exercise it "in collaboration,
association or joint venture" with any other party. This is the unequivocal meaning and import of the phrase "except for
the activities mentioned in the preceding paragraph (A)," namely, "charity sweepstakes races, lotteries and other
similar activities."

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee Report No. 103 as reported
out by the Committee on Socio-Economic Planning and Development of the Interim Batasang Pambansa. The original
text of paragraph B, Section 1 of Parliamentary Bill No. 622 reads as follows:

To engage in any and all investments and related profit-oriented projects or programs and activities by itself or in
collaboration, association or joint venture with any person, association, company or entity, whether domestic or
foreign, for the main purpose of raising funds for health and medical assistance and services and charitable
grants. 55

During the period of committee amendments, the Committee on Socio-Economic Planning and Development, through
Assemblyman Ronaldo B. Zamora, introduced an amendment by substitution to the said paragraph B such that, as
amended, it should read as follows:

Subject to the approval of the Minister of Human Settlements, to engage in health-oriented investments,
programs, projects and activities which may be profit- oriented, by itself or in collaboration, association, or joint
venture with any person, association, company or entity, whether domestic or foreign, for the purpose of
providing for permanent and continuing sources of funds for health programs, including the expansion of
existing ones, medical assistance and services and/or charitable grants. 56

Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon, Assemblyman
Davide introduced an amendment to the amendment:

MR. DAVIDE. Mr. Speaker.

THE SPEAKER. The gentleman from Cebu is recognized.

MR. DAVIDE. May I introduce an amendment to the committee amendment? The

amendment would be to insert after "foreign" in the amendment just read the following: EXCEPT FOR
THE ACTIVITY IN LETTER (A) ABOVE.

When it is joint venture or in collaboration with any entity such collaboration or joint venture
must not include activity activity letter (a) which is the holding and conducting of sweepstakes races,
lotteries and other similar acts.

MR. ZAMORA. We accept the amendment, Mr. Speaker.

MR. DAVIDE. Thank you, Mr. Speaker.

THE SPEAKER. Is there any objection to the amendment? (Silence) The amendment, as
amended, is approved. 57
Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read the final text of
paragraph B as further amended, the earlier approved amendment of Assemblyman Davide became "EXCEPT FOR
THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of the amendment introduced by
Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted before PARAGRAPH. Assemblyman Pelaez
introduced other amendments. Thereafter, the new paragraph B was approved. 58

This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.

No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold
or conduct charity sweepstakes races, lotteries, or other similar activities is a franchise granted by the legislature to the
PCSO. It is a settled rule that "in all grants by the government to individuals or corporations of rights, privileges and
franchises, the words are to be taken most strongly against the grantee .... [o]ne who claims a franchise or privilege in
derogation of the common rights of the public must prove his title thereto by a grant which is clearly and definitely
expressed, and he cannot enlarge it by equivocal or doubtful provisions or by probable inferences. Whatever is not
unequivocally granted is withheld. Nothing passes by mere implication." 59

In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the PCSO cannot share its
franchise with another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease
such franchise. It has been said that "the rights and privileges conferred under a franchise may, without doubt, be
assigned or transferred when the grant is to the grantee and assigns, or is authorized by statute. On the other hand, the
right of transfer or assignment may be restricted by statute or the constitution, or be made subject to the approval of the
grantor or a governmental agency, such as a public utilities commission, exception that an existing right of assignment
cannot be impaired by subsequent legislation." 60

It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to hold and
conduct a species of gambling. It is settled that "a statute which authorizes the carrying on of a gambling activity or
business should be strictly construed and every reasonable doubt so resolved as to limit the powers and rights claimed
under its authority." 61

Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as amended
by B.P. Blg. 42, which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint
venture with" another?

We agree with the petitioners that it does, notwithstanding its denomination or designation as a (Contract of Lease).
We are neither convinced nor moved or fazed by the insistence and forceful arguments of the PGMC that it does not
because in reality it is only an independent contractor for a piece of work, i.e., the building and maintenance of a lottery
system to be used by the PCSO in the operation of its lottery franchise. Whether the contract in question is one of lease
or whether the PGMC is merely an independent contractor should not be decided on the basis of the title or designation
of the contract but by the intent of the parties, which may be gathered from the provisions of the contract itself. Animus
hominis est anima scripti. The intention of the party is the soul of the instrument. In order to give life or effect to an
instrument, it is essential to look to the intention of the individual who executed it. 62 And, pursuant to Article 1371 of
the Civil Code, "to determine the intention of the contracting parties, their contemporaneous and subsequent acts shall
be principally considered." To put it more bluntly, no one should be deceived by the title or designation of a contract.

A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of
the PCSO and PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC
is merely an independent contractor for a piece of work, but one where the statutorily
proscribed collaboration or association, in the least, or joint venture, at the most, exists between the contracting
parties. Collaboration is defined as the acts of working together in a joint project. 63 Association means the act of a
number of persons in uniting together for some special purpose or business. 64 Joint venture is defined as an association
of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share
risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the
policy in connection therewith, and duty, which may be altered by agreement to share both in profit and
losses.65

The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the
expertise to operate and manage an on-line lottery system, and that although it wished to have the system, it would
have it "at no expense or risks to the government." Because of these serious constraints and unwillingness to bear
expenses and assume risks, the PCSO was candid enough to state in its RFP that it is seeking for "a suitable contractor
which shall build, at its own expense, all the facilities needed to operate and maintain" the system; exclusively bear "all
capital, operating expenses and expansion expenses and risks"; and submit "a comprehensive nationwide lottery
development plan . . . which will include the game, the marketing of the games, and the logistics to introduce the game
to all the cities and municipalities of the country within five (5) years"; and that the operation of the on-line lottery
system should be "at no expense or risk to the government" meaning itself, since it is a government-owned and
controlled agency. The facilities referred to means "all capital equipment, computers, terminals, software, nationwide
telecommunications network, ticket sales offices, furnishings and fixtures, printing costs, costs of salaries and wages,
advertising and promotions expenses, maintenance costs, expansion and replacement costs, security and insurance, and
all other related expenses needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system;
with the rest, including the risks of the business, being borne by the proponent or bidder. It could be for this reason that
it warned that "the proponent must be able to stand to the acid test of proving that it is an entity able to take on the role
of responsible maintainer of the on-line lottery system." The PCSO, however, makes it clear in its RFP that the
proponent can propose a period of the contract which shall not exceed fifteen years, during which time it is assured of a
"rental" which shall not exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the PCSO's
decision, the Berjaya Group Berhad, with its affiliates, wanted to offer its services and resources to the PCSO.
Forthwith, it organized the PGMC as "a medium through which the technical and management services required for
the project would be offered and delivered to PCSO." 66

Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery system, the
PCSO had nothing but its franchise, which it solemnly guaranteed it had in the General Information of the
RFP. 67Howsoever viewed then, from the very inception, the PCSO and the PGMC mutually understood that any
arrangement between them would necessarily leave to the PGMC the technical, operations, and managementaspects of
the on-line lottery system while the PCSO would, primarily, provide the franchise. The
words Gaming andManagement in the corporate name of respondent Philippine Gaming Management Corporation
could not have been conceived just for euphemistic purposes. Of course, the RFP cannot substitute for the Contract of
Lease which was subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates
their intention and understanding.

The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a crafty device,
carefully conceived, to provide a built-in defense in the event that the agreement is questioned as violative of the
exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily
manifests itself in the Contract of Lease. It is outstanding for its careful and meticulous drafting designed to give an
immediate impression that it is a contract of lease. Yet, woven therein are provisions which negate its title and betray
the true intention of the parties to be in or to have a joint venture for a period of eight years in the operation and
maintenance of the on-line lottery system.

Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the PGMC
represents and warrants that it has access to all managerial and technical expertise to promptly and effectively carry
out the terms of the contract. And, for a period of eight years, the PGMC is under obligation to keep all the Facilitiesin
safe condition and if necessary, upgrade, replace, and improve them from time to time as new technology develops to
make the on-line lottery system more cost-effective and competitive; exclusively bear all costs and expenses relating to
the printing, manpower, salaries and wages, advertising and promotion, maintenance, expansion and replacement,
security and insurance, and all other related expenses needed to operate the on-line lottery system; undertake a positive
advertising and promotions campaign for both institutional and product lines without engaging in negative advertising
against other lessors; bear the salaries and related costs of skilled and qualified personnel for administrative and
technical operations; comply with procedural and coordinating rulesissued by the PCSO; and to train PCSO and other
local personnel and to effect the transfer of technology and other expertise, such that at the end of the term of the
contract, the PCSO will be able to effectively take over the Facilities and efficiently operate the on-line lottery system.
The latter simply means that, indeed, the managers, technicians or employees who shall operate the on-line lottery
system are not managers, technicians or employees of the PCSO, but of the PGMC and that it is only after the
expiration of the contract that the PCSO will operate the system. After eight years, the PCSO would automatically
become the owner of the Facilities without any other further consideration.

For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing
thereof, and determine the number of players, value of winnings, and the logistics required to introduce the games,
including the Master Games Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while
the PCSO has the sole responsibility over the appointment of dealers and retailers throughout the country, the PGMC
may, nevertheless, recommend for appointment dealers and retailers which shall be acted upon by the PCSO within
forty-eight hours and collect and retain, for its own account, a security deposit from dealers and retailers in respect of
equipment supplied by it.

This joint venture is further established by the following:

(a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its
obligations under the contract, including, but not limited to the lease of the Facilities. However, this rent is not actually
a fixed amount. Although it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes required by law
to be withheld, it may be drastically reduced or, in extreme cases, nothing may be due or demandable at all because the
PGMC binds itself to "bear all risks if the revenue from the ticket sales, on an annualized basis, are insufficient to pay
the entire prize money." This risk-bearing provision is unusual in a lessor-lessee relationship, but inherent in a joint
venture.

(b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery
system in breach of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any
event not later than sixty (60) days, reimburse the Lessor the amount of its total investment cost associated with the
On-Line Lottery System, including but not limited to the cost of the Facilities, and further compensate the LESSOR for
loss of expected net profit after tax, computed over the unexpired term of the lease." If the contract were indeed one of
lease, the payment of the expected profits or rentals for the unexpired portion of the term of the contract would be
enough.
(c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the
On-Line Lottery System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the
business of leasing equipment and technology for an on-line lottery system, we fail to see any acceptable reason why it
should allow a restriction on the pursuit of such business.

(d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from
the effectivity of the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to
the public. If the PGMC is merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to
the fact that the PGMC will actually operate and manage the system; hence, increasing public participation in the
corporation would enhance public interest.

(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it
may, at its option, maintain as its initial performance bond required to ensure its faithful compliance with the terms of
the contract.

(f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery
system; and promulgate procedural and coordinating rules governing all activities relating to the on-line lottery
system. The first further confirms that it is the PGMC which will operate the system and the PCSO may, for the
protection of its interest, monitor and audit the daily performance of the system. The second admits
the coordinating and cooperative powers and functions of the parties.

(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its
debts, or if it stops or suspends or threatens to stop or suspend payment of all or a material part of its debts.

All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct, and
management of the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of
interest in the conception, birth and growth of the on-line lottery, and, above all, in its profits, with each having a right
in the formulation and implementation of policies related to the business and sharing, as well, in the losses with the
PGMC bearing the greatest burden because of its assumption of expenses and risks, and the PCSO the least, because of
its confessed unwillingness to bear expenses and risks. In a manner of speaking, each is wed to the other for better or
for worse. In the final analysis, however, in the light of the PCSO's RFP and the above highlighted provisions, as well
as the "Hold Harmless Clause" of the Contract of Lease, it is even safe to conclude that the actual lessor in this case is
the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is, in reality, the PGMC
which operates and manages the on-line lottery system for a period of eight years.

We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of
R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion
renders unnecessary further discussion on the other issues raised by the petitioners.

WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17
December 1993 by respondent Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming
Management Corporation (PGMC) is hereby DECLARED contrary to law and invalid.

The Temporary Restraining Order issued on 11 April 1994 is hereby MADE PERMANENT.

No pronouncement as to costs.

SO ORDERED.
 G.R. No. 95237-38 September 13, 1991
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER
DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY
WATER DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER DISTRICT, DUMAGUETE
CITY WATER DISTRICT, LA UNION WATER DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN
WATER DISTRICT, URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI
WATER DISTRICT, TAGUM WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT,
and MECAUAYAN WATER DISTRICT,petitioners, vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.

Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No. 198,
as amended, are government-owned or controlled corporations with original charter falling under the Civil Service Law
and/or covered by the visitorial power of the Commission on Audit is the issue which the petitioners entreat this
Court, en banc, to shed light on.

Petitioners are among the more than five hundred (500) water districts existing throughout the country formed pursuant
to the provisions of Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479, otherwise
known as the "Provincial Water Utilities Act of 1973."

Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his legislative power
under Proclamation No. 1081. It authorized the different local legislative bodies to form and create their respective
water districts through a resolution they will pass subject to the guidelines, rules and regulations therein laid down. The
decree further created and formed the "Local Water Utilities Administration" (LWUA), a national agency attached to
the National Economic and Development Authority (NEDA), and granted with regulatory power necessary to optimize
public service from water utilities operations.

The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on Audit (COA),
both government agencies and represented in this case by the Solicitor General.

On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No. 63742, 172 SCRA
253):

Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of the government, including government-owned and
controlled corporations with original charters. Inasmuch as PD No. 198, as amended, is the original charter of
the petitioner, Tanjay Water District, and respondent Tarlac Water District and all water districts in the
country, they come under the coverage of the Civil Service Law, rules and regulations. (Sec. 35, Art. VIII and
Sec. 37, Art. IX of PD No. 807).

As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the dispositive portion of
which reads:

NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby resolves to rule that
Local Water Districts, being quasi-public corporations created by law to perform public services and supply
public wants, the matter of hiring and firing of its officers and employees should be governed by the Civil
Service Law, rules and regulations. Henceforth, all appointments of personnel of the different local water
districts in the country shall be submitted to the Commission for appropriate action. (Rollo. p. 22).

However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National Labor Relations
Commission, et al.," the Third Division of this Court ruled in a minute resolution:

xxx xxx xxx

Considering that PD 198 is a general legislation empowering and/or authorizing government agencies and
entities to create water districts, said PD 198 cannot be considered as the charter itself creating the Water
District. Public respondent NLRC did not commit any grave abuse of discretion in holding that the operative
act, that created the Metro Iloilo Water District was the resolution of the Sangguniang Panglunsod of Iloilo
City. Hence, the employees of Water Districts are not covered by Civil Service Laws as the latter do (sic) not
have original charters.

In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-575 by issuing
Resolution No. 90-770 which reads:

xxx xxx xxx

NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it hereby rules, that the
implementation of CSC. Resolution No. 575 dated June 27, 1990 be deferred in the meantime pending
clarification from the Supreme Court are regards its conflicting decisions in the cases of Tanjay Water District
v. Gabaton and Metro Iloilo Water District v. National Labor Relations Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of opinions between COA on one hand, and the (LWUA), on the other
hand, with respect to the authority of COA to audit the different water districts.

COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in them by
law (letter of COA to LWUA dated August 13, 1985, pp. 29-30, Rollo).

On the other hand, LWUA maintained that only those water districts with subsidies from the government fall within the
COA's jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision of the Government
Auditing Code of the Phils.

It is to be observed that just like the question of whether the employees of the water districts falls under the coverage of
the Civil Service Law, the conflict between the water districts and the COA is also dependent on the final
determination of whether or not water districts are government-owned or controlled corporations with original charter.
The reason behind this is Sec. 2(1), Article IX-D of the 1987 constitution which reads:

Sec. 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 or controlled corporations with original charters, and on a post
audit basis. (emphasis supplied)

Petitioners' main argument is that they are private corporations without original charter, hence they are outside the
jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case which declared petitioners as
quasi-public corporations created by virtue of PD 198, a general legislation which cannot be considered as the charter
itself creating the water districts. Holding on to this ruling, petitioners contend that they are private corporations which
are only regarded as quasi-public or semi-public because they serve public interest and convenience and that since PD
198 is a general legislation, the operative act which created a water district is not the said decree but the resolution of
the sanggunian concerned.

After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well as the
constitutional provisions involved, We rule against the petitioners and reiterate Our ruling in Tanjay case declaring
water districts government-owned or controlled corporations with original charter.

As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA 730), We already
ruled that a water district is a corporation created pursuant to a special law P.D. No. 198, as amended, and as such
its officers and employees are covered by the Civil Service Law.

In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA 272), We ruled once
again that local water districts are quasi-public corporations whose employees belong to the Civil Service. The Court's
pronoucement in this case, as extensively quoted in the Tanjay case, supra, partly reads:

"The only question here is whether or not local water districts are governmkent owned or controlled
corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section
25 of Presidential decree No. 198, known as the Provincial Water Utilities Act of 1973" which went onto effect
in 25 May 1973, and which provides as follows:

Exemption from Civil Service. The district and its employees, being engaged in a proprietary
function, are hereby exempt from the provisions of the Civil Service Law. Collective Bargaining shall
be available only to personnel below supervisory levels: Provided, however, That the total of all
salaries, wages emoluments, benefits or other compensation paid to all employees in any month shall
not exceed fifty percent (50%) of average net monthy revenue. Said net revenue representing income
from water sales and sewerage service charges, less pro-rata share of debt service and expenses for fuel
or energy for pumping during the preceding fiscal year.

The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479, which went into
effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198 quoted above, and Section 26 of PD
198 was renumbered as Section 25 in the following manner:

Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:

Section 25. Authorization. The district may exercise all the powers which are expressly granted by this Title
or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose
of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise
thereof shall, however, be subject to review by the Administration.

Thus, Section 25 of PD 198 exempting the employees of water districts from the application of the Civil
Service Law was removed from the statute books:
 xxx xxx xxx

We grant the petition for the following reasons:

1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD No. 198 was
amended ro read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree took effect on June 11, 1978.

xxx xxx xxx

3. The BWD is a corporation created pursuant to a special law PD No. 198, as amended. As such its officers
and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).

Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the different water
districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a special purpose which is
intended to meet a particular set of conditions and cirmcumstances. The fact that said decree generally applies to all
water districts throughout the country does not change the fact that PD 198 is a special law. Accordingly, this Court's
resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby abandoned.

By "government-owned or controlled corporation with original charter," We mean government owned or controlled
corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case
of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:

The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No
69870, promulgated on 29 November 1988, quoting extensively from the deliberations of 1986 Constitutional
Commission in respect of the intent and meaning of the new phrase "with original character," in effect held
that government-owned and controlled corporations with original charter refer to corporations chartered by
special law as distinguished from corporations organized under our general incorporation statute the
Corporations Code. In NASECO, the company involved had been organized under the general incorporation
statute and was a sbusidiary of the National Investment Development Corporation (NIDC) which in turn was a
subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or
controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service. (emphasis
supplied)

From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those
corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code,
but on the contrary, they were created pursuant to a special law and are governed primarily by its provision.

No consideration may thus be given to petitioners' contention that the operative act which created the water districts are
the resolutions of the respective local sanggunians and that consequently, PD 198, as amended, cannot be considered as
their charter.

It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a district.
Section 6 of said decree provides:

Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a
district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any
political subdivision, . . . .

Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a charter creating a
juridical person. For example, Section 6(a) provides for the name that will be used by a water district, thus:

Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall enact a resolution
containing the following:

a) The name of the local water district, which shall include the name of the city, municipality, or province, or
region thereof, served by said system, followed by the words "Water District."

It also prescribes for the numbers and qualifications of the members of the Board of Directors:

Sec. 8. Number and Qualification. The Board of Directors of a district shall be composed of five citizens of
the Philippines who are of voting age and residents within the district. One member shall be a representative of
civic-oriented service clubs, one member of representative of professional associations, one member a
representative of business, commercial or financial organizations, one member a representative of educational
institutions and one member a representative of women's organization. No public official shall serve as
director. Provided, however, that if the district has availed of the financial assistance of the Administration, the
Administration may appoint any of its personnel to sit in the board of directors with all the rights and privileges
appertaining to a regular member for such period as the indebtedness remains unpaid in which case the board
shall be composed of six members; (as amended by PDs Nos. 768 and 1479).
the manner of their appointment and nominations;

Sec. 9. Appointment. Board members shall be appointed by the appointing authority. Said appointments
shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations are
submitted, the appointing authority shall appoint any qualified person of the category to the vacant position;

Sec.10. Nominations. On or before October 1 of each even numbered year, the secretary of the district shall
contact each known organization, association, or institution being represented by the director whose term will
expire on December 31 and solicit nominations from these organizations to fill the position for the ensuing
term. One nomination may be submitted in writing by each such organization to the Secretary of the district on
or before November 1 of such year: This list of nominees shall be transmitted by the Secretary of the district to
the office of the appointing authority on or before November 15 of such year and he shall make his
appointment from the list submitted on or before December 15. In the event the appointing authority fails to
make his appointments on or before December 15, selection shall be made from said list of nominees by
majority vote of the seated directors of the district constituting a quorum. Initial nominations for all five seats
of the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution
forming the district. Thirty days thereafter, a list of nominees shall be submitted to the provincial governor in
the event the resolution forming the district is by a provincial board, or the mayor of the city or municipality in
the event the resolution forming the adoption of the district is by the city or municipal board of councilors, who
shall select the initial directors therefrom within 15 days after receipt of such nominations;

their terms of office:

Sec. 11. Term of Office. Of the five initial directors of each newly formed district, two shall be appointed
for a maximum term of two years, two for a maximum term of four years, and one for a maximum term of six
years. Terms of office of all directors in a given district shall be such that the term of at least one director, but
not more then two, shall expire on December 31 of each even-numbered year. Regular terms of office after the
initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors may be
removed for cause only, subject to review and approval of the Administration; (as amended by PD 768).

the manner of filling up vacancies:

Sec. 12. Vacancies. In the event of a vacancy in the board of directors occurring more than six months
before expiration of any director's term, the remaining directors shall within 30 days, serve notice to or request
the secretary of the district for nominations and within 30 days, thereafter a list of nominees shall be submitted
to the appointing authority for his appointment of a replacement director from the list of nominees. In the
absence of such nominations, the appointing authority shall make such appointment. If within 30 days after
submission to him of a list of nominees the appointing authority fails to make an appointment, the vacancy
shall be filled from such list by a majority vote of the remaining members of the Board of Directors
constituting a quorum. Vacancies occurring within the last six months of an unexpired term shall also be filled
by the Board in the above manner. The director thus appointed shall serve the unexpired term only; (as
amended by PD 768).

and the compensation and personal liability of the members of the Board of Directors:

Sec. 13. Compensation. Each director shall receive a per diem, to be determined by the board, for each
meeting of the board actually attended by him, but no director shag receive per diems in any given month in
excess of the equivalent of the total per diems of four meetings in any given month. No director shall receive
other compensation for services to the district.

Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD 768).

Sec. 14. Personal Liability. No director may be held to be personally liable for any action of the district.

Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually contained in
other corporate charters. The conclusion is inescapable that the said decree is in truth and in fact the charter of the
different water districts for it clearly defines the latter's primary purpose and its basic organizational set-up. In other
words, PD 198, as amended, is the very law which gives a water district juridical personality. While it is true that a
resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that said
resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree.
In passing a resolution forming a water district, the local sanggunian is entrusted with no authority or discretion to
grant a charter for the creation of a private corporation. It is merely given the authority for the formation of a water
district, on a local option basis, to be exercised under and in pursuance of PD 198.

More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b) of the same
decree which reads:

Sec. 3(b). Appointing authority. The person empowered to appoint the members of the Board of Directors
of a local water district, depending upon the geographic coverage and population make-up of the particular
 district. In the event that more than seventy-five percent of the total active water service connections of a local
water districts are within the boundary of any city or municipality, the appointing authority shall be the mayor
of that city or municipality, as the case may be; otherwise, the appointing authority shall be the governor of the
province within which the district is located: Provided, That if the existing waterworks system in the city or
municipality established as a water district under this Decree is operated and managed by the province, initial
appointment shall be extended by the governor of the province. Subsequent appointments shall be as specified
herein.

If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governors then the power to appoint shall rotate between the governors involved with the
initial appointments made by the governor in whose province the greatest number of service connections exists
(as amended by PD 768).

The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. It is clear
therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the local
executives of the local subdivision units where such districts are located. In contrast, the members of the Board of
Directors or trustees of a private corporation are elected from among the members and stockholders thereof. It would
not be amiss to emphasize at this point that a private corporation is created for the private purpose, benefit, aim and end
of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to choose those
who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that
petitioners are definitely not private corporations.

The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this may bring
to the thousands of water districts' employees throughout the country who stand to be affected because they do not
have the necessary civil service eligibilities. As these employees are equally protected by the constitutional guarantee
to security of tenure, We find it necessary to rule for the protection of such right which cannot be impaired by a
subsequent ruling of this Court. Thus, those employees who have already acquired their permanent employment status
at the time of the promulgation of this decision cannot be removed by the mere reason that they lack the necessary civil
service eligibilities.

ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or controlled
corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA.

SO ORDERED.
 G.R. No. 72807 September 9, 1991
MARILAO WATER CONSUMERS ASSOCIATION, INC., petitioners, vs.
INTERMEDIATE APPELLATE COURT, MUNICIPALITY OF MARILAO, BULACAN, SANGGUNIANG
BAYAN, MARILAO, BULACAN, and MARILAO WATER DISTRICT, respondents.

Involved in this appeal is the determination of which triburial has jurisdiction over the dissolution of a water district
organized and operating as a quasi-public corporation under the provisions of Presidential Decree No. 198, as
amended;1 the Regional Trial Court, or the Securities & Exchange Commission.

PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of water districts
throughout the country; it is "the source of authorization and power to form and maintain a (water) district." Once
formed, it says, a district is subject to its provisions and is not under the jurisdiction of any political subdivision.2

Under PD 198, water districts may be created by the different local legislative bodies by the passage of a resolution to
this effect, subject to the terms of the decree. The primary function of these water districts is to sell water to residents
within their territory, under such schedules of rates and charges as may be determined by their boards. 3They shall
manage, administer, operate and maintain all watersheds within their territorial boundaries, safeguard and protect the
use of the waters therein, supervise and control structures within their service areas, and prohibit any person from
selling or otherwise disposing of water for public purposes within their service areas where district facilities are
available to provide such service.4

The decree specifies the terms under which water districts may be formed and operate. It prescribes, particularly

a) the name by which a water district shad be known, which shall be contained in the enabling resolution, and shall
include the name of the city, municipality, or province, or region thereof, served by said system, followed by the
words, 'Water District;'5

b) the number and qualifications of the members of the boards of directors, with the date of expiration of term of office
for each;6 the manner of their selection and initial appointment by the head of the local political subdivision; 7their
terms of office (which shall be in staggered periods of two, four and six years);8 the manner of filling up vacancies in
the board;9 the compensation and liabilities of members of the board.10 The resolution shall contain a "statement that
the district may only be dissolved on the grounds and under the conditions set forth in Section 44" of the law, but
nothing in the resolution of formation, the decree adds, "shall state or infer that the local legislative body has the power
to dissolve, alter or affect the district beyond that specifically provided for in this Act."11

The juridical entities thus created and organized under PD 198 are considered quasi-public corporations, performing
public services and supplying public wants. They are authorized not only to "exercise all the powers which are
expressly granted" by said decree, and those "which are necessarily implied from or incidental to" said powers, but also
"the power of eminent domain, the exercise .. (of which) shall however be subject to review by the Administration"
(LWUA). In addition to the powers granted in, and subject to such restrictions imposed under, the Act, they may also
exercise the powers, rights and privileges given to private corporations under existing laws.12

The decree also established a government corporation attached to the Office of the President, known as the Local
Water Utilities Administration (LWUA)13 to function primarily as "a specialized lending institution for the promotion
development and financing of local water utilities." It has the following specific powers and duties;14

(1) prescribe minimum standards and regulations in order to assure acceptable standards of construction
materials and supplies, maintenance, operation, personnel training, accounting and fiscal practices for local
water utilities;

(2) furnish technical assistance and personnel training programs for local water utilities;

(3) monitor and evaluate local water standards; and

(4) effect systems integration, joint investment and operations, district annexation and deannexation whenever
economically warranted.

It was pursuant to the foregoing rules and norms that the Marilao Water District was formed by Resolution of the
Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982, which resolution was thereafter
forwarded to the LWUA and "duly filed" by it on October 4, 1982 after ascertaining that it conformed to the
requirements of the law.15

The claim was thereafter made that the creation of the Marilao Water District in the manner aforestated was defective
and illegal. The claim was made by a non-stock, non-profit corporation known as the Marilao Water Consumers
Association, Inc., in a petition dated December 12, 1983 filed with the Regional Trial Court at Malolos, Bulacan.
Impleaded as respondents were the Marilao Water District, as well as the Municipality of Marilao, Bulacan; its
Sangguniang Bayan; and Mayor Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district
on the basis chiefly of the following allegations, to wit:
1) there had been no real, but only a "farcical" public hearing prior to the creation of the Water District;

2) not only was the waterworks system turned over to the Water District without compensation. but a subsidy was
illegally authorized for it;

3) the Water District was being run with "negligence, apathy, indifference and mismanagement," and was not
providing adequate and efficient service to the community, but this notwithstanding, the consumers were being billed
in full and threatened with disconnection for failure to pay bills on time; in fact, one of the consumers who complained
had his water service cut off;

4) the consumers were consequently "forced to organize themselves into a corporation last October 3, 1983 ... for the
purpose of demanding adequate and sufficient supply of water and efficient management of the waterworks in Marilao,
Bulacan.16

Acting on the complaint, particularly on the application for temporary restraining order and preliminary injunction set
out therein, the Trial Court issued an Order on December 22, 1983 setting the application for preliminary hearing,
requiring the respondents to answer the petition and restraining them until further orders from collecting any water bill,
disconnecting any water service, transferring any property of the waterworks, or disbursing any amount in favor of any
person. The order was modified on January 6, 1984 to allow the respondents to pay the district's outstanding
obligations to Meralco, by way of exception to the restraining order.

On January 13, 1984 the Marilao Water District filed its Answer with Compulsory Counterclaim, denying the material
allegations of the petition and asserting as affirmative defenses (a) the Court's lack of jurisdiction of the subject matter,
and (b) the failure of the petition to state a cause of action. The answer alleged that the matter of the water district's
dissolution fell under the original and exclusive jurisdiction of the Securities & Exchange Commission (SEC); and the
matter of the propriety of water rates, within the primary administrative jurisdiction of the LWUA and the quasi-
judicial jurisdiction of the National Water Resources Council. On the same date, Marilao Water District filed a motion
for admission of its third-party complaint against the officers and directors of the petitioner corporation, it being
claimed that they had instigated the filing of the petition simply because one of them was a political adversary of the
respondent Mayor.

The other respondents also filed their answer through the Provincial Fiscal of Bulacan, setting up the same affirmative
defense of lack of jurisdiction on the part of the Trial Court; and failure of the petition to state a cause of action since it
admitted that it was by resolution of the Marilao Sangguniang Bayan that the Marilao Water District was constituted.

The petitioner the Marilao Consumers Association filed a reply, and an answer to the counterclaim, on January 26,
1984. It averred that since the Marilao Water District had not been organized under the Corporation Code, the SEC had
no jurisdiction over a proceeding for its dissolution; and that under Section 45 of PD 198, the proceeding to determine
if the dissolution of the water district is for the best interest of the people, is within the competence of a regular court of
justice, and neither the LWUA nor the National Water Resources Council is competent to take cognizance of the matter
of dissolution of the water district and recovery of its waterworks system, or the exorbitant rates imposed by it. The
Consumers Association also opposed admission of the third-party complaint on the ground that its individual officers
are not personally amenable to suit for acts of the corporation,17 which has a personality distinct from theirs.

The Trial Court found for the respondents. It dismissed the Consumers Association's suit by Order handed down on
June 8, 1984 which pertinently reads as follows:

After a consideration of the arguments raised by the herein parties, the Court is more inclined to take the
position of the respondents that the Securities and Exchange Commission has the exclusive and original
jurisdiction over this case.

WHEREFORE, the instant petition, the third-party complaint, and the compulsory counterclaim filed herein
are hereby DISMISSED, for lack of jurisdiction.

Its motion for reconsideration having been denied, by Order dated September 20, 1984, the Consumers Association
filed with this Court a petition for review on certiorari, which was docketed as G.R. No. 68742. The case was however
referred to the Intermediate Appellate Court by this Court's Second Division, in a Resolution dated November 19,
1984, where it was docketed as AC-G.R. S.P. No. 04862.

But there in the Intermediate Appellate Court, the Consumers Association's cause also met with failure. The Appellate
Court, in its Decision promulgated on September 10, 1985, ruled that its cause could not prosper because

1) it had availed of the wrong remedy, i.e., the special civil action of certiorari; the Order of June 8, 1984 being a final
order in the sense that it "left nothing else to be done in the case the proper remedy was appeal under Rule 41 of the
Rules of Court and not a certiorari suit under Rule 65; and

2) even if the certiorari action be treated as an appeal, it was 14 unerringly clear that the controversy ... falls within the
competence of the SEC in virtue of P.D. 902-A18 Which provides that said agency "shall have original and exclusive
jurisdiction to hear and decide cases involving:
 a) xxx xxx xxx

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders,
members or associates; between any or all of them and the corporation, partnership or association of which
they are stockholders, members or associates, respectively; and between such corporation, partnership or
association and the state insofar as it concerns their individual franchise or right to exist as such entity ...

The Appellate Court subsequently denied the petitioner's motion for reconsideration, by Resolution dated November 4,
1985. Hence, the petition for review on certiorari at bar, in which reversal of the Appellate Tribunal's decision is
sought, the petitioner insisting that the remedy resorted to by it was correct but misunderstood by the I.A.C. and that
the law does indeed vest exclusive jurisdiction over the subject matter of the case in the Regional Trial Court, not the
Securities and Exchange Commission.

Turning first to the adjective issue, it is quite evident that the Order of the Trial Court of June 8, 1984, dismissing the
action of the Consumers Association, is really a final order; it finally disposed of the proceeding and left nothing more
to be done by the Court on the merits. Now, the firmly settled principle is that the remedy against such a finalorder is
the ordinary remedy of an appeal, either solely on questions of law in which case the appeal may be taken only to
the Supreme Court or questions of fact and law in which event the appeal should be brought to the Court of
Appeals. The extraordinary remedy of a special civil action of certiorari or prohibition is not the appropriate recourse
because precisely, one of the conditions for availing of it is that there should be "no appeal, nor any plain, speedy and
adequate remedy in the ordinary course of law.19 A resort to the latter instead of the former would ordinarily be fatal,
unless it should appear in a given case that appeal would otherwise be an inefficacious or inadequate remedy.20

In holding that Marilao Water District had resorted to the wrong remedy against the Trial Court's order dismissing its
suit, i.e., the special civil action of certiorari, instead of an appeal, the Intermediate Appellate Court quite overlooked
the fact, not seriously disputed by the Marilao Water District and its co-respondents, that the former had in fact availed
of the remedy of appeal by certiorari under Rule 45 of the Rules of Court, as required by paragraph 25 of the Interim
Rules & Guidelines of this Court, implementing Batas Pambansa Bilang 129; that before doing so, it had first asked
for and been granted an extension of thirty (30) days within which to file a petition for review on certiorari; but that
subsequently, by Resolution of this Court's Second Division dated November 19, 1984, the case was referred to the
Intermediate Appellate Court, evidently because it was felt that certain factual issues had yet to be determined. In any
case, all things considered, the Court is not prepared to have the case at bar finally determined on this procedural issue.

The juridical entities known as water districts created by PD 198, although considered as quasi-public corporations and
authorized to exercise the powers, rights and privileges given to private corporations under existing laws 21 are entirely
distinct from corporations organized under the Corporation Code, PD 902-A, as amended. The Corporation Code has
nothing whatever to do with their formation and organization, all the terms and conditions for their organization and
operation being particularly spelled out in PD 198. The resolutions creating them, their charters, in other words, are
filed not with the Securities and Exchange Commission but with the LWUA. It is these resolutions qua charters, and
not articles of incorporation drawn up under the Corporation Code, which set forth the name of the water districts, the
number of their directors, the manner of their selection and replacement, their powers, etc. The SEC which is charged
with enforcement of the Corporation Code as regards corporations, partnerships and associations formed or operating
under its provisions, has no power of supervision or control over the activities of water districts. More particularly, the
SEC has no power of oversight over such activities of water districts as selling water, fuling the rates and charges
therefor22 or the management, administration, operation and maintenance of watersheds within their territorial
boundaries, or the safeguarding and protection of the use of the waters therein, or the supervision and control of
structures within the service areas of the district, and the prohibition of any person from selling or otherwise
disposing of water for public purposes within their service areas where district facilities are available to provide
such service.23 That function of supervision or control over water districts is entrusted to the Local Water
Utilities Administration.24 Consequently, as regards the activities of water districts just mentioned, the SEC
obviously can have no claim to any expertise.

The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts
created thereunder This is Section 45 of PD 19825 reading as follows:

SEC. 45. Dissolution. A district may be dissolved by resolution of its board of directors filed in the
manner of filing the resolution forming the district: Provided, however, That prior to the adoption of
any such resolution: (1) another public entity has acquired the assets of the district and has assumed all
obligations and liabilities attached thereto; (2) all bondholders and other creditors have been notified
and they consent to said transfer and dissolution; and (3) a court of competent jurisdiction has found
that said transfer and dissolution are in the best interest of the public.

Under this provision, it is the LWUA which is the administrative body involved in the voluntary dissolution of a
water district; it is with it that the resolution of dissolution is filed, not the Securities and Exchange Commission.
And this provision is evidently quite distinct and different from those on dissolution of corporations "formed or
organized under the provisions of xx (the Corporation) Code" set out in Sections 117 to 121, inclusive, of said
Code, under which dissolution may be voluntary (by vote of the stockholders or members), generally effected by
the filing of the corresponding resolution with the Securities and Exchange Commission, or involuntary,
commenced by the filing of a verified complaint also with the SEC.
All these argue against conceding jurisdiction in the Securities and Exchange Commission over proceedings for
the dissolution of water districts. For although described as quasipublic corporations, and granted the same
powers as private corporations, water districts are not really corporations. They have no incorporators,
stockholders or members, who have the right to vote for directors, or amend the articles of incorporation or by-
laws, or pass resolutions, or otherwise perform such other acts as are authorized to stockholders or members of
corporations by the Corporation Code. In a word, there can be no such thing as a relation of corporation and
stockholders or members in a water district for the simple reason that in the latter there are no stockholders or
members. Between the water district and those who are recipients of its water services there exists not the
relationship of corporation-and-stockholder, but that of a service agency and users or customers. There can
therefore be no such thing in a water district as "intra-corporate or partnership relations, between and among
stockholders, members or associates (or) between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively," within the contemplation of
Section 5 of the Corporation Code so as to bring controversies involving them within the competence and
cognizance of the SEC.

There can be even less debate about the fact that the SEC has no jurisdiction over the co-respondents of the
Marilao Water District the Municipality of Marilao, its Sangguniang Bayan and its Mayor who are
accused of a "conspiracy" with the water district in respect of the anomalies described in the Consumer
Associations' petition.26

The controversy, therefore, between the Consumers Association, on the one hand, and Marilao District and its
co-respondents, on the other, is not within the jurisdiction of the SEC.

In their answer with counterclaim in the proceedings a quo, the respondents advocated the theory that the case
falls within the jurisdiction of the LWUA and/or the National Water Resources Council.

The LWUA does not appear to have any adjudicatory functions. It is, as already pointed out, "primarily a
specialized lending institution for the promotion, development and financing of local water utilities, 27 with
power to prescribe minimum standards and regulations regarding maintenance, operation, personnel training,
accounting and fiscal practices for local water utilities, to furnish technical assistance and personnel training
programs therefor; monitor and evaluate local water standards; and effect systems integration, joint investment
and operations, district annexation and deannexation whenever economically warranted. 28 The LWUA has
quasi-judicial power only as regards rates or charges fixed by water districts, which it may review to establish
compliance with the provisions of PD 198, without prejudice to appeal being taken therefrom by a water
concessionaire to the National Water Resources Council whose decision thereon shall be appealable to the Office
of the President.29 The rates or charges established by respondent Marilao Water District do not appear to be at
issue in the controversy at bar.

The National Water Resources Council, on the other hand, is conferred "original jurisdiction over all disputes
relating to appropriation, utilization, exploitation, development, control, conservation and protection of waters
within the meaning and context of the provisions of ..." (the Code by which said Council was created,
Presidential Decree No. 1067, otherwise known as the Water Code of the Philippines);30 and its decision on
water rights controversies may be appealed to the Court of First Instance of the province where the subject
matter of the controversy is situated.31 It also has authority to review questions of annexations and
deannexations (addition to or exclusion from the district of territory). Again it does not appear that the case at
bar is a water rights controversy or one involving annexation or deannexation.

What essentially is sought by the Consumers Association is the dissolution of the Marilao Water District, on the
ground that its formation was illegal and invalid; the waterworks system had been turned over to it without
compensation and a subsidy illegally authorized for it; and the Water District was being run with "negligence,
apathy, indifference and mismanagement," and was not providing adequate and efficient service to the
community.32

Now, as already above stated, the dissolution of a water district is governed by Section 45 of PD 198, as amended,
stating that it "may be dissolved by resolution of its board of directors filed in the manner of filing the resolution
forming the district," subject to enumerated pre-requisites.33 The procedure for dissolution thus consists of the
following steps:

1) the initiation by the board of directors of the water district motu proprio or at the relation of an interested
party, of proceedings for the dissolution of the water district, including:

a) the ascertainment by said board that

1) another public entity has acquired the assets of the district and has assumed all obligations and liabilities
attached thereto; and

2) all bondholders and other creditors have been notified and consent to said transfer and dissolution;
b) the commencement by the water district in a court of competent jurisdiction of a proceeding to obtain a
declaration that "said transfer and dissolution are in the best interest of the public;

2) after compliance with the foregoing requisites, the adoption by the board of directors of the water district of a
resolution dissolving the water district and its submission to the Sangguniang Bayan concerned for approval;

3) submission of the resolution of the Sangguniang Bayan dissolving the water district to the head of the local
government concerned for approval, and ultimately to the LWUA for final approval and filing.

The Consumer Association's action therefore is, in fine, in the nature of a mandamus suit, seeking to compel the
board of directors of the Marilao Water District, and its alleged co-conspirators, the Sangguniang Bayan and
the Mayor of Marilao to go through the process above described for the dissolution of the water district. In this
sense, and indeed, taking account of the nature of the proceedings for dissolution just described, it seems plain
that the case does not fall within the limited jurisdiction of the SEC., but within the general jurisdiction of
Regional Trial Courts.

WHEREFORE, the Decision of the Intermediate Appellate Court of September 10, 1985 affirming that of the
Regional Trial Court of June 8, 1984 is REVERSED and SET ASIDE, and the case is remanded to the
Regional Trial Court for further proceedings and adjudication in accordance with law. No costs.

SO ORDERED.
Mactan Intl Airport vs. Lapu-lapu City, G.R. No. 181756, Case Digest

Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress under Republic Act No.
6958. Upon its creation, petitioner enjoyed exemption from realty taxes imposed by the National Government or any
of its political subdivision. However, upon the effectivity of the LGC the Supreme Court rendered a decision that the
petitioner is no longer exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising
the Mactan International Airport which included the airfield, runway, taxi way and the lots on which these are
built. Petitioner contends that these lots, and the lots to which they are built, are utilized solely and exclusively for public
purposes and are exempt from real property tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.

Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a petition for Prohibition,
TRO, and a writ of preliminary injunction with RTC Lapulapu which sought to enjoin respondent City from issuing the
warrant of levy against petitioners properties from selling them at public auction for delinquency in realty tax obligations.

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance authorizing
the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for its nonpayment.
Petitioner argued that without the corresponding tax ordinances, respondent City could not impose and collect real
property tax, an additional tax for the SEF, and penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

(fait accompli)

RULING OF THE CA: Court of Appeals held that petitioners airport terminal building, airfield, runway, taxiway, and
the lots on which they are situated are not exempt from real estate tax reasoning as follows: Under the Local
Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local autonomy, all natural and
juridical persons, including government-owned or controlled corporations (GOCCs), instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes
are those specifically provided under the Code itself, or those enacted through subsequent legislation.

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are
situatedNOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special
Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the
Local Government Code, respondent city can only collect an interest of 2% per month on the unpaid tax which
total interest shall, in no case, exceed thirty-six (36) months;

We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture and purchase of the
subject property by the respondent City of Lapu-Lapu asNULL and VOID. However, petitioner MCIAAs property is
encumbered only by a limited lien possessed by the respondent City of Lapu-Lapu in accord with Section 257 of the
Local Government Code.

RULING OF THE SUPREME COURT:

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.
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.

1. Petitioners properties that are actually, solely and exclusively used for public purpose, consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which they are situated, EXEMPT from real
property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education fund and the
penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-Lapu
on petitioners properties, except the assessment covering the portions that petitioner has leased to private
parties.

3. NULL and VOID the sale in public auction of 27 of petitioners properties and the eventual forfeiture and
purchase of the said properties by respondent City of Lapu-Lapu. We likewise declare VOID the
corresponding Certificates of Sale of Delinquent Property issued to respondent City of Lapu-Lapu.
 Boy Scouts of the Philippines vs. Commission on Audit
G.R. No. 177131, June 7, 2011

FACTS: The Commission on Audit issued COA Resolution No. 99-011 in which the said resolution state 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 vs. National Labor Relations Commission, 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.
The BSP sought reconsideration of the COA Resolution in a letter signed by the BSP National President
Jejomar Binay. He claimed that RA 7278 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 further claimed that the 1987 Administrative Code itself, of which the BSP s. 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.
And finally, they claim that the Government, like in other GOCCs, does not have funds invested in the BSP.
The BSP is not an entity administering special funds. The BSP is neither a unit of the Government; a department which
refers to an executive department as created by law; nor a bureau which refers to any principal subdivision or unit of
any department.

ISSUE: Whether the BSP falls under the COAs audit jurisdiction.

RULING: After considering the legislative history of the amended charter and the applicable laws and the arguments
of both parties, the Court found that the BSP is a public corporation and its funds are subject to the COAs audit
jurisdiction.
The BSP Charter created the BSP as a public corporation to serve the following public interest or purpose:
xxx 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 scout craft, 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.
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. 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 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.
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 exist 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 test 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.
Since BSP, under its amended charter, continues to be a public corporation or a government instrumentality,
the Court concludes 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.
 PSPCA vs Commission on Audit
Posted on October 19, 2012
Philippine Society for the Prevention of Cruelty to Animals vs Commission on Audit
G.R. No. 169752
September 25, 2007

Facts:
PSPCA was incorporated as a juridical entity by virtue of Act No. 1285 by the Philippine Commission in order to
enforce laws relating to the cruelty inflicted upon animals and for the protection of and to perform all things which may
tend to alleviate the suffering of animals and promote their welfare.

In order to enhance its powers, PSPCA was initially imbued with (1) power to apprehend violators of animal welfare
laws and (2) share 50% of the fines imposed and collected through its efforts pursuant to the violations of related laws.

However, Commonwealth Act No. 148 recalled the said powers. President Quezon then issued Executive Order No. 63
directing the Commission of Public Safety, Provost Marshal General as head of the Constabulary Division of the
Philippine Army, Mayors of chartered cities and every municipal president to detail and organize special officers to
watch, capture, and prosecute offenders of criminal-cruelty laws.

On December 1, 2003, an audit team from the Commission on Audit visited petitioners office to conduct a survey.
PSPCA demurred on the ground that it was a private entity and not under the CoAs jurisdiction, citing Sec .2(1), Art.
IX of the Constitution.

Issues:
WON the PSPCA is subject to CoAs Audit Authority.

Held:
No.

The charter test cannot be applied. It is predicated on the legal regime established by the 1935 Constitution, Sec.7, Art.
XIII. Since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, the test
cannot be applied to PSPCA which was incorporated on January 19, 1905. Laws, generally, have no retroactive effect
unless the contrary is provided. There are a few exceptions: (1) when expressly provided; (2) remedial statutes; (3)
curative statutes; and (4) laws interpreting others.
None of the exceptions apply in the instant case.

The mere fact that a corporation has been created by a special law doesnt necessarily qualify it as a public corporation.
At the time PSPCA was formed, the Philippine Bill of 1902 was the applicable law and no proscription similar to the
charter test can be found therein. There was no restriction on the legislature to create private corporations in 1903. The
amendments introduced by CA 148 made it clear that PSPCA was a private corporation, not a government agency.

PSPCAs charter shows that it is not subject to control or supervision by any agency of the State. Like all private
corporations, the successors of its members are determined voluntarily and solely by the petitioner, and may exercise
powers generally accorded to private corporations.

PSPCAs employees are registered and covered by the SSS at the latters initiative and not through the GSIS.

The fact that a private corporation is impressed with public interest does not make the entity a public corporation.
They may be considered quasi-public corporations which are private corporations that render public service, supply
public wants and pursue other exemplary objectives. The true criterion to determine whether a corporation is public or
private is found in the totality of the relation of the corporate to the State. It is public if it is created by the latters own
agency or instrumentality, otherwise, it is private.
 G.R. No. 149110 April 9, 2003 NATIONAL POWER CORPORATION, petitioner, vs. CITY OF
CABANATUAN, respondent.

FACTS:
Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended.
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed the petitioner a
franchise tax amounting to P808,606.41, representing 75% of 1% of the latters gross receipts for the preceding year.

Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of
taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended.

The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax due, plus surcharge.
Respondent alleged that petitioners exemption from local taxes has been repealed by section 193 of the LGC, which
reads as follows:

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 the effectivity of this Code.
RTC upheld NPCs tax exemption. On appeal the CA reversed the trial courts Order on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner.

ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual
tax on businesses enjoying a franchise

HELD: YES. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of
the state whose social contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax notwithstanding any exemption granted
by any law or other special law. This particular provision of the LGC does not admit any exception. In City
Government of San Pablo, Laguna v. Reyes,74 MERALCOs exemption from the payment of franchise taxes was
brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company
v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in
question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position
that MERALCOs tax exemption has been withdrawn. The explicit language of section 137 which authorizes the
province to impose franchise tax notwithstanding any exemption granted by any law or other special law is all-
encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts, (2) cooperatives duly registered under R.A.
6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius
est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any
existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.76 (emphases supplied)
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.
 SOCIAL SECURITY SYSTEM, petitioner, vs. COMMISSION ON AUDIT, respondent.
G.R. No. 149240. July 11, 2002

TOPIC: Corporate Powers - A. General Sec. 36

FACTS:
The Social Security Commission (SSC) in behalf of SSS and the Concerned Emplyoees for Better SSS (ACCESS)
executed a collective negotiation agreement (CAN) that provides P5,000 contract signing bonus.
Department of Budget and Management (DBM) declared the CAN as illegal.
The SSS Corporate Auditor disallowed fund releases for the signing bonus since it was an allowance in the form
of additional compensation prohibited by the Constitution.
ACCESS appealed the disallowance but COA affirmed the disallowance and ruled that the grant of the signing
bonus was improper because it has no legal basis since Sec. 16 of RA 7658 (1989) had repealed the authority of
the SSC to fix the compensation of its personnel.
Hence the instant petition was filed in the name of the Social Security System and not by ACCESS through its
legal staff.
Petitioner SSS argues that a signing bonus may be granted upon the conclusion of negotiations leading to the
execution of a CNA under Sec. 3, par. (c), of RA 1161 as, which allows the SSC to fix the compensation of its
personnel.
On the other hand, respondent COA asserts that the authority of the SSC to fix the compensation of its personnel
has been repealed by Sections 12 and 16 of RA 6758 and is therefore no longer effective.

ISSUEs:
1. Whether or not ACESS has a power to file a case in the name of SSS? NO!
2. Whether or not the charter of SSS authorizes SSC to fix the compensation of its employees and officers? NO!

HELD: 1. There is no directive from the SSC that authorized the suit and only the officer-in-charge in behalf of
petitioner executed the purported directive. Clearly, this is irregular since under Sec. 4, par. 10, in relation to par. 7 RA
1161 as amended by RA 8282 (The Social Security Act of 1997, which was already effective when the instant petition
was filed), it is the SSC as a collegiate body which has the power to approve, confirm, pass upon or review the action
of the SSS to sue in court. Moreover, the appearance of the internal legal staff of the SSS as counsel in the present
proceedings is similarly questionable because only DOJ can act as counsel of SSS under both RA 1161 and RA 8282.
It is well settled that the legality of the representation of an unauthorized counsel may be raised at any stage of the
proceedings and that such illicit representation produces no legal effect.

In the case at bar, there is no approval or ratification of the SSC has been undertaken in the manner prescribed
by law and DOJ has not delegated the authority to act as counsel, then this case must fail. These procedural
deficiencies are serious matters that cannot be ignored since the SSS is in reality confessing judgment to charge
expenditure against the trust fund under its custodianship. This reasoning is found in Premium Marble Resources v.
Court of Appeals:

no person, not even its officers, could validly sue in behalf of a corporation in the absence of any
resolution from the governing body authorizing the filing of such suit. Moreover, where the corporate officers power
as an agent of the corporation did not derive from such resolution, it would nonetheless be necessary to show a clear
source of authority from the charter, the by-laws or the implied acts of the governing body.

2. RA 6758 modified, if not repealed, Sec. 3, par. (c), of RA 1161 as amended, at least insofar as it concerned
the authority of SSC to fix the compensation of SSS employees and officers. RA 6758 intended to do away with
multiple allowances and other incentive packages and the resulting differences in compensation among government
personnel, the statute clearly did not revoke existing benefits being enjoyed by incumbents of government positions at
the time of the passage of RA 6758 by virtue of Secs. 12 and 17 thereof. This means that whatever salaries and other
financial and non-financial inducements that the SSC was minded to fix for them, the compensation must comply with
the terms of RA 6758.

Unfortunately, the signing bonus in question did not qualify under Secs. 12 and 17 of RA 6758. It was non-
existent as of 1 July 1989 as it accrued only in 1996 when the CNA was entered into by and between SSC and
ACCESS. The signing bonus therefore could not have been included in the salutary provisions of the statute nor would
it be legal to disburse to the intended recipients. The signing bonus is not truly reasonable compensation. Agitation and
propaganda which are so commonly practiced in private sector labor-management relations have no place in the
bureaucracy and that only a peaceful collective negotiation which is concluded within a reasonable time must be the
standard for interaction in the public sector. This desired conduct among civil servants should not come, we must
stress, with a price tag which is what the signing bonus appears to be.
 Laguna Lake Development Authority vs CA
Natural Resources and Environmental Laws; Statutory Construction

GR No. 120865-71; Dec. 7 1995

FACTS:
The Laguna Lake Development Authority (LLDA) was created through Republic Act No. 4850. It was granted,
inter alia, exclusive jurisdiction to issue permits for the use of all surface water for any project or activity in or
affecting the said region including navigation, construction, and operation of fishpens, fish enclosures, fish
corrals and the like.

Then came RA 7160, the Local Government Code of 1991. The municipalities in the Laguna Lake region
interpreted its provisions to mean that the newly passed law gave municipal governments the exclusive
jurisdiction to issue fishing privileges within their municipal waters.

ISSUE:
Who should exercise jurisdiction over the Laguna Lake and its environs insofar as the issuance of permits for
fishing privileges is concerned, the LLDA or the towns and municipalities comprising the region?

HELD:
LLDA has jurisdiction over such matters because the charter of the LLDA prevails over the Local Government
Code of 1991. The said charter constitutes a special law, while the latter is a general law. It is basic in statutory
construction that the enactment of a later legislation which is a general law, cannot be construed to have
repealed a special law. The special law is to be taken as an exception to the general law in the absence of special
circumstances forcing a contrary conclusion.
In addition, the charter of the LLDA embodies a valid exercise of police power for the purpose of protecting and
developing the Laguna Lake region, as opposed to the Local Government Code, which grants powers to
municipalities to issue fishing permits for revenue purposes.

Thus it has to be concluded that the charter of the LLDA should prevail over the Local Government Code of 1991
on matters affecting Laguna de Bay.
 Kilosbayan vs Guingona
GR No. 113375, May 5, 1994

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the
authority to hold and conduct charity sweepstakes races, lotteries and other similar activities, the PCSO decided to
establish an on-line lottery system for the purpose of increasing its revenue base and diversifying its sources of funds.
The Philippine Gaming Management Corporation (PGMC) which is organized by Berhad group, a multinational
company and one of the ten largest public companies in Malaysia, was granted to provide the technical and
management services for the needed for project in theform of a lease contract approved by the President.
KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing the setting up of the on-line lottery
system on the basis of serious moral and ethical considerations.

The protest was denied by the Office of the President, contemplating that only a court injunction can stop
Malacaang . Hence, this petition arise.

ISSUES:
1. Whether or not the petitioners have locus standi.
2. Whether or not the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting lotteries in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign. is legal and valid.

HELD:
1. The Court ruled that petitioners have legal standing considering that the ramifications of such issues
immeasurably affecting the social, economic, and moral well-being of the people even in the remotest
barangays of the country and the counter-productive and retrogressive effects of the envisioned on-line lottery
system are as staggering as the billions in pesos it is expected to raise. The legal standing then of the petitioners
deserves recognition, setting aside its procedural technicality.

2. Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, prohibits the PCSO from holding and conducting
lotteries in collaboration, association or joint venture with any person, association, company or entity,
whether domestic or foreign. There is undoubtedly a collaboration between PCSO and PGMC and not merely
a contract of lease. The relations between PCSO and PGMC cannot be defined simply by the designation they
used, i.e., a contract of lease. The contracts nature can be understood to form the intent of the parties as
evident in the provisions of the contract. Article 1371 of the CC provides that the intent of contracting parties
are determined in part through their acts. The only contribution PCSO will be giving is the authority to operate.
PCSO bears no risk and all it does is to provide its franchise.

Pursuant to the wordings of their agreement, PGMC at its own expense shall build, operate, and manage the network
system including its facilities needed to operate a nationwide online lottery system.

Indeed, PCSO cannot share the franchise in any way.

Clearly, the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No.
1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.
 Title: DAVAO CITY WATER DISTRICT vs. CIVIL SERVICE COMMISSION
Citation: 201 SCRA 593 [G.R. No. 95237-38, September 13, 1991]
Ponente: MEDIALDEA

FACTS:

Petitioners are among the more than five hundred (500) water districts existing throughout the country formed
pursuant to the provisions of PD No. 198, as amended by PDs. 768 and 1479, otherwise known as the
"Provincial Water Utilities Act of 1973 which was issued by then President Ferdinand E. Marcos by virtue
of his legislative power. It authorized the different local legislative bodies to form and create their respective
water districts through a resolution they will pass subject to the guidelines, rules and regulations therein laid
down. The decree further created and formed the "Local Water Utilities Administration" (LWUA), a
national agency attached to the National Economic and Development Authority (NEDA), and granted with
regulatory power necessary to optimize public service from water utilities operations.

The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on Audit
(COA), both government agencies and represented in this case by the Solicitor General.

There exists a divergence of opinions between COA on one hand, and the (LWUA), on the other hand, with
respect to the authority of COA to audit the different water districts.

COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in
them by law .

On the other hand, LWUA maintained that only those water districts with subsidies from the government fall
within the COA's jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision
of the Government Auditing Code of the Phils.

Petitioners' main argument is that they are private corporations without original charter, hence they are outside
the jurisdiction of respondents CSC and COA.

ISSUE:

Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No. 198,
as amended, are government-owned or controlled corporations with original charter falling under the Civil Service Law
and/or covered by the visitorial power of the Commission on Audit

HELD:

After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well
as the constitutional provisions involved, We rule against the petitioners and reiterate Our ruling in
Tanjay case declaring water districts government-owned or controlled corporations with original
charter.

Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the
different water districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a
special purpose which is intended to meet a particular set of conditions and circumstances. The fact that said
decree generally applies to all water districts throughout the country does not change the fact that PD 198 is a
special law.

By "government-owned or controlled corporation with original charter," We mean government owned or

controlled corporation created by a special law and not under the Corporation Code of the Philippines.

No consideration may thus be given to petitioners' contention that the operative act which created the water
districts are the resolutions of the respective local sanggunians and that consequently, PD 198, as amended,
cannot be considered as their charter.
 It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a
district.

It is clear that what has been excluded from the coverage of the CSC are those corporations created
pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on
the contrary, they were created pursuant to a special law and are governed primarily by its provision.

It is clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs
to the local executives of the local subdivision units where such districts are located. In contrast, the members
of the Board of Directors or trustees of a private corporation are elected from among the members and
stockholders thereof. It would not be amiss to emphasize at this point that a private corporation is created for
the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or
stockholders should be given a free hand to choose those who will compose the governing body of their
corporation. But this is not the case here and this clearly indicates that petitioners are definitely not private
corporations.

The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion
this may bring to the thousands of water districts' employees throughout the country who stand to be
affected because they do not have the necessary civil service eligibilities. As these employees are equally
protected by the constitutional guarantee to security of tenure, We find it necessary to rule for the
protection of such right which cannot be impaired by a subsequent ruling of this Court. Thus, those
employees who have already acquired their permanent employment status at the time of the
promulgation of this decision cannot be removed by the mere reason that they lack the necessary civil
service eligibilities.
ACCORDINGLY, petitioners are declared "government-owned or controlled corporations with original
charter" which fall under the jurisdiction of the public respondents CSC and COA.
 MARILAO WATER CONSUMERS ASSOC. vs. IAC
G.R. No. 72807 September 9, 1991

FACTS:
Pursuant to the provisions of P.D. 168 (Provincial Water Utilities Act of 1973), Marilao Water District (MWD) was
formed by Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982, which
resolution was thereafter forwarded to the LWUA and "duly filed" by it on October 4, 1982 after ascertaining that it
conformed to the requirements of the law.

Marilao Waters Consumers Association, Inc. (MWCA), a non-stock, non-profit corporation, filed a petition before
the RTC of Malolos, Bulacan claiming that the creation of the water district is defective and illegal. Impleaded as
respondents were the Marilao Water District, as well as the Municipality of Marilao, Bulacan; its Sangguniang Bayan;
and Mayor Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district.

MWD filed its Answer with an affirmative defences that the RTC lacked jurisdiction over the subject matter since the
water districts dissolution fell under the original and exclusive jurisdiction of the SEC.

MWCA countered thatsince the Marilao Water District had not been organized under the Corporation Code, the SEC
had no jurisdiction over a proceeding for its dissolution and that under Section 45 of PD 198, the proceeding to
determine if the dissolution of the water district is for the best interest of the people, is within the competence of a
regular court of justice.

RTC dismissed the MWCAs suit ruling that it is the SEC which has exclusive and original jurisdiction over the case.

ISSUE:
Which triburial has jurisdiction over the dissolution of a water district organized and operating as a quasi-public
corporation under the provisions of Presidential Decree No. 198, as amended: the Regional Trial Court, or the
Securities & Exchange Commission.

RULING:
The present case does not fall within the limited jurisdiction of the SEC, but within the general jurisdiction of RTCs.

PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of water districts
throughout the country; it is "the source of authorization and power to form and maintain a (water) district." Once
formed, it says, a district is subject to its provisions and is not under the jurisdiction of any political subdivision.

The juridical entities thus created and organized under PD 198 are considered quasi-public corporations, performing
public services and supplying public wants.

The juridical entities known as water districts created by PD 198, although considered as quasi-public corporations and
authorized to exercise the powers, rights and privileges given to private corporations under existing laws are entirely
distinct from corporations organized under the Corporation Code, PD 902-A, as amended.

The Corporation Code has nothing whatever to do with their formation and organization, all the terms and conditions
for their organization and operation being particularly spelled out in PD 198.

The resolutions creating them, their charters, in other words, are filed not with the Securities and Exchange
Commission but with the LWUA. It is these resolutions qua charters, and not articles of incorporation drawn up under
the Corporation Code, which set forth the name of the water districts, the number of their directors, the manner of their
selection and replacement, their powers, etc.

The SEC which is charged with enforcement of the Corporation Code as regards corporations, partnerships and
associations formed or operating under its provisions, has no power of supervision or control over the activities of
water districts.

The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts created
thereunder This is Section 45 of PD 198. Under this provision, it is the LWUA which is the administrative body
involved in the voluntary dissolution of a water district; it is with it that the resolution of dissolution is filed, not the
Securities and Exchange Commission. And this provision is evidently quite distinct and different from those on
dissolution of corporations "formed or organized under the provisions of the Corporation Code under which dissolution
may be voluntary (by vote of the stockholders or members), generally effected by the filing of the corresponding
resolution with the Securities and Exchange Commission, or involuntary, commenced by the filing of a verified
complaint also with the SEC.

Although described as quasi-public corporations, and granted the same powers as private corporations, water districts
are not really corporations. They have no incorporators, stockholders or members, who have the right to vote for
directors, or amend the articles of incorporation or by-laws, or pass resolutions, or otherwise perform such other acts as
are authorized to stockholders or members of corporations by the Corporation Code. In a word, there can be no such
thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the
latter there are no stockholders or members. Between the water district and those who are recipients of its water
services there exists not the relationship of corporation-and-stockholder, but that of a service agency and users or
customers.

There can therefore be no such thing in a water district as "intra-corporate or partnership relations, between and
among stockholders, members or associates (or) between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively," within the contemplation of Section 5
of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the SEC.
 G.R. No. 112399 July 14, 1995
REPRESENTATIVE AMADO S. BAGATSING, petitioner, vs.
COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY and THE HONORABLE
EXECUTIVE SECRETARY, respondents.

G.R. No. 115994 July 14, 1995

NEPTALI A. GONZALES, ERNESTO A. MACEDA, JOHN H. OSMEA, WIGBERTO E. TAADA, JOKER O.
ARROYO, AMADO D. BAGATSING, and RENE A.V. SAGUISAG, petitioners, vs.
DELFIN LAZARO, in his capacity as Chairman of the Philippine National Oil Company, MONICO JACOB, in his
capacity as President of PNOC, COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY,
PETRON CORPORATION, and ARAMCO OVERSEAS COMPANY B.V., respondents.

The petition for prohibition in G.R. No. 112399 sought: (1) to nullify the bidding conducted for the sale of a block of
shares constituting 40% of the capital stock (40% block) of Petron Corporation (PETRON) and the award made to
Aramco Overseas Company, B.V. (ARAMCO) as the highest bidder in the bidding conducted on December 15, 1993;
and (2) to stop the sale of said block of shares to ARAMCO. The Supplemental Petition in said case sought to annul the
bidding of the 40% block held on December 15, 1993 and to set aside the award given to ARAMCO.

The petition for prohibition and certiorari in G.R. No. 115994 sought to annul the sale of the same block of Petron
shares subject of the petition in G.R. No. 112399.

The petition in G.R. No. 112399 asked for the issuance of a temporary restraining order to stop respondents from
selling the 40% block to a foreign buyer (Rollo, p. 15). The petition for a temporary restraining order was reiterated in
a motion filed subsequently (Rollo, pp. 107-108).

The petition in G.R. No. 115994 asked for the issuance of a temporary restraining order and a writ of preliminary
injunction to restrain and enjoin public respondents "from proceeding with the projected initial public offering on July
18, 1994 of the 20% of Petron" (Rollo, p. 33).

The Urgent Supplemental Petition in said case reiterated the prayer for the immediate issuance of a preliminary
injunction to enjoin the initial public offering of the Petron shares (Rollo, pp. 223-225).

Actions on the petitions and motions for the issuance of a temporary restraining order and a writ of preliminary
injunction were deferred.

The petition in G.R. No. 112399 was filed by Representative Amado S. Bagatsing while the petition in G.R. No.
115994 was filed by Senators Neptali A. Gonzales, Ernesto A. Maceda, John H. Osmea and Wigberto E. Taada,
Representatives Joker Arroyo and Amado D. Bagatsing and former Senator Rene A.V. Saguisag all in their capacity
as members of Congress, taxpayers and concerned citizens, except in the case of Mr. Saguisag, who sued as a private
law practitioner, member of the Integrated Bar of the Philippines, taxpayer and concerned citizen.

Respondent Monico V. Jacob was impleaded in G.R. No. 115994 in his capacity as President of respondent Philippine
National Oil Company (PNOC). At the time of the filing of the petition, he had ceased to be the President of PNOC
and a member of its governing board. However, he is the Chairman of the Board of Directors and Chief Executive
Officer of PETRON, a respondent in both cases. He asked for the dismissal of the petition on the ground that having
ceased to be PNOC President, petitioners had no more cause of action against him. We deny the motion in view of the
fact that the petition questions his acts as President of PNOC.

In G.R. No. 115994, ARAMCO entered a limited appearance to question the jurisdiction over its person, alleging that it
is a foreign company organized under the laws of the Netherlands, that it is not doing nor licensed to do business in the
Philippines, and that it does not maintain an office or a business address in and has not appointed a resident agent for
the Philippines (Rollo, p. 240).

I PETRON was originally registered with the Securities and Exchange Commission (SEC) in 1966 under the
corporate name "Esso Philippines, Inc." (ESSO) as a subsidiary of Esso Eastern, Inc. and Mobil Petroleum Company, Inc.

In 1973, at the height of the world-wide oil crisis brought about by the Middle East conflicts, the Philippine
government acquired ESSO through the PNOC. ESSO became a wholly-owned company of the government under the
corporate name PETRON and as a subsidiary of PNOC.

In acquiring PETRON, the government aimed to have a buffer against the vagaries of oil prices in the international
market. It was felt that PETRON can serve as a counterfoil against price manipulation that might go unchecked if all
the oil companies were foreign-owned. Indeed, PETRON helped alleviate the energy crises that visited the country
from 1973 to 1974, 1979 to 1980, and 1990 to 1991.

PETRON owns the largest, most modern complex refinery in the Philippines with a nameplate capacity of 155,000
barrels per stream day. It is also the country's biggest combined retail and wholesale market of refined petroleum
products. In 1992, it garnered a 39.8% share of all domestic products sold, and at year end its assets totalled P24.4
billion. PETRON's income as of September 1993 was P2.7 billion. It is listed as the No. 1 corporation in terms of
assets and income in the Philippines.

On December 8, 1986, President Corazon C. Aquino promulgated Proclamation No. 50 in the exercise of her
legislative power under the Freedom Constitution.

The Proclamation is entitled "Proclaiming and Launching a Program for the Expeditious Disposition and Privatization
of Certain Government Corporations and/or the Assets thereof, and Creating the Committee on Privatization and the
Asset Privatization Trust."

Implicit in the Proclamation is the need to raise revenue for the Government and the ideal of leaving business to the
private sector. The Government can then concentrate on the delivery of basic services and the performance of vital
public functions.

On December 2, 1991, President Fidel V. Ramos noted that "[t]he privatization program has proven successful and
beneficial to the economy in terms of expanding private economic activity, improving investment climate, broadening
ownership base and developing capital markets, and generating substantial revenues for priority government expenditure,"
but "[t]here is still much potential for harnessing private initiative to undertake in behalf of government certain activities
which can be more effectively and efficiently undertaken by the private sector" (G.R. No. 112399, Rollo, p. 31).

In its meeting held on September 9, 1992, the PNOC Board of Directors approved Specific Thrust No. 6 and moved "to
bring to the attention of the Administration the need to privatize Petron whether or not there will be deregulation [of
the oil industry]" (G.R. No. 112399, Rollo p. 67).

In a letter dated October 21, 1992, Secretary Ramon R. Del Rosario, as Chairman of the Committee on Privatization,
endorsed to President Ramos the proposal of PNOC to "privatize 65% of the stock of Petron, open to both foreign as
well as domestic investors." Secretary Del Rosario added: "The entry of foreign investors in this field is expected to
result in improved technology and know-how and will enable Petron to have access to international information
network as well as access to external markets and refining contracts" (G.R. No. 112399, Rollo, p. 72).

On January 4, 1993, a follow-up letter was sent by Secretary Del Rosario informing the President that: "The
privatization of Petron, recommended by both the management of Philippine National Oil Company (PNOC) and the
Committee on Privatization (COP), will send the right signals that may re-ignite investor interest in the Philippines for
1993" (G.R. No. 112399, Rollo, p. 73).

In a letted dated January 6, 1993, Secretary designate Delfin L. Lazaro of the Department of Energy, favorably
endorsed for approval the plan to sell up to 65% of the capital stock of PETRON. He also noted that the said plan was
"consistent with the Energy Sector Action Plan approved by the President and the Cabinet on November 27, 1992"
(G.R. No. 112399, Rollo, p. 74).

On January 12, 1993, the Cabinet approved the privatization of PETRON as part of the Energy Sector Action Plan.

On March 25, 1993, the Government Corporate Monitoring and Coordinating Committee (GCMCC) recommended a
100% privatization of PETRON.

On March 31, 1993, the PNOC Board of Directors passed a resolution authorizing the company to negotiate and
conclude a contract with the consortium of Salomon Brothers of Hongkong Limited and PCI Capital Corporation for
financial advisory services to be rendered to PETRON.

On April 1, 1993, the GCMCC recommended to COP the privatization of only 65% of the capital stock of PETRON,
instead of the 100% privatization previously recommended.

On June 10, 1993, in a letter addressed to Secretary Ernesto C. Leung, the COP Chairman, President Ramos approved
the privatization of PETRON up to a maximum of 65% of its capital stock.

The Petron Privatization Working Committee (PWC) was thus formed. It finalized a privatization strategy with 40% of
the shares to be sold to a strategic partner and 20% to the general public through the initial public offering and
employees stock option plan.

The Commission on Audit (COA) was consulted as to the valuation methodologies and privatization process. The
privatization plan was also presented to the COP on July 23, 1993, and to the President on July 31, 1993 for their approval.

On August 10, 1993, the President approved the 40% 40% 20% privatization strategy of PETRON. In the press
release on the presidential approval of the said privatization, the Office of the President commented:

For Petron, gaining a long-term strategic partner that will ensure stable crude oil supplies and/or advance its
technological and financial position will be a definite advantage. In addition, its partial privatization will provide
the flexibility and level playing field it needs to remain a major, and therefore influential player in the oil industry.
In 1992, Petron dominated the oil industry with a commanding 40% market share (G.R. No. 112399, Rollo, p. 83).
The invitation to bid was published in several newspapers of general circulation, both local and foreign. The deadline
for the submission of proposals was set for December 15, 1993 at 5:00 P.M.

PETRON furnished the Office of the Solicitor General (OSG) with copies of the draft of the stock purchase agreement
and shareholders' agreement, with a request for the review of the same.

In a meeting of the Petron PWC held on December 15, 1993 at 12:00 noon, it decided that Westmont Holdings
(WESTMONT) was disqualified from participating in the bidding for its alleged failure to comply with the technical
and financial requirements for a strategic partner.

Salomon Brothers valued PETRON at US$600 million and the 40% block at US$240 million. For the entire Petron
shares, respondent Secretary Lazaro proposed a valuation of US$1.4 billion; Petron management, US$857 million; and
Frances Onate, a member of the Petron PWC, a valuation of US$743 million to US$1 billion.

Finally, the floor price bid for the 40% block was fixed at US$440 million.

The bids of Petroliam Nasional Berhad (PETRONAS), ARAMCO and WESTMONT were submitted while the floor
price was being discussed.

At about 6:15 P.M. and before the bids were opened, WESTMONT through its representative, Manuel Estrella,
submitted additional documents to prove its financial capability to carry out the purchase of the 40% block. The PNOC
Board of Directors adopted Resolution No. 865, S. 1993, rejecting the bid of WESTMONT for not having met the pre-
qualification criteria of financial capability, long-term crude supply availability, and technical and management expertise in
the oil business. It was further resolved that the bid submitted by WESTMONT would be returned unopened.

At 6:30 P.M., the other two bids were opened. The bid of ARAMCO was for US$502 million while the bid of
PETRONAS was for US$421 million. The PNOC Board of Directors then passed Resolution No. 866, S. 1993,
declaring ARAMCO the winning bidder.

On December 15, 1993, the OSG informed PETRON that the drafts of the stock purchase agreement and shareholders'
agreement contained no legally objectionable provisions and could be the basis for PETRON's negotiation with the
winning bidder.

On December 16, 1993, respondent Monico Jacob, in his capacity as President and Chief Executive Officer of PNOC,
endorsed to the COP the bid of ARAMCO for approval. The COP gave its approval on the same day. Also on the same
day, Manuel Estrella filed a complaint in behalf of WESTMONT with PNOC, questioning the award of the 40% block
of Petron shares to ARAMCO. The COP answered Estrella's letter on January 14, 1994, explaining why
WESTMONT's bid was returned unopened.

On February 3, 1994, PNOC and ARAMCO signed the Stock Purchase Agreement and on March 4, 1994, the two
companies signed the Shareholders' Agreement.

Public respondents submitted to the Securities and Exchange Commission (SEC) a proposed price for the initial public
offering of the 20% block set for July 18, 1994, the second phase of PETRON's privatization. PETRON proposed a
price of between P7.00 and P16.00 per share but the SEC approved a price of P9.00 per share.

II PETRON questions the locus standi of petitioners to file the action (Rollo, pp. 479-484). Petitioners however,
countered that they filed the action in their capacity as members of Congress.

In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R. No. 113105, August 19, 1994, we held that the
members of Congress have the legal standing to question the validity of acts of the Executive which injures them in
their person or the institution of Congress to which they belong. In the latter case, the acts cause derivative but
nonetheless substantial injury which can be questioned by members of Congress (Kennedy v. James, 412 F. Supp. 353
[1976]). In the absence of a claim that the contract in question violated the rights of petitioners or impermissibly
intruded into the domain of the Legislature, petitioners have no legal standing to institute the instant action in their
capacity as members of Congress.

However, petitioners can bring the action in their capacity as taxpayers under the doctrine laid down in Kilosbayan,
Inc. v. Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may question contracts entered into by the
national government or government-owned or controlled corporations alleged to be in contravention of the law. As
long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it and uphold the legal
standing of petitioners as taxpayers to institute the present action.

III A. Petitioners in G.R. Nos. 112399 and 115994 claim that the inclusion of PETRON in the privatization
program contravened the declared policy of the State to dispose of only non-performing assets of the government and
government-owned or controlled corporations which have been found unnecessary or inappropriate for the government
sector to maintain. They contend that PETRON is neither a non-performing asset nor is it unnecessary or inappropriate
for the government to maintain or operate (G.R. No. 112399, Rollo, pp. 3-4, 8-13; G.R. No. 115994, Rollo, pp. 14-17,
216-217).
To say that only non-performing assets should be the subject of privatization does not conform with the realities of
economic life. In the world of business and finance, it is difficult to sell a business in dire, financial distress. As
entrepreneur Don Eugenio Lopez used to advert to his younger executives: "Don't buy headaches. Don't even accept
them if they are offered to you on a silver platter." It is only in a fire sale that the government can expect to get rid of
its non-performing assets, more so if the sequencing pattern insisted by petitioners (initial public offering of 10% block
to small investors) is followed.

While Proclamation No. 50 mandates that non-performing assets should promptly be sold, it does not prohibit the
disposal of the other kinds of assets, whether performing, necessary or appropriate.

Section 1 of the Proclamation reads:

Statement of Policy. It shall be the policy of the State to promote privatization through an orderly, coordinated
and efficient program for the prompt disposition of the large number of non-performing assets of the government
financial institutions, and certain government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain.

The said provision classifies two types of assets: (1) Non-performing assets of government financial institutions; and
(2) Government-owned or controlled corporations which have been found unnecessary or inappropriate for the
government sector to maintain.

Under the Proclamation, it is the COP which is tasked with the duty of identifying and arranging the sale of
government assets. Section 5(1) of the Proclamation provides:

Powers and Functions. The Committee shall have the following powers and functions:

(1) To identify to the President of the Philippines, and arrange for transfer to the National Government and/or to
the Trust and the subsequent divestment to the private sector of (a) such non-performing assets as may be
identified by the Committee, and approved by the President, for transfer from the government banks for disposal
by the Trust or the government banks, and (b) such government corporations, whether parent or subsidiary,
and/or such of their assets, as may have been recommended by the Committee for disposition, and Provided,
that no such identification, recommendation or approval shall be necessary where a parent corporation decides
on its own to divest of, in whole or in part, or liquidate a subsidiary corporation organized under the
Corporation Code; Provided further, that any such independent disposition shall be undertaken with the prior
approval of the Committee and in accordance with the general disposition guidelines as the Committee may
provide; Provided, finally, that in every case the sale or disposition shall be approved by the Committee with
respect to the buyer and price only; (Emphasis supplied).

xxx xxx xxx

After a long study by PNOC, PETRON was found to be "inappropriate or unnecessary" for the government to maintain
because refining and marketing of petroleum is an aspect of the industry which is better left to the private sector. In
making such finding, PNOC was guided by Section 4(a) of Proclamation No. 50, which provides:

. . . (a) divesting to the private sector in the soonest possible time through the appropriate disposition entities, those
assets with viable productive potential as going concerns, taking into account where appropriate the implications of
such transfers on sectoral productive capacities and market limitation, . . . . These objectives are to be pursued within
the context of furthering the national economy through strengthened and revitalized private enterprise system.

The decision of PNOC to privatize PETRON and the approval of the COP of such privatization, being made in
accordance with Proclamation No. 50, cannot be reviewed by this Court. Such acts are exercises of the executive
function as to which the Court will not pass judgment upon or inquire into their wisdom (Llamas v. Orbos, 202 SCRA
844 [1991]).

Such identification by the COP of the government corporations to be privatized was not even necessary in the case of
PETRON. Under Section 5(1) of Proclamation No. 50 ". . . [N]o such identification, recommendation or approval shall
be necessary where a parent corporation decides on its own to divest of, in whole or in part, or liquidate a subsidiary
corporation organized under the Corporation Code; . . . ."

The only participation of the COP in the sale of the Petron shares by PNOC, the parent corporation, was the approval
of the buyers and price. The last sentence of paragraph (1) of Section 5 provides:

. . . Provided, finally, that in every case the sale or disposition shall be approved by the Committee
with respect to the buyer and price only.

PNOC, in privatizing PETRON, was simply exercising its corporate power to dispose of all or a portion of its shares in
a subsidiary. PNOC was created under P.D. No. 334, as amended by P.D. No. 927, which empowers it to acquire
shares of the capital stock of any other corporation and to dispose of the same shares.
Besides, if only non-performing assets are intended to be sold, it would be unnecessary to provide in the Proclamation
for the rehabilitation of government corporations to make the same more attractive to investors and potential buyers.

Section 5 (5) of Proclamation No. 50 provides:

In its discretion, to approve or disapprove, subject to the availability of funds for such purpose, the rehabilitation
of assets pending disposition by the Trust or any other government agency authorized by the Committee, or the
Trust with the approval of the Committee, Provided that, the budget for each rehabilitation project shall be
likewise subject to prior approval by the Committee.

Nowhere in the Proclamation can one infer that it prohibits a partial privatization of vital, appropriate and performing
corporations owned by the government.

Proclamation No. 50 contained an Annex listing the corporations to be privatized and those to be retained. While
PETRON was mentioned among the corporations to be retained, Section 6 of the Proclamation directed a continuing
study on what corporations should be recommended for privatization.

It is markworthy that the said Annex did not indicate the percentage of shares that will be privatized or that will be
retained. It can be interpreted to mean that all the shares of the corporations in the list to be privatized may be sold,
while only some of the shares of the other corporations may be sold. It is also worthy of note that the list of
corporations to be retained added the phrase "As of 31 August 1992," meaning that any of the corporations mentioned
therein may be delisted after that date if a study would justify such action.

The government is not disposing of all of its shares in PETRON but is retaining a 40% block. Together with the
widely-held 20% of the private sector control of PETRON by the government is assured. With such equity in
PETRON, the government can also maintain a window to the oil industry and at the same time share in the profits of
the company.

The privatization of PETRON could well be undertaken under laws other than Proclamation No. 50.

Of significance is Section 2(c) of R.A. No. 7181, which provides that:

Privatization of government assets classified as a strategic industry by the National Economic and
Development Authority shall first be approved by the President of the Philippines

Section 6, the repealing clause of R.A. No. 7181, expressly repealed Sections 3 and 10 of Proclamation No. 50 and all
other laws, orders and rules and regulations which are inconsistent therewith.

The only requirement under R.A. No. 7181 in order to privatize a strategic industry like PETRON is the approval of the
President. In the case of PETRON's privatization, the President gave his approval not only once but twice.

PETRON's privatization is also in line with and is part of the Philippine Energy Program under R.A. No. 7638. Section
5(b) of the law provides that the Philippine Energy Program shall include a policy direction towards the privatization of
government agencies related to energy.

Under P.D. No. 334, the law creating PNOC, said corporation is granted the authority "[t]o establish and maintain
offices, branches, agencies, subsidiaries, correspondents or other units anywhere as may be needed by the Company
and reorganize or abolish the same as it may deem proper."

B. Petitioners next question the regularity and validity of the bidding (G.R. No. 112399, Rollo, pp. 97-99; G.R. No.
115994, Rollo, pp. 17-24, 221). Petitioners in G.R. No. 115994 claim that the public bidding was tainted with haste and
arbitrariness and that there was a failed bidding because there was only one offeror (Rollo, pp. 17-24).

Taking the cudgels for WESTMONT, petitioners urge that said bidder was only given two days to conduct a review
PETRON's vast business operations in order to comply with the technical and financial requirements for pre-
qualification. Petitioners also complain that the pre-qualification and actual bidding were conducted on the same day,
thus denying a disqualified bidder an opportunity to protest or to appeal. They question the fixing of the floor price on
the same day as the public bidding and only after the bids had been submitted. Likewise, they say that the approval of
the bid of ARAMCO by the Assets Privatization Trust on the same day it is submitted is anomalous (G.R. No.
115994, Rollo, pp. 22-24).

On the claim that there was a failed bidding, petitioners contend that there were only three bidders. One of them,
PETRONAS, submitted a bid lower than the floor price while a second, failed to pre-qualify. Citing Section V-2-a of
COA Circular No. 89-296 dated January 27, 1989, they argue that where only one bidder qualifies, there is a failure of
public auction (G.R. No. 115994, Rollo, p. 22).

When a failure of bidding takes place is defined in Circular No. 89-296 of the Commission on Audit, which prescribes
the "Audit Guidelines on the Divestment or Disposal of Property and other Assets of the National Government
Agencies and Instrumentalities, Local Government Units and Government-Owned or Controlled Corporations and their
Subsidiaries."

V. MODES OR DISPOSAL/DIVESTMENT:

xxx xxx xxx

2 Sale Thru Negotiation

For justifiable reasons and as demanded by the exigencies of the service, disposal thru negotiated sale may be
resorted to and undertaken by the proper committee or body in the agency or entity concerned taking into
consideration the following factors:

a. There was a failure of public auction. As envisioned in this Circular, there is a failure of public auction in any of
the following instances:

1 if there is only one offeror.

In this case, the offer or bid, if sealed, shall not be opened.

2 if all the offers/tenders are non-complying or unacceptable.

A tender is non-complying or unacceptable when it does not comply with the prescribed legal, technical and
financial requirement for pre-qualification.

Under said COA Circular, there is a failure of bidding when: 1) there is only one offeror; or (2) when all the offers are
non-complying or unacceptable.

In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS and WESTMONT.

While two offerors were disqualified, PETRONAS for submitting a bid below the floor price and WESTMONT for
technical reasons, not all the offerors were disqualified. To constitute a failed bidding under the COA Circular, all the
offerors must be disqualified.

Petitioners urge that in effect there was only one bidder and that it can not be said that there was a competition on "an
equal footing" (G.R. No. 112399, Rollo, p. 122). But the COA Circular does not speak of accepted bids but of offerors,
without distinction as to whether they were disqualified.

The COA itself, the agency that adopted the rules on bidding procedure to be followed by government offices and
corporations, had upheld the validity and legality of the questioned bidding. The interpretation of an agency of its own
rules should be given more weight than the interpretation by that agency of the law it is merely tasked to administer.

The case of Danville Maritime, Inc. v. Commission on Audit, 175 SCRA 701 (1989), relied upon by petitioner, is
inappropriate. In said case, there was only one offeror in the bidding. The Court said: ". . . [I]f there is only one
participating bidder, the bidding is non-competitive and, hence, falls short of the requirement. There would, in fact, be
no bidding at all since, obviously, the lone participant cannot compete against himself."

C. According to petitioners, the law mandates the offer for sale of 10% of the Petron shares to small investors before a
sale of the 40% block of shares to ARAMCO can be made.

They theorize that the best way to determine the real market price of Petron shares was to first have a public offering as
required by R.A. No. 7181. The reverse procedure followed by private respondents, according to petitioners, gave
unwarranted benefits to private respondents because they bought the Petron shares at only P6.70 per share when the
shares fetched as high as P16.00 per share in the stock market (G.R. No. 115994, Rollo, pp. 24-27).

To bolster their theory, petitioners cite Section 2(d) of R.A. No. 7181, which provides:

A minimum of ten (10) percent of the sale of assets in corporation form shall first be offered to small local
investors including Filipino Overseas Workers and where practicable also in the sale of any physical asset.

Petitioners also invoke the Implementing Guidelines promulgated to implement R.A. No. 7181, which provides:

In the sale of assets in corporate form, at least 10% of the total shares for privatization shall first be offered to
small local investors. Employees Stock Ownership Plans (ESOPS) and public offerings shall count towards
compliance with these provisions . . . (Sec. 3).

We agree with PETRON that the language of Section 2(d) of R.A. No. 7181 does not mandate any sequencing for the
disposition of shares in a government-owned corporation being privatized.
It is the unfortunate use of the word "first" in Section 2(d) of R.A. No. 7181 that threw petitioners off track and caused
them to misread the provision as one requiring a mandatory sequencing of the sale. As a wit once said, if a centipede
would be compelled to follow a prescribed sequencing of its steps, it could never move an inch.

A reasonable reading of the provision is that it merely gives a right of first refusal by the small investors vis-a-vis the
10% block of shares. As far as the 10% block is concerned, the small investors shall have a first chance to subscribe
thereto whenever it is offered. The offer may be made before, after or simultaneous with the offer of the shares to
strategic partners or major investors depending on the prevailing condition of the market. Certainly, in an initial public
offering, it is good judgment and business sense that should prevail, rather than the rigid and inflexible rules of step
one, step two, etc.

The Rules and Regulations issued by the COP to implement R.A. No. 7181 set aside 10% of the shares subject of the
privatization to be offered first to the small local investors, and made clear that as far as said 10% block is concerned,
the small investors shall have the first crack to buy the same. These Rules have been consistently applied in previous
privatizations, and they constitute a contemporaneous construction and interpretation of a law by the implementing,
administrative agency. Such construction is accorded great respect by the Court (Nestle Philippines, Inc. v. Court of
Appeals, 203 SCRA 504 [1991]).

What Congress clearly mandated in R.A. No. 7181 was that at least 10% of the shares of a privatized corporation must
be reserved and offered for sale to the general public. In the deliberation of the Congressional Committee on
Government-Owned and Controlled Corporations on December 18, 1991, the Committee spoke of having the 10% set
aside without impeding the privatization process.

Note that when the bidding of the 40% block of Petron shares had been announced, the 10% block for offering to the
small local investors had been identified, reserved and set aside. This is more than a substantial compliance with the
mandate of law.

There is great risk in first making an initial public offering of the 10% block before bidding out the 40% block to a
strategic partner. It may happen that the price of the shares offered initially to the public plunges below the offering
price approved by the SEC.

The sensitive market forces involved in initial public offerings render unrealistic any legislative mandate to follow a
sequencing in the sale of government-owned shares in the market. The legislators, practical men of affairs as they are,
were aware of the vagaries, variables and vicissitudes of the stock market when they enacted R.A. No. 7181. It is more
reasonable to read the said law as leaving to the COP and the government corporations concerned to determine the
sequencing of the sale to strategic investors and the general public. To require the offer of 10% to the general public
before the sale of a block to a strategic partner may delay or even impede the entire privatization program.

The clear policy behind Proclamation No. 50 is to give the COP and APT maximum flexibility in their operation to
ensure the most efficient implementation of the privatization program.

Under Section 5(3) of the Proclamation, full powers are given the COP to establish "mandatory as well as indicative
guidelines for . . . the disposition
of . . . assets." Under Section 12(2) thereof, the APT is given the "widest latitude of flexibility . . . particularly in the
areas of . . . disposition . . . ."

Petitioners can not rely on Opinion No. 126, Series of 1992 dated September 28, 1992. The query posed to the
Secretary of Justice in said opinion was the legality of the plan of National Development Corporation to pass on to the
prospective buyer of its shares in a local bank the responsibility of complying with the requirement prescribed in
Section 2(d) of R.A. No. 7181 that a minimum of 10% of the shares of a corporation "shall first be offered to small
local investors . . . ." The Secretary of Justice naturally opined that said proposal could not legally be done on the
principal ground that the "observance of this legal requirement is incumbent upon the disposition entity, which in this
case is NDC, but as contemplated, the sale to small investors shall be undertaken by the private buyer of the [local
bank's] shares." The query posed to the Secretary of Justice was not about the sequencing of the sale of the 10% block.

We can not see how the failure to dispose the 10% block to the general public before the sale of the 40% block to
ARAMCO gave the latter unwarranted benefits.

Actually ARAMCO paid a total of P14,671,985,306.00 for the acquisition of the Petron shares. This aggregate amount
represents in peso terms: (1) the US$502 million winning bid paid by ARAMCO to PNOC on March 4, 1994; and (2)
the additional amount of US$30,327,987.00 remitted on July 11, 1994, representing the "purchase price adjustment"
stipulated in the Stock Purchase Agreement. Consequently, ARAMCO's acquisition cost was P7.336 per share.

A fair comparison between the ARAMCO price and the IPO price should take into consideration the levels of financial,
legal and miscellaneous costs directly related to the ARAMCO purchase, including the consequent opportunity cost or
income to PNOC and the National Government, had the proceeds been invested in Philippine Treasury Bills from
March 4 and July 11, respectively, to September 7, 1994. On this basis, the effective proceeds on the ARAMCO
purchase amount to P7.8559 per share, and not P6.70 as claimed by petitioners (G.R. No. 115994, Rollo, pp. 506-507).
On the other hand, the seller's expenses incurred in connection with the IPO, including taxes and other fees paid to the
National Government, reached a total of P833.081 million or P0.833 per share (G.R. No. 115944, Rollo, p. 507).

To make further a fair comparison between the two prices, the proceeds from the IPO should be net of PNOC's share in
PETRON's net income from March to August 1994, because in effect it was giving up this amount in favor of the IPO
investors. As projected, the total net income of PETRON from March to August 1994 is P1,870,500.00. Twenty
percent of this is P374,100.00 which translates to a per share reduction of P0.3741 from the IPO proceeds. This would
further erode the effective proceeds from the IPO sale to P7.7929 per share.

Finally, cash dividends of P2 billion and property dividends of P153 million, or a total of P2.153 billion was declared
and transferred to PNOC before the ARAMCO purchase was effected. Imputing such dividends would translate the effective
proceeds to PNOC from the ARAMCO sale to P8.2865 per share (P7.8559 plus P0.4306 [or 40% of P2.153 Billion]). Using
this figure, the IPO proceeds of P7.7929 per share is definitely lower than the ARAMCO proceeds of P8.2865.

Unlike the ordinary buyers of shares listed in the stock exchange, ARAMCO, as a strategic investor, had to spend for
the due diligence review of the business and records of PETRON.

Aside from this monetary considerations, PNOC derived the following value-added benefits:
1) PNOC is assured of an adequate supply of crude oil. The element of uncertainty on sources of crude oil supply is
reduced, if not eliminated, ARAMCO being the world's largest known producer and exporter of five different types of
crude oil.
2) PNOC's refinery can achieve optimum efficiency because of better crude slates.
3) ARAMCO has to hold on to the Petron shares for the next five years. Aside from its stabilizing effect on the market
price of Petron shares, this holding period will prevent ARAMCO from deriving any speculative gains. Unlike
ARAMCO, the buyers of the IPO can sell their shares any time without constraints.
4) ARAMCO's presence in PETRON has a tremendous, unquantifiable influence in investor's confidence in PETRON
as a publicly-listed company. This confidence could not be generated if PETRON's partner has a bad track record.
5) ARAMCO will assist PNOC in raising funds to finance the more than P12 billion in projected capital expenditures
required over the next four years to make PETRON competitive.

The pricing of shares of stock is a highly specialized field that is better left to the experts. It involves an inquiry into the
earning potential, dividend history, business risks, capital structure, management, asset values of the company; the
prevailing business climate; the political and economic conditions; and a myriad of other factors that bear on the
valuation of shares (Van Horne, Financial Management and Policy 652-653 [8th ed.]); Leffler and Farwell, The Stock
Market 573-575 [3rd ed.]).

D. Finally, petitioners contend that PETRON is a public utility, in which foreign ownership of its equity shall not
exceed 40% thereof and the foreign participation in the governing body shall be limited to their proportionate share in
its capital. According to petitioners, ARAMCO is entitled only to a maximum of four seats in the ten-man board but
was given five seats (G.R. No. 112389, Rollo, pp. 30-64; G.R. No. 115994, Rollo, pp. 30-31, 202-212).

This issue hinges on whether the business of oil refining is a "public utility" within the purview of Section 11, Article
XII of the 1987 Constitution (adopted from Sec. 5, Art. XIV of the 1973 Constitution), which provides:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital and all the executive and managing
officers of such corporation or association must be citizens of the Philippines (Emphasis supplied).

Implementing Section 8 of Article XIV of the 1935 Constitution, the progenitor of Section 5 of Article XIV of the 1973
Constitution, is Section 13(b) of the Public Service Act, which provides:

The term "public service" includes every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional, or accidental and done for general business purposes, any common carrier,
railroad, street railway, . . . and other similar public services: . . . .

More pertinent is Section 7 of R.A. No. 387, the Petroleum Act of 1949, which provides:

Petroleum operation a public utility. Everything relating to the exploration for and exploitation of
petroleum which may consist naturally or below the surface of the earth, and everything relating to the
manufacture, refining, storage, or transportation by special methods of petroleum, as provided for in
this Act, is hereby declared to be of public utility (Rollo, p. 519; Emphasis supplied).
A "public utility" under the Constitution and the Public Service Law is one organized "for hire or compensation" to
serve the public, which is given the right to demand its service. PETRON is not engaged in oil refining for hire and
compensation to process the oil of other parties.

Likewise, the activities considered as "public utility" under Section 7 of R.A. No. 387 refer only to petroleum which is
indigenous to the Philippines. Hence, the refining of petroleum products sourced from abroad as is done by Petron, is
not within the contemplation of the law.

We agree with the opinion of the Secretary of Justice that the refining of imported crude oil is not regulated by, nor is it
within the scope and purview of the Petroleum Act of 1949. He said:

Examination of our statute books fails to reveal any law or legal provision which, in explicit terms,
either permits or prohibits the establishment and operation of oil refineries that would refine only
imported crude oil (Opinion, No. 267, S. 1955).

WHEREFORE, the petitions are DISMISSED.

 G.R. No. 112399 July 14, 1995

REPRESENTATIVE AMADO S. BAGATSING, petitioner, vs.

COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY and THE HONORABLE
EXECUTIVE SECRETARY, respondents.

FACTS:
PETRON was originally registered with the Securities and Exchange Commission (SEC) in 1966 under the corporate
name "Esso Philippines, Inc." ESSO became a wholly-owned company of the government under the corporate name
PETRON and as a subsidiary of PNOC.
PETRON owns the largest, most modern complex refinery in the Philippines. It is listed as the No. 1corporation in
terms of assets and income in the Philippines in 1993. President Corazon C. Aquino promulgated Proclamation No. 50
in the exercise of her legislative power under the Freedom Constitution. Implicit in the Proclamation is the need to
raise revenue for the Government and the ideal of leaving business to the private sector by creating the committee on
privatization. The Government can then concentrate on the delivery of basic services and the performance of vital
public functions. The Presidential Cabinet of President Ramos approved the privatization of PETRON as part of the
Energy Sector Action Plan.

PNOC Board of Directors passed a resolution authorizing the company to negotiate and conclude a contract with the
consortium of Salomon Brothers of Hongkong Limited and PCI Capital Corporation for financial advisory services to
be rendered to PETRON. The Petron Privatization Working Committee (PWC) was thus formed. It finalized a
privatization strategy with 40% of the shares to be sold to a strategic partner and 20% to the general public. The
President approved the 40% 40% 20% privatization strategy of PETRON. The invitation to bid was published in
several newspapers of general circulation, both local and foreign. The PNOC Board of Directors then passed
Resolution No. 866, S. 1993, declaring ARAMCO the winning bidder. PNOC and ARAMCO signed the Stock
Purchase Agreement, the two companies signed the Shareholders' Agreement. The petition for prohibition in G.R. No.
112399 sought:

(1) to nullify the bidding conducted for the sale of a block of shares constituting 40% of the capital stock (40% block)
of Petron Corporation (PETRON) and the award made to Aramco Overseas Company, B.V. (ARAMCO) as the highest
bidder and

(2) to stop the sale of said block of shares to ARAMCO. The petition for prohibition and certiorari in G.R. No. 115994
sought to annul the sale of the same block of Petron shares subject of the petition in G.R. No. 112399.

ARAMCO entered a limited appearance to question the jurisdiction over its person, alleging that it is a foreign
company organized under the laws of the Netherlands, that it is not doing nor licensed to do business in the Philippines,
and that it does not maintain an office or a business address in and has not appointed a resident agent for the
Philippines (Rollo, p. 240). Petitioners however, countered that they filed the action in their capacity as members of
Congress.

ISSUE:
Whether or not the petitioners have a locus standi
DECISION:
Petition is dismissed.

LOCUS STANDI
In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R. No. 113105, August 19, 1994, we held that the
members of Congress have the legal standing to question the validity of acts of the Executive which injures them in
their person or the institution of Congress to which they belong. In the latter case, the acts cause derivative but
nonetheless substantial injury which can be questioned by members of Congress (Kennedy v. James, 412 F. Supp. 353
[1976]). In the absence of a claim that the contract in question violated the rights of petitioners or impermissibly
intruded into the domain of the Legislature, petitioners have no legal standing to institute the instant action in their
capacity as members of Congress. However, petitioners can bring the action in their capacity as taxpayers under the
doctrine laid down in Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994).Under said ruling, tax payers may question
contracts entered into by the national government or government-owned or controlled corporations alleged to be in
contravention of the law. As long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.

PRIVATIZATION
The only requirement under R.A. No. 7181 in order to privatize a strategic industry like PETRON is the approval of the
President. In the case of PETRON's privatization, the President gave his approval not only once but twice. PETRON's
privatization is also in line with and is part of the Philippine Energy Program under R.A. No. 7638. Section 5(b) of the
law provides that the Philippine Energy Program shall include a policy direction towards the privatization of
government agencies related to energy.

BIDDING
On the claim that there was a failed bidding, petitioners contend that there were only three bidders. One of them,
PETRONAS, submitted a bid lower than the floor price while a second, failed to pre-qualify.
Under said COA Circular, there is a failure of bidding when:

1) there is only one offeror; or

2) when all the offers are non-complying or unacceptable.

In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS and WESTMONT. While two offerors
were disqualified, PETRONAS for submitting a bid below the floor price and WESTMONT for technical reasons, not
all the offerors were disqualified. To constitute a failed bidding under the COA Circular, all the offerors must be
disqualified