G.R. No. 149615 August 29, 2006 As regards the property covered by Transfer Certificate of Title No.
As regards the property covered by Transfer Certificate of Title No. 219438 of the Registry of
IN RE: PETITION FOR SEPARATION OF PROPERTY ELENA BUENAVENTURA
MULLER, Petitioner,
vs.
HELMUT MULLER, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari 1 assails the February 26, 2001 Decision 2 of the Court of
Appeals in CA-G.R. CV No. 59321 affirming with modification the August 12, 1996 Decision 3 of
the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862, which
terminated the regime of absolute community of property between petitioner and respondent, as
well as the Resolution 4 dated August 13, 2001 denying the motion for reconsideration.
The facts are as follows:
Petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in Hamburg,
Germany on September 22, 1989. The couple resided in Germany at a house owned by
respondents parents but decided to move and reside permanently in the Philippines in 1992. By
this time, respondent had inherited the house in Germany from his parents which he sold and used
the proceeds for the purchase of a parcel of land in Antipolo, Rizal at the cost of P528,000.00 and
the construction of a house amounting to P2,300,000.00. The Antipolo property was registered in
the name of petitioner under Transfer Certificate of Title No. 219438 5 of the Register of Deeds of
Marikina, Metro Manila.
Due to incompatibilities and respondents alleged womanizing, drinking, and maltreatment, the
spouses eventually separated. On September 26, 1994, respondent filed a petition 6 for separation
of properties before the Regional Trial Court of Quezon City.
On August 12, 1996, the trial court rendered a decision which terminated the regime of absolute
community of property between the petitioner and respondent. It also decreed the separation of
properties between them and ordered the equal partition of personal properties located within the
country, excluding those acquired by gratuitous title during the marriage. With regard to the
Antipolo property, the court held that it was acquired using paraphernal funds of the respondent.
However, it ruled that respondent cannot recover his funds because the property was purchased
in violation of Section 7, Article XII of the Constitution. Thus
However, pursuant to Article 92 of the Family Code, properties acquired by gratuitous title by either
spouse during the marriage shall be excluded from the community property. The real property,
therefore, inherited by petitioner in Germany is excluded from the absolute community of property
of the herein spouses. Necessarily, the proceeds of the sale of said real property as well as the
personal properties purchased thereby, belong exclusively to the petitioner. However, the part of
that inheritance used by the petitioner for acquiring the house and lot in this country cannot be
recovered by the petitioner, its acquisition being a violation of Section 7, Article XII of the
Constitution which provides that "save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations or associations qualified to acquire or
hold lands of the public domain." The law will leave the parties in the situation where they are in
without prejudice to a voluntary partition by the parties of the said real property. x x x
xxxx
Deeds of Marikina, Metro Manila, situated in Antipolo, Rizal and the improvements thereon, the
Court shall not make any pronouncement on constitutional grounds. 7
Respondent appealed to the Court of Appeals which rendered the assailed decision modifying the
trial courts Decision. It held that respondent merely prayed for reimbursement for the purchase of
the Antipolo property, and not acquisition or transfer of ownership to him. It also considered
petitioners ownership over the property in trust for the respondent. As regards the house, the
Court of Appeals ruled that there is nothing in the Constitution which prohibits respondent from
acquiring the same. The dispositive portion of the assailed decision reads:
WHEREFORE, in view of the foregoing, the Decision of the lower court dated August 12, 1996 is
hereby MODIFIED. Respondent Elena Buenaventura Muller is hereby ordered to REIMBURSE
the petitioner the amount of P528,000.00 for the acquisition of the land and the amount of
P2,300,000.00 for the construction of the house situated in Atnipolo, Rizal, deducting therefrom
the amount respondent spent for the preservation, maintenance and development of the aforesaid
real property including the depreciation cost of the house or in the alternative to SELL the house
and lot in the event respondent does not have the means to reimburse the petitioner out of her
own money and from the proceeds thereof, reimburse the petitioner of the cost of the land and the
house deducting the expenses for its maintenance and preservation spent by the respondent.
Should there be profit, the same shall be divided in proportion to the equity each has over the
property. The case is REMANDED to the lower court for reception of evidence as to the amount
claimed by the respondents for the preservation and maintenance of the property.
SO ORDERED. 8
Hence, the instant petition for review raising the following issues:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
RESPONDENT HEREIN IS ENTITLED TO REIMBURSEMENT OF THE AMOUNT USED TO
PURCHASE THE LAND AS WELL AS THE COSTS FOR THE CONSTRUCTION OF THE
HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED AN ACT DONE WHICH OTHERWISE
COULD NOT BE DIRECTLY x x x DONE, WITHOUT DOING VIOLENCE TO THE
CONSTITUTIONAL PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM ACQUIRING
OWNERSHIP OF REAL PROPERTIES LOCATED IN THE PHILIPPINES.
II
THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS CAUSE OF
ACTION WHICH IS ACTUALLY A DESPERATE ATTEMPT TO OBTAIN OWNERSHIP OVER
THE LOT IN QUESTION, CLOTHED UNDER THE GUISE OF CLAIMING REIMBURSEMENT.
Petitioner contends that respondent, being an alien, is disqualified to own private lands in the
Philippines; that respondent was aware of the constitutional prohibition but circumvented the
same; and that respondents purpose for filing an action for separation of property is to obtain
exclusive possession, control and disposition of the Antipolo property.
Respondent claims that he is not praying for transfer of ownership of the Antipolo property but
merely reimbursement; that the funds paid by him for the said property were in consideration of
his marriage to petitioner; that the funds were given to petitioner in trust; and that equity demands
that respondent should be reimbursed of his personal funds.

The issue for resolution is whether respondent is entitled to reimbursement of the funds used for
the acquisition of the Antipolo property.
The petition has merit.
Section 7, Article XII of the 1987 Constitution states:
Save in cases of hereditary succession, no private lands shall be transferred or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
Aliens, whether individuals or corporations, are disqualified from acquiring lands of the public
domain. Hence, they are also disqualified from acquiring private lands. 9 The primary purpose of
the constitutional provision is the conservation of the national patrimony. In the case of Krivenko
v. Register of Deeds, 10 the Court held:
Under section 1 of Article XIII of the Constitution, "natural resources, with the exception of public
agricultural land, shall not be alienated," and with respect to public agricultural lands, their
alienation is limited to Filipino citizens. But this constitutional purpose conserving agricultural
resources in the hands of Filipino citizens may easily be defeated by the Filipino citizens
themselves who may alienate their agricultural lands in favor of aliens. It is partly to prevent this
result that section 5 is included in Article XIII, and it reads as follows:
"Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or
assigned except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippines."
This constitutional provision closes the only remaining avenue through which agricultural
resources may leak into aliens hands. It would certainly be futile to prohibit the alienation of public
agricultural lands to aliens if, after all, they may be freely so alienated upon their becoming private
agricultural lands in the hands of Filipino citizens. x x x
xxxx
If the term "private agricultural lands" is to be construed as not including residential lots or lands
not strictly agricultural, the result would be that "aliens may freely acquire and possess not only
residential lots and houses for themselves but entire subdivisions, and whole towns and cities,"
and that "they may validly buy and hold in their names lands of any area for building homes,
factories, industrial plants, fisheries, hatcheries, schools, health and vacation resorts, markets,
golf courses, playgrounds, airfields, and a host of other uses and purposes that are not, in
appellants words, strictly agricultural." (Solicitor Generals Brief, p. 6.) That this is obnoxious to
the conservative spirit of the Constitution is beyond question.
Respondent was aware of the constitutional prohibition and expressly admitted his knowledge
thereof to this Court.11 He declared that he had the Antipolo property titled in the name of petitioner
because of the said prohibition. 12His attempt at subsequently asserting or claiming a right on the
said property cannot be sustained.
The Court of Appeals erred in holding that an implied trust was created and resulted by operation
of law in view of petitioners marriage to respondent. Save for the exception provided in cases of
hereditary succession, respondents disqualification from owning lands in the Philippines is
absolute. Not even an ownership in trust is allowed. Besides, where the purchase is made in
violation of an existing statute and in evasion of its express provision, no trust can result in favor
13
of the party who is guilty of the fraud. To hold otherwise would allow circumvention of the
constitutional prohibition.
Invoking the principle that a court is not only a court of law but also a court of equity, is likewise
misplaced. It has been held that equity as a rule will follow the law and will not permit that to be
done indirectly which, because of public policy, cannot be done directly. 14 He who seeks equity
must do equity, and he who comes into equity must come with clean hands. The latter is a
frequently stated maxim which is also expressed in the principle that he who has done inequity
shall not have equity. It signifies that a litigant may be denied relief by a court of equity on the
ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as
to the controversy in issue. 15
Thus, in the instant case, respondent cannot seek reimbursement on the ground of equity where
it is clear that he willingly and knowingly bought the property despite the constitutional prohibition.
Further, the distinction made between transfer of ownership as opposed to recovery of funds is a
futile exercise on respondents part. To allow reimbursement would in effect permit respondent to
enjoy the fruits of a property which he is not allowed to own. Thus, it is likewise proscribed by law.
As expressly held in Cheesman v. Intermediate Appellate Court: 16
Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14, Article XIV
of the 1973 Constitution ordains that, "Save in cases of hereditary succession, no private land
shall be transferred or conveyed except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain." Petitioner Thomas Cheesman was, of course, charged
with knowledge of this prohibition. Thus, assuming that it was his intention that the lot in question
be purchased by him and his wife, he acquired no right whatever over the property by virtue of
that purchase; and in attempting to acquire a right or interest in land, vicariously and clandestinely,
he knowingly violated the Constitution; the sale as to him was null and void. In any event, he had
and has no capacity or personality to question the subsequent sale of the same property by his
wife on the theory that in so doing he is merely exercising the prerogative of a husband in respect
of conjugal property. To sustain such a theory would permit indirect controversion of the
constitutional prohibition. If the property were to be declared conjugal, this would accord to the
alien husband a not insubstantial interest and right over land, as he would then have a decisive
vote as to its transfer or disposition. This is a right that the Constitution does not permit him to
have.
As already observed, the finding that his wife had used her own money to purchase the property
cannot, and will not, at this stage of the proceedings be reviewed and overturned. But even if it
were a fact that said wife had used conjugal funds to make the acquisition, the considerations just
set out to militate, on high constitutional grounds, against his recovering and holding the property
so acquired, or any part thereof. And whether in such an event, he may recover from his wife any
share of the money used for the purchase or charge her with unauthorized disposition or
expenditure of conjugal funds is not now inquired into; that would be, in the premises, a purely
academic exercise. (Emphasis added)
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated
February 26, 2001 of the Court of Appeals in CA-G.R. CV No. 59321 ordering petitioner Elena
Buenaventura Muller to reimburse respondent Helmut Muller the amount of P528,000 for the
acquisition of the land and the amount of P2,300,000 for the construction of the house in Antipolo
City, and the Resolution dated August 13, 2001 denying reconsideration thereof, are REVERSED
and SET ASIDE. The August 12, 1996 Decision of the Regional Trial Court of Quezon City, Branch
86 in Civil Case No. Q-94-21862 terminating the regime of absolute community between the
petitioner and respondent, decreeing a separation of property between them and ordering the
partition of the personal properties located in the Philippines equally, is REINSTATED.
SO ORDERED.
JACOBUS BERNHARD HULST, petitioner,
vs.
PR BUILDERS, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.
60981.
The facts:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch
nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of
a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel,
Batangas.
When respondent failed to comply with its verbal promise to complete the project by June 1995,
the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint
for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No.
IV6-071196-0618.
On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a
Decision2 in favor of spouses Hulst, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
complainant, rescinding the Contract to Sell and ordering respondent to:
1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price
paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve
percent (12%) per annum from the time complaint was filed;
2) Pay complainant the sum of P297,000.00 as actual damages;
3) Pay complainant the sum of P100,000.00 by way of moral damages;
4) Pay complainant the sum of P150,000.00 as exemplary damages;
5) P50,000.00 as attorney's fees and for other litigation expenses; and
6) Cost of suit.
SO ORDERED.3
Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to
petitioner.4 From then on, petitioner alone pursued the case.
On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio
Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its
judgment.5
On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However,
upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy
made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal
properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ
was returned unsatisfied.7
On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of
Execution.8
On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer
Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10
In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties
on April 28, 2000 at 10:00 a.m..11
Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent
Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy
since the aggregate appraised value of the levied properties at P6,500.00 per sq m
is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated
December 11, 1996, which is over and above the judgment award.13
At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to
the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of
Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded
to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15
parcels of land for the total amount of P5,450,653.33. The sum of P5,313,040.00 was turned over
to the petitioner in satisfaction of the judgment award after deducting the legal fees.14
At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees
relative to the auction sale and to submit the Certificates of Sale 15 for the signature of HLURB
Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by
the HLURB Arbiter to suspend the proceedings on the matter.16
Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an
Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows:
While we are not making a ruling that the fair market value of the levied properties is
PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as
indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the
position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-
square meter levied properties is only around PhP6,000,000.00. The disparity between
the two valuations are [sic] so egregious that the Sheriff should have looked into the
matter first before proceeding with the execution sale of the said properties, especially
when the auction sale proceedings was seasonably objected by Respondent's counsel,
Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty.
Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued
 the corresponding Certificate of Sale even prior to the payment of the legal fees (pars.
7 & 8, Sheriff's Return).
While we agree with the Complainants that what is material in an execution sale
proceeding is the amount for which the properties were bidded and sold during the
public auction and that, mere inadequacy of the price is not a sufficient ground to annul
the sale, the court is justified to intervene where the inadequacy of the price shocks the
conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between
PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites
our attention to look into the proceedings had especially so when there was only one
bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma,
Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely
objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the
Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale.
Besides, what is at issue is not the value of the subject properties as determined
during the auction sale, but the determination of the value of the properties levied
upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of
Civil Procedure x x x.
xxxx
It is very clear from the foregoing that, even during levy, the Sheriff has to consider the
fair market value of the properties levied upon to determine whether they are sufficient
to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v.
Court of Appeals, 235 SCRA 424).
x x x x18 (Emphasis supplied).
The dispositive portion of the Order reads:
WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the
RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby
directed to levy instead Respondent's real properties that are reasonably sufficient to
enforce its final and executory judgment, this time, taking into consideration not only the
value of the properties as indicated in their respective tax declarations, but also all the
other determinants at arriving at a fair market value, namely: the cost of acquisition, the
current value of like properties, its actual or potential uses, and in the particular case of
lands, their size, shape or location, and the tax declarations thereon.
SO ORDERED.19
A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996
HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA
on September 27, 2000.
On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA
held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated
that "when there is a right to redeem inadequacy of price should not be material" holds no water
as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the
senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15
parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded
the judgment debt of only around P6,000,000.00.
Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole
ground that:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE
ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE
SUBJECT PROPERTIES.24
Before resolving the question whether the CA erred in affirming the Order of the HLURB setting
aside the levy made by the sheriff, it behooves this Court to address a matter of public and national
importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner
and his wife are foreign nationals who are disqualified under the Constitution from owning real
property in their names.
Section 7 of Article XII of the 1987 Constitution provides:
Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred
or conveyed except to individuals, corporations, or associations qualified to acquire
or hold lands of the public domain. (Emphasis supplied).
The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands
of the public domain. Private land may be transferred or conveyed only to individuals or entities
"qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to
participate in the disposition, exploitation, development and utilization of lands of the public domain
for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by
Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring
public lands; hence, they have also been disqualified from acquiring private lands. 27
Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from
acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by
petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil
Code, all contracts whose cause, object or purpose is contrary to law or public policy and those
expressly prohibited or declared void by law are inexistent and void from the beginning. Article
1410 of the same Code provides that the action or defense for the declaration of the inexistence
of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil
effect.28 It does not create, modify or extinguish a juridical relation.29
Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as
they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal
doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and where the parties are
in pari delicto, no affirmative relief of any kind will be given to one against the other." 31
This rule, however, is subject to exceptions32 that permit the return of that which may have been
given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor
who pays usurious interest (Art. 1413, Civil Code);34 (c) the party repudiating the void contract
before the illegal purpose is accomplished or before damage is caused to a third person
and if public interest is subserved by allowing recovery (Art. 1414, Civil Code); 35 (d) the
incapacitated party if the interest of justice so demands (Art. 1415, Civil Code); 36 (e) the party for
whose protection the prohibition by law is intended if the agreement is not illegal per se but merely
prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil
Code);37 and (f) the party for whose benefit the law has been intended such as in price ceiling laws
(Art. 1417, Civil Code)38 and labor laws (Arts. 1418-1419, Civil Code).39
It is significant to note that the agreement executed by the parties in this case is a Contract to Sell
and not a contract of sale. A distinction between the two is material in the determination of when
ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional proscription has been breached.
In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor
has lost and cannot recover the ownership of the property until and unless the contract of sale is
itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to
the happening of a future and uncertain event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. 41 In other words,
in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer
upon the happening of an event, which normally is the full payment of the purchase price. But
even upon the fulfillment of the suspensive condition, ownership does not automatically transfer
to the buyer. The prospective seller still has to convey title to the prospective buyer by executing
a contract of absolute sale.42
Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the
petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional
proscription on aliens owning real property was evident by virtue of the execution of the Contract
to Sell, such violation of the law did not materialize because petitioner caused the rescission of
the contract before the execution of the final deed transferring ownership.
Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the
agreement and demands his money before the illegal act has taken place is entitled to recover.
Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire
private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the
amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may
be recovered on the basis of a void contract; being nonexistent, the agreement produces no
juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well as
interests thereon,44 moral and exemplary damages and attorney's fees.
The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long
been final and executory. Nothing is more settled in the law than that a decision that has acquired
finality becomes immutable and unalterable and may no longer be modified in any respect even if
the modification is meant to correct erroneous conclusions of fact or law and whether it was made
by the court that rendered it or by the highest court of the land. 45The only recognized exceptions
to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which
cause no prejudice to any party, void judgments, and whenever circumstances transpire after the
finality of the decision rendering its execution unjust and inequitable. 46 None of the exceptions is
present in this case. The HLURB decision cannot be considered a void judgment, as it was
rendered by a tribunal with jurisdiction over the subject matter of the complaint. 47
Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of
respondent. Petitioner received more than what he is entitled to recover under the circumstances.
Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet
lecupletari (no man ought to be made rich out of another's injury), states:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as basic principles to be observed for the rightful relationship
between human beings and for the stability of the social order; designed to indicate certain norms
that spring from the fountain of good conscience; guides for human conduct that should run as
golden threads through society to the end that law may approach its supreme ideal which is the
sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a
benefit at the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. 49
A sense of justice and fairness demands that petitioner should not be allowed to benefit from his
act of entering into a contract to sell that violates the constitutional proscription.
This is not a case of equity overruling or supplanting a positive provision of law or judicial rule.
Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to
reach and to complete justice where courts of law, through the inflexibility of their rules and want
of power to adapt their judgments to the special circumstances of cases, are incompetent to do
so."50
The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and
to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law
is unable to adapt its judgments to the special circumstances of a case because of the inflexibility
of its statutory or legal jurisdiction.51
The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds
(bidded amount is P5,450,653.33) of the auction sale after deducting the legal fees in the amount
of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of
the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the
exercise of its equity jurisdiction may validly order petitioner to return the excess amount
of P2,125,540.00.
The Court shall now proceed to resolve the single issue raised in the present petition: whether the
CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the
subject properties.
Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair
market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on
the appraisal report was misplaced since the appraisal was based on the value of land in
neighboring developed subdivisions and on the assumption that the residential unit appraised had
already been built; that the Sheriff need not determine the fair market value of the subject
properties before levying on the same since what is material is the amount for which the properties
were bidded and sold during the public auction; that the pendency of any motion is not a valid
ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect
of restraining the Sheriff from proceeding with the execution.
Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director
did not categorically state the exact value of the levied properties, said properties cannot just
amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value
indicated in the tax declaration is not the sole determinant of the value of the property.
The petition is impressed with merit.
If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant
to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz:
 Sec. 9. Execution of judgments for money, how enforced.
(a) Immediate payment on demand. - The officer shall enforce an execution of a
judgment for money by demanding from the judgment obligor the immediate payment
of the full amount stated in the writ of execution and all lawful fees. x x x
(b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation
in cash, certified bank check or other mode of payment acceptable to the judgment
obligee, the officer shall levy upon the properties of the judgment obligor of every
kind and nature whatsoever which may be disposed of for value and not
otherwise exempt from execution, giving the latter the option to immediately choose
which property or part thereof may be levied upon, sufficient to satisfy the judgment. If
the judgment obligor does not exercise the option, the officer shall first levy on the
personal properties, if any, and then on the real properties if the personal properties are
insufficient to answer for the judgment.
The sheriff shall sell only a sufficient portion of the personal or real property of
the judgment obligor which has been levied upon.
When there is more property of the judgment obligor than is sufficient to satisfy
the judgment and lawful fees, he must sell only so much of the personal or real
property as is sufficient to satisfy the judgment and lawful fees.
Real property, stocks, shares, debts, credits, and other personal property, or any
interest in either real or personal property, may be levied upon in like manner and
with like effect as under a writ of attachment(Emphasis supplied).53
Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor,
the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to
satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the
proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds
shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of
the court.54
Clearly, there are two stages in the execution of money judgments. First, the levy and then the
execution sale.
Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or
the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of
execution.55 The object of a levy is to take property into the custody of the law, and thereby render
it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it
to any other use or purpose.56
On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the
authority of a writ of execution of the levied property of the debtor. 57
In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting
aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff
rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to
act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any
order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the
auction sale. The winning bidder had already paid the winning bid. The legal fees had already
been remitted to the HLURB. The judgment award had already been turned over to the judgment
creditor. What was left to be done was only the issuance of the corresponding certificates of sale
to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was
needed58 a purely ministerial act.
A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts,
in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the
exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes
a duty upon a public officer and gives him the right to decide how or when the duty shall be
performed, such duty is discretionary and not ministerial. The duty is ministerial only when the
discharge of the same requires neither the exercise of official discretion nor judgment. 59 In the
present case, all the requirements of auction sale under the Rules have been fully complied with
to warrant the issuance of the corresponding certificates of sale.
And even if the Court should go into the merits of the assailed Order, the petition is meritorious on
the following grounds:
Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v.
Macaraeg60 and Buan v. Court of Appeals61 is misplaced.
The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved
a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year
redemption period. The statement of the Court in Barrozo, that "only where such inadequacy
shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration
should be taken in the context of the other declarations of the Court in Barrozo,to wit:
Another point raised by appellant is that the price paid at the auction sale was so
inadequate as to shock the conscience of the court. Supposing that this issue is open
even after the one-year period has expired and after the properties have passed into
the hands of third persons who may have paid a price higher than the auction sale
money, the first thing to consider is that the stipulation contains no statement of the
reasonable value of the properties; and although defendant' answer avers that the
assessed value was P3,960 it also avers that their real market value was P2,000
only. Anyway, mere inadequacy of price which was the complaint' allegation
is not sufficient ground to annul the sale. It is only where such inadequacy shocks
the conscience that the courts will intervene. x x x Another consideration is that the
assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale
price plus P1,400 mortgage lien which had to be discharged) the conscience is not
shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45
Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by
this Court.
Furthermore, where there is the right to redeem as in this case inadequacy of
price should not be material because the judgment debtor may re-acquire the
property or else sell his right to redeem and thus recover any loss he claims to
have suffered by reason of the price obtained at the execution sale.
x x x x (Emphasis supplied).62
In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale,
for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or
when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not
follow when the law gives the owner the right to redeem as when a sale is made at public
auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect
redemption.64 When there is a right to redeem, inadequacy of price should not be material because
the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover
any loss he claims to have suffered by reason of the price obtained at the execution sale.65 Thus,
respondent stood to gain rather than be harmed by the low sale value of the auctioned properties
because it possesses the right of redemption. More importantly, the subject matter in Barrozo is
the auction sale, not the levy made by the Sheriff.
The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and
meaning of a decision, no specific portion thereof should be isolated and resorted to, but the
decision must be considered in its entirety.66
As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two
parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient
to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of
land was declared void for being in excess of and beyond the original judgment award granted in
favor of the judgment creditor.
In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised
Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy
the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon
and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly
Properties Realty Corporation successively bidded upon and bought each of the levied properties
for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees. 67
Secondly, the Rules of Court do not require that the value of the property levied be exactly the
same as the judgment debt; it can be less or more than the amount of debt. This is the contingency
addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not
determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with
Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to
effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution,
together with the description of the levied property and notice of execution; and (b) leave with the
occupant of the property copy of the same order, description and notice.68 Records do not show
that respondent alleged non-compliance by the Sheriff of said requisites.
Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of
the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion,
and must exercise the care which a reasonably prudent person would exercise under like
conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy
the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary
levy.69 Because it is impossible to know the precise quantity of land or other property necessary
to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of
the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a
little more than is necessary to satisfy the execution does not render his actions
improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The
Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment
and lawful fees.
In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to
the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed
by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the
delicate task of the enforcement and/or implementation of judgments, must, in the absence of a
restraining order, act with considerable dispatch so as not to unduly delay the administration of
justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like
would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve,
respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no
authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion
to postpone the conduct of the auction sale.
Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining
that contention.72 In the determination of whether a levy of execution is excessive, it is proper to
take into consideration encumbrances upon the property, as well as the fact that a forced sale
usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not
the standard for determining the excessiveness of the levy.73
Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the
levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The
Report was based on the projected value of the townhouse project after it shall have been fully
developed, that is, on the assumption that the residential units appraised had already been built.
The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this
appraisal has not been constructed. The basis of the appraiser is on the existing model
units."74 Since it is undisputed that the townhouse project did not push through, the projected value
did not become a reality. Thus, the appraisal value cannot be equated with the fair market value.
The Appraisal Report is not the best proof to accurately show the value of the levied properties as
it is clearly self-serving.
Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in
HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real
properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order.
WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the
Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated
August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB
Case No. IV6-071196-0618 is declared NULL and VOID.HLURB Arbiter Aquino and Director
Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder,
Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount
of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to
petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest
until fully paid.
SO ORDERED.
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET
HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST
PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND
EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the
Philippine Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3)
Napoleon L. Nazareno (Nazareno ),3 and ( 4) the Securities and Exchange Commission
(SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated
Comment on behalf of the State,6declaring expressly that it agrees with the Court's definition of
the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26
June 2012, the OSG reiterated its position consistent with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in
Section 11, Article XII of the Constitution has far-reaching implications to the national economy.
In fact, a resolution of this issue will determine whether Filipinos are masters, or second-class
citizens, in their own country. What is at stake here is whether Filipinos or foreigners will
have effective control of the Philippine national economy. Indeed, if ever there is a legal issue
that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is
the threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences resulting in the
interpretation of the term "capital" in Section 11, Article XII of the Constitution undoubtedly demand
an immediate adjudication of this issue. Simply put, the far-reaching implications of this issue
justify the treatment of the petition as one for mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient to
resolve the case although the petition for declaratory relief could be outrightly dismissed for being
procedurally defective. There, appellant admittedly had already committed a breach of the Public
Service Act in relation to the Anti-Dummy Law since it had been employing non- American aliens
long before the decision in a prior similar case. However, the main issue in Luzon Stevedoring was
of transcendental importance, involving the exercise or enjoyment of rights, franchises, privileges,
properties and businesses which only Filipinos and qualified corporations could exercise or enjoy
under the Constitution and the statutes. Moreover, the same issue could be raised by appellant in
an appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally
dispose of the case for the guidance of all concerned, despite the apparent procedural flaw in the
petition.
The circumstances surrounding the present case, such as the supposed procedural defect of the
petition and the pivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently,
in the interest of substantial justice and faithful adherence to the Constitution, we opted to resolve
this case for the guidance of the public and all concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding shares of stock, whether voting or non-voting.
In fact, movants claim that the SEC, which is the administrative agency tasked to enforce the 60-
40 ownership requirement in favor of Filipino citizens in the Constitution and various statutes, has
consistently adopted this particular definition in its numerous opinions. Movants point out that with
the 28 June 2011 Decision, the Court in effect introduced a "new" definition or "midstream
redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the
term "capital" found in various economic provisions of the 1935, 1973 and 1987 Constitutions.
There has never been a judicial precedent interpreting the term "capital" in the 1935, 1973 and
1987 Constitutions, until now. Hence, it is patently wrong and utterly baseless to claim that the
Court in defining the term "capital" in its 28 June 2011 Decision modified, reversed, or set aside
the purported long-standing definition of the term "capital," which supposedly refers to the total
outstanding shares of stock, whether voting or non-voting. To repeat, until the present case there
has never been a Court ruling categorically defining the term "capital" found in the various
economic provisions of the 1935, 1973 and 1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the
term "capital" as referring to both voting and non-voting shares (combined total of common and
preferred shares) are, in the first place, conflicting and inconsistent. There is no basis whatsoever
to the claim that the SEC and the DOJ have consistently and uniformly adopted a definition of the
term "capital" contrary to the definition that this Court adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section
9, Article XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both
preferred and common stocks." The issue was raised in relation to a stock-swap transaction
between a Filipino and a Japanese corporation, both stockholders of a domestic corporation that
owned lands in the Philippines. Then Minister of Justice Estelito P. Mendoza ruled that the
resulting ownership structure of the corporation would be unconstitutional because 60% of the
voting stock would be owned by Japanese while Filipinos would own only 40% of the voting stock,
although when the non-voting stock is added, Filipinos would own 60% of the combined voting
and non-voting stock. This ownership structure is remarkably similar to the current
ownership structure of PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and
preferred) while the Japanese investors control sixty percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9, Article XIV of the Constitution uses the word
"capital," which is construed "to include both preferred and common shares" and "that
where the law does not distinguish, the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in The Commission may review upon its own initiative or upon the petition of any interested party
question may not be constitutionally upheld. While it may be ordinary corporate practice to any action of any department or office, individual Commissioner, or staff member of the
classify corporate shares into common voting shares and preferred non-voting shares, any Commission.
arrangement which attempts to defeat the constitutional purpose should be eschewed. Thus, the
resultant equity arrangement which would place ownership of 60%11 of the common
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with
(voting) shares in the Japanese group, while retaining 60% of the total percentage of
transparency and shall have the powers and functions provided by this Code, Presidential Decree
common and preferred shares in Filipino hands would amount to circumvention of the
No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and
principle of control by Philippine stockholders that is implicit in the 60% Philippine
other existing laws. Pursuant thereto the Commission shall have, among others, the following
nationality requirement in the Constitution. (Emphasis supplied)
powers and functions:

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9,
xxxx
Article XIV of the 1973 Constitution includes "both preferred and common stocks" treated as the
same class of shares regardless of differences in voting rights and privileges. Minister Mendoza
stressed that the 60-40 ownership requirement in favor of Filipino citizens in the Constitution is not (g) Prepare, approve, amend or repeal rules, regulations and orders, and
complied with unless the corporation "satisfies the criterion of beneficial ownership" and that issue opinions and provide guidance on and supervise compliance with such rules,
in applying the same "the primordial consideration is situs of control." regulations and orders;

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan
Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting
Control Test, that is, using only the voting stock to determine whether a corporation is a Philippine
national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the
benefit of Philippine nationals. Still pursuant to the Control Test, MLRCs investment in 60%
of BFDCs outstanding capital stock entitled to vote shall be deemed as of Philippine
nationality, thereby qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their respective outstanding capital stock entitled
to vote is owned by a Philippine national (i.e., by the Trustee, in the case of MLRC; and by MLRC,
in the case of BFDC); and (2) at least 60% of their respective board of directors are Filipino
citizens. (Boldfacing and italicization supplied)
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that
have the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the
Code, only the SEC en banc can "issue opinions" that have the force and effect of rules or
regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any individual
Commissioner or staff the power to adopt rules or regulations. In short, any opinion of individual
Commissioners or SEC legal officers does not constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue opinions which have the same binding effect
as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an

Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 60-40 SEC Opinion, correct?
ownership requirement in favor of Filipino citizens mandated by the Constitution for certain
economic activities. At the same time, these opinions highlight the conflicting, contradictory, and
inconsistent positions taken by the DOJ and the SEC on the definition of the term "capital" found COMMISSIONER GAITE:13
in the economic provisions of the Constitution.
Thats correct, Your Honor.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and regulations. As expressly provided JUSTICE CARPIO:
in Section 4.6 of the Securities Regulation Code,12 the SEC cannot delegate to any of its individual
Commissioner or staff the power to adopt any rule or regulation. Further, under Section 5.1 of
the same Code, it is the SEC as a collegial body, and not any of its legal officers, that is Can the Commission En Banc delegate this function to an SEC officer?
empowered to issue opinions and approve rules and regulations. Thus:
COMMISSIONER GAITE:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any
department or office of the Commission, an individual Commissioner or staff member of the Yes, Your Honor, we have delegated it to the General Counsel.
Commission except its review or appellate authority and its power to adopt, alter and
supplement any rule or regulation.
JUSTICE CARPIO:
 It can be delegated. What cannot be delegated by the Commission En Banc adopted to thwart any circumvention of the required Filipino "ownership and control," is laid
to a commissioner or an individual employee of the Commission? down in the 25 March 2010 SEC en banc ruling in Redmont Consolidated Mines, Corp. v.
McArthur Mining, Inc., et al.,15 to wit:
COMMISSIONER GAITE:
The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our
natural resources. Necessarily, therefore, the Rule interpreting the constitutional provision
Novel opinions that [have] to be decided by the En Banc...
should not diminish that right through the legal fiction of corporate ownership and control.
But the constitutional provision, as interpreted and practiced via the 1967 SEC Rules, has favored
JUSTICE CARPIO: foreigners contrary to the command of the Constitution. Hence, the Grandfather Rule must be
applied to accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business.
What cannot be delegated, among others, is the power to adopt or amend
rules and regulations, correct?
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be
determined by ascertaining if 60% of the investing corporations outstanding capital stock is owned
COMMISSIONER GAITE: by "Filipino citizens", or as interpreted, by natural or individual Filipino citizens. If such investing
corporation is in turn owned to some extent by another investing corporation, the same process
Thats correct, Your Honor. must be observed. One must not stop until the citizenships of the individual or natural stockholders
of layer after layer of investing corporations have been established, the very essence of the
Grandfather Rule.
JUSTICE CARPIO:

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather
So, you combine the two (2), the SEC officer, if delegated that power, Rule. In one of the discussions on what is now Article XII of the present Constitution, the framers
can issue an opinion but that opinion does not constitute a rule or made the following exchange:
regulation, correct?

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
COMMISSIONER GAITE: equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.

Correct, Your Honor. MR. VILLEGAS. That is right.

JUSTICE CARPIO: MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
So, all of these opinions that you mentioned they are not rules and paid-up capital stock of a corporation? Will the Committee please enlighten me on this?
regulations, correct?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP
COMMISSIONER GAITE: Law Center who provided us a draft. The phrase that is contained here which we adopted from
the UP draft is 60 percent of voting stock.
They are not rules and regulations.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
JUSTICE CARPIO:

MR. VILLEGAS. That is right.

If they are not rules and regulations, they apply only to that particular situation
and will not constitute a precedent, correct?
COMMISSIONER GAITE:
MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in another corporation which is
permitted by the Corporation Code, does the Committee adopt the grandfather rule?

Yes, Your Honor.14 (Emphasis supplied) MR. VILLEGAS. Yes, that is the understanding of the Committee.

Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules MR. NOLLEDO. Therefore, we need additional Filipino capital?
and opinions on behalf of the SEC, has adopted even the Grandfather Rule in determining
compliance with the 60-40 ownership requirement in favor of Filipino citizens mandated by the
Constitution for certain economic activities. This prevailing SEC ruling, which the SEC correctly MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution to engage in certain economic activities
applies not only to voting control of the corporation, but also to the beneficial ownership of the
corporation. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine
whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions
which respondents relied upon, is merely preliminary and an opinion only of such officers. To
repeat, any such opinion does not constitute an SEC rule or regulation. In fact, many of these
opinions contain a disclaimer which expressly states: "x x x the foregoing opinion is based solely
on facts disclosed in your query and relevant only to the particular issue raised therein and shall
not be used in the nature of a standing rule binding upon the Commission in other cases
whether of similar or dissimilar circumstances."16 Thus, the opinions clearly make
a caveat that they do not constitute binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are neither
conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine that any
interpretation of the law that administrative or quasi-judicial agencies make is only preliminary,
never conclusive on the Court. The power to make a final interpretation of the law, in this case the
term "capital" in Section 11, Article XII of the 1987 Constitution, lies with this Court, not with any
other government entity.
In his motion for reconsideration, the PSE President cites the cases of National
Telecommunications Commission v. Court of Appeals17 and Philippine Long Distance Telephone
Company v. National Telecommunications Commission18 in arguing that the Court has already
defined the term "capital" in Section 11, Article XII of the 1987 Constitution. 19
The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of
Appeals20 and Philippine Long Distance Telephone Company v. National Telecommunications
Commission,21 the Court did not define the term "capital" as found in Section 11, Article XII of the
1987 Constitution. In fact, these two cases never mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its economic provisions, and thus cannot serve as
precedent in the interpretation of Section 11, Article XII of the Constitution. These two cases
dealt solely with the determination of the correct regulatory fees under Section 40(e) and (f) of the
Public Service Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of
other public services and/or in the regulation or fixing of their rates, twenty centavos for each one
hundred pesos or fraction thereof, of the capital stock subscribed or paid, or if no shares have
been issued, of the capital invested, or of the property and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or
fraction thereof, of the increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the terms "capital stock subscribed or paid,"
"capital stock" and "capital" does not pertain to, and cannot control, the definition of the term
"capital" as used in Section 11, Article XII of the Constitution, or any of the economic provisions
of the Constitution where the term "capital" is found. The definition of the term "capital" found in
the Constitution must not be taken out of context. A careful reading of these two cases reveals
that the terms "capital stock subscribed or paid," "capital stock" and "capital" were defined solely
to determine the basis for computing the supervision and regulation fees under Section 40(e) and
(f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies
the ideals that the Constitution intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and
humane society, and establish a Government that shall embody our ideals and aspirations,
promote the common good, conserve and develop our patrimony, and secure to ourselves and
our posterity, the blessings of independence and democracy under the rule of law and a regime
of truth, justice, freedom, love, equality, and peace, do ordain and promulgate this Constitution.
(Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy
the development of a national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation of the economic and planning agency,
when the national interest dictates, reserve to citizens of the Philippines or to corporations or
associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments. The Congress shall enact
measures that will encourage the formation and operation of enterprises whose capital is wholly
owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony,
the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national
jurisdiction and in accordance with its national goals and priorities. 23
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the
Philippines or to corporations or associations at least sixty per centum of whose capital is owned
by such citizens, or such higher percentage as Congress may prescribe, certain areas of
investments." Thus, in numerous laws Congress has reserved certain areas of investments to
Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by
Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro,
Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6)
Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or
P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically ordains:
Section 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization
be exclusive in character or for a longer period than fifty years. Neither shall any such franchise
or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines. (Emphasis supplied)
This provision, which mandates the Filipinization of public utilities, requires that any form of
authorization for the operation of public utilities shall be granted only to "citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens." "The provision is [an express] recognition
of the sensitive and vital position of public utilities both in the national economy and for
national security."24
The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1)
Filipino citizens, or (2) corporations or associations at least 60 percent of whose "capital" is owned
by Filipino citizens. Hence, in the case of individuals, only Filipino citizens can validly own and
operate a public utility. In the case of corporations or associations, at least 60 percent of their
"capital" must be owned by Filipino citizens. In other words, under Section 11, Article XII of the
1987 Constitution, to own and operate a public utility a corporations capital must at least
be 60 percent owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which
defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership
or association wholly owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where
a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of
each of both corporations must be citizens of the Philippines, in order that the corporation, shall
be considered a "Philippine national." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or
a domestic corporation at least "60% of the capital stock outstanding and entitled to vote" is
owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided
in its predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of
1987,25 which was issued by then President Corazon C. Aquino. Article 15 of this Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership
or association wholly-owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee
of funds for pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by the citizens of the Philippines and
at least sixty per cent (60%) of the members of the Board of Directors of both corporations must
be citizens of the Philippines in order that the corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not
a Philippine national x x x shall do business
x x x in the Philippines x x x without first securing from the Board of Investments a written certificate
to the effect that such business or economic activity x x x would not conflict with the Constitution
or laws of the Philippines."27 Thus, a "non-Philippine national" cannot own and operate a reserved
economic activity like a public utility. This means, of course, that only a "Philippine national" can
own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code
of 1987 was a reiteration of the meaning of such term as provided in Article 14 of the Omnibus
Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership
or association wholly owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per cent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
trustee of funds for pension or other employee retirement or separation benefits, where the trustee
is a Philippine national and at least sixty per cent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned and held by the citizens of the Philippines and
at least sixty per cent (60%) of the members of the Board of Directors of both corporations must
be citizens of the Philippines in order that the corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not
a Philippine national x x x shall do business x x x in the Philippines x x x without first securing a
written certificate from the Board of Investments to the effect that such business or economic
activity x x x would not conflict with the Constitution or laws of the Philippines."29 Thus, a "non-
Philippine national" cannot own and operate a reserved economic activity like a public utility.
Again, this means that only a "Philippine national" can own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment
Incentives Act, which took effect on 16 September 1967, contained a similar definition of a
"Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty per cent of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine National and at least
sixty per cent of the fund will accrue to the benefit of Philippine Nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least sixty
per cent of the capital stock outstanding and entitled to vote of both corporations must be owned
and held by the citizens of the Philippines and at least sixty per cent of the members of the Board
of Directors of both corporations must be citizens of the Philippines in order that the corporation
shall be considered a Philippine National. (Boldfacing, italicization and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took
effect on 30 September 1968, if the investment in a domestic enterprise by non-Philippine
nationals exceeds 30% of its outstanding capital stock, such enterprise must obtain prior approval
from the Board of Investments before accepting such investment. Such approval shall not be
granted if the investment "would conflict with existing constitutional provisions and laws regulating
the degree of required ownership by Philippine nationals in the enterprise." 31 A "non-Philippine
national" cannot own and operate a reserved economic activity like a public utility. Again, this
means that only a "Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote" is owned by Filipino citizens. A domestic corporation is a
"Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens. This
definition of a "Philippine national" is crucial in the present case because the FIA reiterates and
clarifies Section 11, Article XII of the 1987 Constitution, which limits the ownership and operation
of public utilities to Filipino citizens or to corporations or associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature
of business and area of investment. The FIA spells out the procedures by which non-Philippine
nationals can invest in the Philippines. Among the key features of this law is the concept of a
negative list or the Foreign Investments Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment
Negative List]. - The Foreign Investment Negative List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate
of the Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and authorization from the
Department of National Defense [DND] to engage in such activity, such as the manufacture, repair,
storage and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-Philippine national by the Secretary of
National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution
of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and
steam bathhouses and massage clinics. (Boldfacing, underscoring and italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign
Investment Negative List A consists of "areas of activities reserved to Philippine nationals
by mandate of the Constitution and specific laws," where foreign equity participation in any
enterprise shall be limited to the maximum percentage expressly prescribed by the
Constitution and other specific laws. In short, to own and operate a public utility in the
Philippines one must be a "Philippine national" as defined in the FIA. The FIA is abundant
notice to foreign investors to what extent they can invest in public utilities in the
Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is
the ownership and operation of public utilities, which the Constitution expressly reserves to Filipino
citizens and to corporations at least 60% owned by Filipino citizens. In other words, Negative
List A of the FIA reserves the ownership and operation of public utilities only to "Philippine
nationals," defined in Section 3(a) of the FIA as "(1) a citizen of the Philippines; x x x or (3) a
corporation organized under the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of
the Philippines; or (4) a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or
other employee retirement or separation benefits, where the trustee is a Philippine national and at
least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus
Investments Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to
the passage of the present Foreign Investments Act of 1991, or for more than four decades, the
statutory definition of the term "Philippine national" has been uniform and consistent: it
means a Filipino citizen, or a domestic corporation at least 60% of the voting stock is
owned by Filipinos. Likewise, these same statutes have uniformly and consistently
required that only "Philippine nationals" could own and operate public utilities in the
Philippines. The following exchange during the Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments
Act of 1991, x x x? And the FIA of 1991 took effect in 1991, correct? Thats
over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only
Philippine nationals can own and operate public utilities[], correct?
COMMISSIONER GAITE: JUSTICE CARPIO:

Yes, Your Honor. So, for the last four (4) decades, x x x, the law has been very consistent
only a Philippine national can own and operate a public utility, and a
Philippine national, if it is a corporation, x x x at least sixty percent (60%)
JUSTICE CARPIO:
of the voting stock must be owned by citizens of the Philippines,
correct?
And the same Foreign Investments Act of 1991 defines a "Philippine national"
either as a citizen of the Philippines, or if it is a corporation at least sixty
COMMISSIONER GAITE:
percent (60%) of the voting stock is owned by citizens of the Philippines,
correct?
Correct, Your Honor.33 (Emphasis supplied)
COMMISSIONER GAITE:
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic activities, like the ownership and operation of public
Correct, Your Honor.
utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign
JUSTICE CARPIO: Investment Negative List A refers to "activities reserved to Philippine nationals by mandate of the
Constitution and specific laws." The FIA is the basic statute regulating foreign investments in
the Philippines. Government agencies tasked with regulating or monitoring foreign investments,
And, you are also aware that under the predecessor law of the Foreign
as well as counsels of foreign investors, should start with the FIA in determining to what extent a
Investments Act of 1991, the Omnibus Investments Act of 1987, the same particular foreign investment is allowed in the Philippines. Foreign investors and their counsels
provisions apply: x x x only Philippine nationals can own and operate a public who ignore the FIA do so at their own peril. Foreign investors and their counsels who rely on
utility and the Philippine national, if it is a corporation, x x x sixty percent (60%)
opinions of SEC legal officers that obviously contradict the FIA do so also at their own peril.
of the capital stock of that corporation must be owned by citizens of the
Philippines, correct?
Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately
raise a red flag. There are already numerous opinions of SEC legal officers that cite the definition
COMMISSIONER GAITE: of a "Philippine national" in Section 3(a) of the FIA in determining whether a particular corporation
is qualified to own and operate a nationalized or partially nationalized business in the Philippines.
Correct, Your Honor. This shows that SEC legal officers are not only aware of, but also rely on and invoke, the provisions
of the FIA in ascertaining the eligibility of a corporation to engage in partially nationalized
industries. The following are some of such opinions:
JUSTICE CARPIO:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

And even prior to the Omnibus Investments Act of 1987, under the Omnibus
Investments Act of 1981, the same rules apply: x x x only a Philippine national
can own and operate a public utility and a Philippine national, if it is a 2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine
corporation, sixty percent (60%) of its x x x voting stock, must be owned by Overseas Employment Administration;
citizens of the Philippines, correct?
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato
COMMISSIONER GAITE: S. Calma;

Correct, Your Honor. 4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos &
Jardeleza;
JUSTICE CARPIO:
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De
Los Angeles;
And even prior to that, under [the]1967 Investments Incentives Act and the
Foreign Company Act of 1968, the same rules applied, correct?
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
COMMISSIONER GAITE:
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard
S. Arbolado.
Correct, Your Honor.
The SEC legal officers occasional but blatant disregard of the definition of the term "Philippine
national" in the FIA signifies their lack of integrity and competence in resolving issues on the 60-
40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be limited
and interpreted to refer to corporations seeking to avail of tax and fiscal incentives under
investment incentives laws and cannot be equated with the term "capital" in Section 11, Article XII
of the 1987 Constitution. Pangilinan similarly contends that the FIA and its predecessor statutes
do not apply to "companies which have not registered and obtained special incentives under the
schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to investments are granted separately under the Omnibus
Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed Articles 44 to 56
of Book II of the Omnibus Investments Code of 1987, which articles previously regulated foreign
investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or impliedly, that the FIA or its predecessor statutes
do not apply to enterprises not availing of tax and fiscal incentives under the Code. The FIA and
its predecessor statutes apply to investments in all domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious mere non-availment of tax and fiscal
incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of the
Constitution regulating foreign investments in public utilities. In fact, the Board of
Investments Primer on Investment Policies in the Philippines,34 which is given out to foreign
investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives,
(i.e., the activity is not listed in the IPP, and they are not exporting at least 70% of their production)
may go ahead and make the investments without seeking incentives. They only have to be
guided by the Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other
areas outside of this list are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the
Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock,
coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in
accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-
Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is
held by "a trustee of funds for pension or other employee retirement or separation benefits," the
trustee is a Philippine national if "at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals." Likewise, Section 1(b) of the Implementing Rules of the FIA provides that
"for stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to
voting control of the corporation but also to the beneficial ownership of the corporation, it is
therefore imperative that such requirement apply uniformly and across the board to all classes of
shares, regardless of nomenclature and category, comprising the capital of a corporation. Under
the Corporation Code, capital stock35 consists of all classes of shares issued to stockholders, that
is, common shares as well as preferred shares, which may have different rights, privileges or
restrictions as stated in the articles of incorporation. 36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific corporate matters. Thus, common shares have the
right to vote in the election of directors, while preferred shares may be denied such right.
Nonetheless, preferred shares, even if denied the right to vote in the election of directors, are
entitled to vote on the following corporate matters: (1) amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3) incurring, creating or increasing bonded indebtedness;
(4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment
of funds in another business or corporation or for a purpose other than the primary purpose for
which the corporation was organized; (6) adoption, amendment and repeal of by-laws; (7) merger
and consolidation; and (8) dissolution of corporation.37
Since a specific class of shares may have rights and privileges or restrictions different from the
rest of the shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution must apply not only to shares with voting rights but also
to shares without voting rights. Preferred shares, denied the right to vote in the election of
directors, are anyway still entitled to vote on the eight specific corporate matters mentioned
above. Thus, if a corporation, engaged in a partially nationalized industry, issues a mixture
of common and preferred non-voting shares, at least 60 percent of the common shares and
at least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of
course, if a corporation issues only a single class of shares, at least 60 percent of such shares
must necessarily be owned by Filipinos. In short, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class of shares, whether common, preferred
non-voting, preferred voting or any other class of shares. This uniform application of the 60-
40 ownership requirement in favor of Filipino citizens clearly breathes life to the constitutional
command that the ownership and operation of public utilities shall be reserved exclusively to
corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40
ownership requirement in favor of Filipino citizens to each class of shares, regardless of
differences in voting rights, privileges and restrictions, guarantees effective Filipino control of
public utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares insures that the "controlling interest"
in public utilities always lies in the hands of Filipino citizens. This addresses and extinguishes
Pangilinans worry that foreigners, owning most of the non-voting shares, will exercise greater
control over fundamental corporate matters requiring two-thirds or majority vote of all
shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the
Constitutional Commission to support his claim that the term "capital" refers to the total outstanding
shares of stock, whether voting or non-voting, the following excerpts of the deliberations reveal
otherwise. It is clear from the following exchange that the term "capital" refers to controlling
interest of a corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation"? Will the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP
Law Center who provided us a draft. The phrase that is contained here which we adopted
from the UP draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock
or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to
be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let
us say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the
Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital.
That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and
1935 Constitutions is that according to Commissioner Rodrigo, there are associations that
do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and
underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the
corporation.
The use of the term "capital" was intended to replace the word "stock" because associations
without stocks can operate public utilities as long as they meet the 60-40 ownership requirement
in favor of Filipino citizens prescribed in Section 11, Article XII of the Constitution. However, this
did not change the intent of the framers of the Constitution to reserve exclusively to Philippine
nationals the "controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the
nationalists in the Convention."41 The same battle-cry resulted in the nationalization of the public
utilities.42 This is also the same intent of the framers of the 1987 Constitution who adopted the
exact formulation embodied in the 1935 and 1973 Constitutions on foreign equity limitations in
partially nationalized industries.
The OSG, in its own behalf and as counsel for the State, 43 agrees fully with the Courts
interpretation of the term "capital." In its Consolidated Comment, the OSG explains that the
deletion of the phrase "controlling interest" and replacement of the word "stock" with the term
"capital" were intended specifically to extend the scope of the entities qualified to operate public
utilities to include associations without stocks. The framers omission of the phrase "controlling
interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. The OSG
reiterated essentially the Courts declaration that the Constitution reserved exclusively to
Philippine nationals the ownership and operation of public utilities consistent with the States policy
to "develop a self-reliant and independent national economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total
outstanding capital stock, treated as a single class regardless of the actual classification of
shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop
a self-reliant and independent national economy effectively controlled by Filipinos." We
illustrated the glaring anomaly which would result in defining the term "capital" as the total
outstanding capital stock of a corporation, treated as a single class of shares regardless of the
actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000
non-voting preferred shares owned by Filipinos, with both classes of share having a par value of
one peso ( 1.00) per share. Under the broad definition of the term "capital," such corporation
would be considered compliant with the 40 percent constitutional limit on foreign equity of public
utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the
election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of
less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos,
holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence,
have no control over the public utility. This starkly circumvents the intent of the framers of the
Constitution, as well as the clear language of the Constitution, to place the control of public utilities
in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-
Filipino board of directors, this situation does not guarantee Filipino control and does not in any
way cure the violation of the Constitution. The independence of the Filipino board members so
elected by such foreign shareholders is highly doubtful. As the OSG pointed out, quoting Justice
George Sutherlands words in Humphreys Executor v. US,44 "x x x it is quite evident that one who
holds his office only during the pleasure of another cannot be depended upon to maintain an
attitude of independence against the latters will." Allowing foreign shareholders to elect a
controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the
letter and intent of the Constitution and defeats the very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
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.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of
the framers of the Constitution to limit foreign ownership, and assure majority Filipino ownership
and control of public utilities. The OSG argued, "while the delegates disagreed as to the
percentage threshold to adopt, x x x the records show they clearly understood that Filipino control
of the public utility corporation can only be and is obtained only through the election of a majority
of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional Commission on
23 August 1986 was the extent of majority Filipino control of public utilities. This is evident from
the following exchange:
THE PRESIDENT. Commissioner Jamir is recognized.
MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the
phrase "two thirds of whose voting stock or controlling interest," and instead substitute the words
"SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence will read: "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 PERCENT OF WHOSE CAPITAL is owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous
sections in which we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It
is only in this Section 15 with respect to public utilities that the committee proposal was increased
to two-thirds. I think it would be better to harmonize this provision by providing that even in the
case of public utilities, the minimum equity for Filipino citizens should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had
with representatives of the Filipino majority owners of the international record carriers, and the
subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the management and control of a
corporation is vested in the board of directors, not in the officers but in the board of directors. The
officers are only agents of the board. And they believe that with 60 percent of the equity, the
Filipino majority stockholders undeniably control the board. Only on important corporate acts can
the 40-percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by
the spokesman of the Philippine Chamber of Communications on why they would like to maintain
the present equity, I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would
settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-
thirds rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino
citizens.
x x x x46
While they had differing views on the percentage of Filipino ownership of capital, it is clear that the
framers of the Constitution intended public utilities to be majority Filipino-owned and controlled.
To ensure that Filipinos control public utilities, the framers of the Constitution approved, as
additional safeguard, the inclusion of the last sentence of Section 11, Article XII of the Constitution
commanding that "[t]he participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and This will prevent management contracts and assure control by Filipino citizens. Will the
managing officers of such corporation or association must be citizens of the Philippines." In other committee assure us that this amendment will insure that past activities such as management
words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the contracts will no longer be possible under this amendment?
participation of foreign investors in the governing body of the corporation or association shall be
limited to their proportionate share in the capital of such entity; and (2) all officers of the corporation
xxxx
or association must be Filipino citizens.

FR. BERNAS. Madam President.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers
of the corporation or association to be Filipino citizens specifically to prevent management
contracts, which were designed primarily to circumvent the Filipinization of public utilities, and to THE PRESIDENT. Commissioner Bernas is recognized.
assure Filipino control of public utilities, thus:
FR. BERNAS. Will the committee accept a reformulation of the first part?
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a
phrase which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." MR. BENGZON. Let us hear it.
I have with me their position paper.
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which
THE PRESIDENT. The Commissioner may proceed. reads: "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF AND..."
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable are 40-percent owned by foreign multinational MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
companies and 60-percent owned by their respective Filipino partners. All three, however, also
have management contracts with these foreign companies Philcom with RCA, ETPI with Cable
and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of these MR. BENGZON. Will Commissioner Bernas read the whole thing again?
carriers are foreigners. While the foreigners in these common carriers are only minority owners,
the foreign multinationals are the ones managing and controlling their operations by virtue of their
management contracts and by virtue of their strength in the governing bodies of these carriers.47 FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY
OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE
SHARE IN THE CAPITAL THEREOF..." I do not have the rest of the copy.
xxxx
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that
amendment with respect to the operating management of public utilities, and in this amendment, correct?
we are associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario
Braid will state this amendment now.
MR. VILLEGAS. Yes.

Thank you.
MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept
the amendment. Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Madam President.
MS. ROSARIO BRAID. Yes.
THE PRESIDENT. This is still on Section 15.
xxxx
MS. ROSARIO BRAID. Yes.
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. Yes, Madam President.
MR. VILLEGAS. That is right.
xxxx
MR. BENGZON. Yes, the governing body refers to the board of directors.
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE PHILIPPINES." MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "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
60 PERCENT OF WHOSE CAPITAL is owned by such citizens." May I request Commissioner
Bengzon to please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS
OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE
EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTY-FIVE 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 Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is
approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on
the limited participation of foreign investors in the governing body of public utilities, is a reiteration
of the last sentence of Section 5, Article XIV of the 1973 Constitution, 49 signifying its importance
in reserving ownership and control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not claim the contrary, that (1) foreigners own 64.27% of
the common shares of PLDT, which class of shares exercises the sole right to vote in the election
of directors, and thus foreigners control PLDT; (2) Filipinos own only 35.73% of PLDTs common
shares, constituting a minority of the voting stock, and thus Filipinos do not control PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only
1/70 of the dividends that common shares earn;50 (5) preferred shares have twice the par value of
common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of
PLDT and common shares only 22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the 1987 Constitution. Such question indisputably calls for a presentation
and determination of evidence through a hearing, which is generally outside the province of the
Courts jurisdiction, but well within the SECs statutory powers. Thus, for obvious reasons, the
Court limited its decision on the purely legal and threshold issue on the definition of the term
"capital" in Section 11, Article XII of the Constitution and directed the SEC to apply such definition
in determining the exact percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares
is the sole basis in determining foreign equity in a public utility and that any other government
rulings, opinions, and regulations inconsistent with this declaratory relief be declared
unconstitutional and a violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in
excess of 40 percent of the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine
Stock Exchange to require PLDT to make a public disclosure of all of its foreign
shareholdings and their actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform
its statutory duty to investigate whether "the required percentage of ownership of the capital stock
to be owned by citizens of the Philippines has been complied with [by PLDT] as required by x x x
the Constitution."51 Such plea clearly negates SECs argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to
order the SECs compliance with its directive contained in the 28 June 2011 Decision in view of
the far-reaching implications of this case. In Domingo v. Scheer,52 the Court dispensed with the
amendment of the pleadings to implead the Bureau of Customs considering (1) the unique
backdrop of the case; (2) the utmost need to avoid further delays; and (3) the issue of public
interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition
should not be dismissed because the second action would only be a repetition of the first.
In Salvador, et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from
that power and authority which is inherent, to amend the processes, pleadings, proceedings and
decisions by substituting as party-plaintiff the real party-in-interest. The Court has the power to
avoid delay in the disposition of this case, to order its amendment as to implead the BOC
as party-respondent. Indeed, it may no longer be necessary to do so taking into account
the unique backdrop in this case, involving as it does an issue of public interest. After all,
the Office of the Solicitor General has represented the petitioner in the instant proceedings, as
well as in the appellate court, and maintained the validity of the deportation order and of the BOCs
Omnibus Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its
day in court, simply because only the petitioner, the Chairperson of the BOC, was the respondent
in the CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion to
state:
There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are always striving to
secure to litigants. They are designed as the means best adapted to obtain that thing. In other
words, they are a means to an end. When they lose the character of the one and become the
other, the administration of justice is at fault and courts are correspondingly remiss in the
performance of their obvious duty.53 (Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Courts decision
and defer to the Courts definition of the term "capital" in Section 11, Article XII of the
Constitution. Further, the SEC entered its special appearance in this case and argued
during the Oral Arguments, indicating its submission to the Courts jurisdiction. It is clear,
therefore, that there exists no legal impediment against the proper and immediate
implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions,
are concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1)
whether the sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign
ownership of PLDT; (2) whether the sale of common shares to foreigners exceeded the 40 percent
limit on foreign equity in PLDT; and (3) whether the total percentage of the PLDT common shares
with voting rights complies with the 60-40 ownership requirement in favor of Filipino citizens under
the Constitution for the ownership and operation of PLDT. These issues indisputably call for an
examination of the parties respective evidence, and thus are clearly within the jurisdiction of the
SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedings before
the SEC where the factual issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the
factual issues raised by Gamboa, except the single and purely legal issue on the definition of the
term "capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the
instant case to this threshold legal issue in deference to the fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue
in this case even without the participation of PLDT since defining the term "capital" in Section 11,
Article XII of the Constitution does not, in any way, depend on whether PLDT was impleaded.
Simply put, PLDT is not indispensable for a complete resolution of the purely legal question in this
case.55 In fact, the Court, by treating the petition as one for mandamus,56 merely directed the SEC
to apply the Courts definition of the term "capital" in Section 11, Article XII of the Constitution in
determining whether PLDT committed any violation of the said constitutional provision. The
dispositive portion of the Courts ruling is addressed not to PLDT but solely to the SEC,
which is the administrative agency tasked to enforce the 60-40 ownership requirement in
favor of Filipino citizens in Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on the definition of the term "capital"
in Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation
by PLDT of the 60-40 ownership requirement in favor of Filipino citizens under the
Constitution,57 there is no deprivation of PLDTs property or denial of PLDTs right to due process,
contrary to Pangilinan and Nazarenos misimpression. Due process will be afforded to PLDT when
it presents proof to the SEC that it complies, as it claims here, with Section 11, Article XII of the
Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result
in a sudden flight of existing foreign investors to "friendlier" countries and simultaneously deterring
new foreign investors to our country. In particular, the PSE claims that the 28 June 2011 Decision
may result in the following: (1) loss of more than 630 billion in foreign investments in PSE-listed
shares; (2) massive decrease in foreign trading transactions; (3) lower PSE Composite Index; and
(4) local investors not investing in PSE-listed shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants
apprehension. Without providing specific details, he pointed out the depressing state of the
Philippine economy compared to our neighboring countries which boast of growing economies.
Further, Dr. Villegas explained that the solution to our economic woes is for the government to
"take-over" strategic industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional information on whether this high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that
we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic,
their solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure
that those industries are in the hands of state enterprises. So, in these countries,
nationalization means the government takes over. And because their governments are
competent and honest enough to the public, that is the solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our public
utilities serve no purpose. Obviously, there can never be foreign investments in public utilities if,
as Dr. Villegas claims, the "solution is to make sure that those industries are in the hands of state
enterprises." Dr. Villegass argument that foreign investments in telecommunication companies
like PLDT are badly needed to save our ailing economy contradicts his own theory that the solution
is for government to take over these companies. Dr. Villegas is barking up the wrong tree since
State ownership of public utilities and foreign investments in such industries are diametrically
opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide
the present case differently for two reasons. First, the governments of our neighboring countries
have, as claimed by Dr. Villegas, taken over ownership and control of their strategic public utilities
like the telecommunications industry. Second, our Constitution has specific provisions limiting
foreign ownership in public utilities which the Court is sworn to uphold regardless of the experience
of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public
utilities to Filipino citizens, or corporations or associations at least 60 percent of whose capital
belongs to Filipinos. Following Dr. Villegass claim, the Philippines appears to be more liberal in
allowing foreign investors to own 40 percent of public utilities, unlike in other Asian countries
whose governments own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the
application and imposition of appropriate sanctions against PLDT if found violating Section 11,
Article XII of the Constitution.1avvphi1
As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has
determined PLDTs violation, if any exists at the time of the commencement of the administrative
case or investigation, that the SEC may impose the statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision becomes final, the SEC shall impose the appropriate
sanctions only if it finds after due hearing that, at the start of the administrative case or
investigation, there is an existing violation of Section 11, Article XII of the Constitution. Under
prevailing jurisprudence, public utilities that fail to comply with the nationality requirement under
Section 11, Article XII and the FIA can cure their deficiencies prior to the start of the administrative
case or investigation.61
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy "effectively
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos. The FIAs implementing rules explain that
"[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere
legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential." In effect, the FIA clarifies,
reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII of the
1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership.
This is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the Constitution
contravenes the letter and intent of the Constitution. Any other meaning of the term "capital" openly
invites alien domination of economic activities reserved exclusively to Philippine nationals.
Therefore, respondents interpretation will ultimately result in handing over effective control of our
national economy to foreigners in patent violation of the Constitution, making Filipinos second-
class citizens in their own country.
Filipinos have only to remind themselves of how this country was exploited under the Parity
Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural
resources, and in the ownership and control of public utilities, in the Philippines. To do this the
1935 Constitution, which contained the same 60 percent Filipino ownership and control
requirement as the present 1987 Constitution, had to be amended to give Americans parity rights
with Filipinos. There was bitter opposition to the Parity Amendment62 and many Filipinos eagerly
awaited its expiration. In late 1968, PLDT was one of the American-controlled public utilities that
became Filipino-controlled when the controlling American stockholders divested in anticipation of
the expiration of the Parity Amendment on 3 July 1974. 63 No economic suicide happened when
control of public utilities and mining corporations passed to Filipinos hands upon expiration of the
Parity Amendment.
Movants interpretation of the term "capital" would bring us back to the same evils spawned by the
Parity Amendment, effectively giving foreigners parity rights with Filipinos, but this time
even without any amendment to the present Constitution. Worse, movants interpretation
opens up our national economy to effective control not only by Americans but also by all
foreigners, be they Indonesians, Malaysians or Chinese, even in the absence of reciprocal
treaty arrangements. At least the Parity Amendment, as implemented by the Laurel-Langley
Agreement, gave the capital-starved Filipinos theoretical parity the same rights as Americans to
exploit natural resources, and to own and control public utilities, in the United States of America.
Here, movants interpretation would effectively mean a unilateral opening up of our national
economy to all foreigners, without any reciprocal arrangements. That would mean that
Indonesians, Malaysians and Chinese nationals could effectively control our mining companies
and public utilities while Filipinos, even if they have the capital, could not control similar
corporations in these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control
requirement for public utilities like PLOT. Any deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the Parity Amendment. This Court has no power
to amend the Constitution for its power and duty is only to faithfully apply and interpret the
Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings
shall be entertained.
SO ORDERED.
ANTONIO T. CARPIO
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and
Mining Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and McArthur
Mining Inc. (McArthur), which seeks to reverse the October 1, 2010 Decision1 and the February
15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining and
exploring certain areas of the province of Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production Sharing
Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in
Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and
EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006,
assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an application
for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application,
the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and
San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or
assigned its rights and interests over the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-
IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja,
Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and
assigned its rights and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners applications for MPSA designated as AMA-IVB-
153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and
Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving
force behind petitioners filing of the MPSAs over the areas covered by applications since it knows
that it can only participate in mining activities through corporations which are deemed Filipino
citizens. Redmont argued that given that petitioners capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms, whether
in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose of
engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the capital
of which is owned by citizens of the Philippines: Provided, That a legally organized foreign-owned
corporation shall be deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also applied
for Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09 for
McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-
owned corporations. Nevertheless, they claimed that the issue on nationality should not be raised
since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned
by citizens of the Philippines. They asserted that though MBMI owns 40% of the shares of PLMC
(which owns 5,997 shares of Narra),3 40% of the shares of MMC (which owns 5,997 shares of
McArthur)4 and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro), 5 the
shares of MBMI will not make it the owner of at least 60% of the capital stock of each of petitioners.
They added that the best tool used in determining the nationality of a corporation is the "control
test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They also claimed
that the POA of DENR did not have jurisdiction over the issues in Redmonts petition since they
are not enumerated in Sec. 77 of RA 7942. Finally, they stressed that Redmont has no personality
to sue them because it has no pending claim or application over the areas applied for by
petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining
activities. On the other hand, [Redmont] having filed its own applications for an EPA over the areas
earlier covered by the MPSA application of respondents may be considered if and when they are
qualified under the law. The violation of the requirements for the issuance and/or grant of permits
over mining areas is clearly established thus, there is reason to believe that the cancellation and/or
revocation of permits already issued under the premises is in order and open the areas covered
to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro
Mining and Development, Inc., and Narra Nickel Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production Sharing
Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled" by MBMI, a
100% Canadian company and declared their MPSAs null and void. In the same Resolution, it gave
due course to Redmonts EPAs. Thereafter, on February 7, 2008, the POA issued an
Order7 denying the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons under the
law. Also, through a letter, they informed the MAB that they had their individual MPSA applications
converted to FTAAs. McArthurs FTAA was denominated as AFTA-IVB-0912 on May 2007, while
Tesoros MPSA application was converted to AFTA-IVB-0813 on May 28, 2007, and Narras FTAA
was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange Commission (SEC), seeking the revocation of the
certificates for registration of petitioners on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine laws. Thereafter, Redmont filed on
September 1, 2008 a Manifestation and Motion to Suspend Proceeding before the MAB praying
for the suspension of the proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of Quezon
City, Branch 92 (RTC) a Complaint16 for injunction with application for issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 08-63379.
Redmont prayed for the deferral of the MAB proceedings pending the resolution of the Complaint
before the SEC.
But before the RTC can resolve Redmonts Complaint and applications for injunctive reliefs, the
MAB issued an Order on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and
SETS ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IV-B
(MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated 07
February 2008 denying the Motions for Reconsideration of the Appellants. The Petition filed by
Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmonts application for
a TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary injunction
on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration19 of the
September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental Motion
for Reconsideration, Redmont filed before the RTC a Supplemental Complaint21 in Civil Case No.
08-63379.
On October 6, 2008, the RTC issued an Order22 granting the issuance of a writ of preliminary
injunction enjoining the MAB from finally disposing of the appeals of petitioners and from resolving
Redmonts Motion for Reconsideration and Supplement Motion for Reconsideration of the MABs
September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmonts Motion for
Reconsideration and Supplemental Motion for Reconsideration and resolving the appeals filed by
petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by the
MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10,
2008 and July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The findings
of the Panel of Arbitrators of the Department of Environment and Natural Resources that
respondents McArthur, Tesoro and Narra are foreign corporations is upheld and, therefore, the
rejection of their applications for Mineral Product Sharing Agreement should be recommended to
the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or
Technical Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the
matter for its rejection or approval is left for determination by the Secretary of the DENR and the
President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed by
petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality of
petitioners when it realized that petitioners had a common major investor, MBMI, a corporation
composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented
the requirement of the Constitution and other laws pertaining to the exploitation of natural
resources, the CA used the "grandfather rule" to determine the nationality of petitioners. It
provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
recorded as belonging to aliens.24(emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures and their
corresponding common shareholders. Using the grandfather rule, the CA discovered that MBMI
in effect owned majority of the common stocks of the petitioners as well as at least 60% equity
interest of other majority shareholders of petitioners through joint venture agreements. The CA
found that through a "web of corporate layering, it is clear that one common controlling investor in
all mining corporations involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur,
Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a consequence, it recommended the rejection of
petitioners MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out that the
POA has jurisdiction over them and that it also has the power to determine the of nationality of
petitioners as a prerequisite of the Constitution prior the conferring of rights to "co-production, joint
venture or production-sharing agreements" of the state to mining rights. However, it also stated
that the POAs jurisdiction is limited only to the resolution of the dispute and not on the approval
or rejection of the MPSAs. It stipulated that only the Secretary of the DENR is vested with the
power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which
considered petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the CA
determined that the POAs declaration that the MPSAs of McArthur, Tesoro and Narra are void is
highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the President (OP) a
petition dated May 7, 2010 seeking the cancellation of petitioners FTAAs. The OP rendered a
Decision26 on April 6, 2011, wherein it canceled and revoked petitioners FTAAs for violating and
circumventing the "Constitution x x x[,] the Small Scale Mining Law and Environmental Compliance
Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 27 The OP, in
affirming the cancellation of the issued FTAAs, agreed with Redmont stating that petitioners
committed violations against the abovementioned laws and failed to submit evidence to negate
them. The Decision further quoted the December 14, 2007 Order of the POA focusing on the
alleged misrepresentation and claims made by petitioners of being domestic or Filipino
corporations and the admitted continued mining operation of PMDC using their locally secured
Small Scale Mining Permit inside the area earlier applied for an MPSA application which was
eventually transferred to Narra. It also agreed with the POAs estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are "not capable of conducting a large
scale mining operation and that they need the financial and technical assistance of a foreign entity
in their operation, that is why they sought the participation of MBMI Resources, Inc." 28 The
Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada suggest that they are conducting operation
only through their local counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of the
OPs Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA
Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA decision to this Court which is now pending with a
different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA. Petitioners
put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the
fact that the subject matter of the controversy, the MPSA Applications, have already
been converted into FTAA applications and that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction
considering that the Panel of Arbitrators has no jurisdiction to determine the nationality
of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmonts
willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations
based on the "Grandfather Rule" is contrary to law, particularly the express mandate of
the Foreign Investments Act of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta
rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA
Applications into FTAA Applications were of "suspicious nature" as the same is based
on mere conjectures and surmises without any shred of evidence to show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is without
merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon would be of no practical
use or value."32 Thus, the courts "generally decline jurisdiction over the case or dismiss it on the
ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere raising of an
issue of "mootness" will not deter the courts from trying a case when there is a valid reason to do
so. In David v. Macapagal-Arroyo (David), the Court provided four instances where courts can
decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is involved;
3.) When constitutional issue raised requires formulation of controlling principles to
guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review.34
All of the exceptions stated above are present in the instant case. We of this Court note that a
grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a
foreign corporation right under our countrys nose through a myriad of corporate layering under
different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian
company, MBMI, is of exceptional character and involves paramount public interest since it
undeniably affects the exploitation of our Countrys natural resources. The corresponding actions
of petitioners during the lifetime and existence of the instant case raise questions as what principle
is to be applied to cases with similar issues. No definite ruling on such principle has been
pronounced by the Court; hence, the disposition of the issues or errors in the instant case will
serve as a guide "to the bench, the bar and the public." 35 Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing dummy
Filipino corporations through various schemes of corporate layering and conversion of applications
to skirt the constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners since
both involve the conversion of MPSA applications to FTAA applications. Petitioners propound that
the CA erred in ruling against them since the questioned MPSA applications were already
converted into FTAA applications; thus, the issue on the prohibition relating to MPSA applications
of foreign mining corporations is academic. Also, petitioners would want us to correct the CAs
finding which deemed the aforementioned conversions of applications as suspicious in nature,
since it is based on mere conjectures and surmises and not supported with evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was filed against them by respondent
is on point. The changing of applications by petitioners from one type to another just because a
case was filed against them, in truth, would raise not a few sceptics eyebrows. What is the reason
for such conversion? Did the said conversion not stem from the case challenging their citizenship
and to have the case dismissed against them for being "moot"? It is quite obvious that it is
petitioners strategy to have the case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the court
or appropriate government agency: on January 2, 2007, Redmont filed three separate petitions
for denial of the MPSA applications of petitioners before the POA. On June 15, 2007, petitioners
filed a conversion of their MPSA applications to FTAAs. The POA, in its December 14, 2007
Resolution, observed this suspect change of applications while the case was pending before it
and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission that
the respondents are not capable of conducting a large scale mining operation and that they need
the financial and technical assistance of a foreign entity in their operation that is why they sought
the participation of MBMI Resources, Inc. The participation of MBMI in the corporation only proves
the fact that it is the Canadian company that will provide the finances and the resources to operate
the mining areas for the greater benefit and interest of the same and not the Filipino stockholders
who only have a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to engage in
mining. The filing of the FTAA application conversion which is allowed foreign corporation of the
earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign
nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc.
furnished its stockholders in their head office in Canada suggest that they are conducting operation
only through their local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition, reversing
and setting aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In the said
Decision, the CA upheld the findings of the POA of the DENR that the herein petitioners are in fact
foreign corporations thus a recommendation of the rejection of their MPSA applications were
recommended to the Secretary of the DENR. With respect to the FTAA applications or conversion
of the MPSA applications to FTAAs, the CA deferred the matter for the determination of the
Secretary of the DENR and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the dismissal
of the petition asserting that on April 5, 2010, then President Gloria Macapagal-Arroyo signed and
issued in their favor FTAA No. 05-2010-IVB, which rendered the petition moot and academic.
However, the CA, in a Resolution dated February 15, 2011 denied their motion for being a mere
"rehash of their claims and defenses."38 Standing firm on its Decision, the CA affirmed the ruling
that petitioners are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to
us via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the CA.
Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this petition for review
was filed, cancelling and revoking the FTAAs, quoting the Order of the POA and stating that
petitioners are foreign corporations since they needed the financial strength of MBMI, Inc. in order
to conduct large scale mining operations. The OP Decision also based the cancellation on the
misrepresentation of facts and the violation of the "Small Scale Mining Law and Environmental
Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment Act and E.O.
584."39 On July 6, 2011, the OP issued a Resolution, denying the Motion for Reconsideration filed
by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact
of the OPs Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision
and continued to reuse their old arguments claiming that they were granted FTAAs and, thus, the
case was moot. Petitioners filed a Manifestation and Submission dated October 19,
2012,40 wherein they asserted that the present petition is moot since, in a remarkable turn of
events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to DMCI
Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for being
"moot." Their final act, wherein MBMI was able to allegedly sell/assign all its shares and interest
in the petitioner "holding companies" to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest by MBMI will not change the stand of
this Court with respect to the nationality of petitioners prior the suspicious change in their corporate
structures. The new documents filed by petitioners are factual evidence that this Court has no
power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner
corporations have violated several mining laws and made misrepresentations and falsehood in
their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating that
petitioners are not beyond going against or around the law using shifty actions and strategies.
Thus, in this instance, we can say that their claim of mootness is moot in itself because their
defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners nationality, whether Filipino or
foreign. In their previous petitions, they had been adamant in insisting that they were Filipino
corporations, until they submitted their Manifestation and Submission dated October 19, 2012
where they stated the alleged change of corporate ownership to reflect their Filipino ownership.
Thus, there is a need to determine the nationality of petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other
laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural
resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000
shares are registered in the name of a corporation or partnership at least 60% of the capital stock
or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as
owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be
counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered
as of Philippine nationality," pertains to the control test or the liberal rule. On the other hand, the
second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent
grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application of the
"control test" under RA 7042, as amended by RA 8179, otherwise known as the Foreign
Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent provision under
Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership
or association wholly owned by the citizens of the Philippines; a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That were a
corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations must be owned and held by citizens
of the Philippines and at least sixty percent (60%) of the members of the Board of Directors, in
order that the corporation shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the
definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They further
claim that the grandfather rule "has been abandoned and is no longer the applicable rule."41 They
also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering"
scheme of corporations. Petitioners claim that the clear and unambiguous wordings of the statute
preclude the court from construing it and prevent the courts use of discretion in applying the law.
They said that the plain, literal meaning of the statute meant the application of the control test is
obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent
the Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of
petitioners that the grandfather rule has already been abandoned must be discredited for lack of
basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by law, based on real contributions to the economic growth and general welfare of the country. In
such agreements, the State shall promote the development and use of local scientific and technical
resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of
agreements for the exploration, development, and utilization of natural resources with entities who
are deemed Filipino due to 60 percent ownership of capital is pertinent to this case, since the
issues are centered on the utilization of our countrys natural resources or specifically, mining.
Thus, there is a need to ascertain the nationality of petitioners since, as the Constitution so
provides, such agreements are only allowed corporations or associations "at least 60 percent of
such capital is owned by such citizens." The deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an independent national
economy is freedom from undue foreign control? What is the meaning of undue foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty and
the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not simply
freedom from foreign control? I think that is the meaning of independence, because as phrased,
it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain the
60/40 possibility in the cultivation of natural resources, 40 percent involves some control; not total
control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the Committee please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from the UP
Law Center who provided us with a draft. The phrase that is contained here which we adopted
from the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with
60-40 percent equity invests in another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule
in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the Constitution and a
statute, the Constitution will prevail. In this instance, specifically pertaining to the provisions under
Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no
place of application. As decreed by the honorable framers of our Constitution, the grandfather rule
prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality requirements
(the Investee Corporation). Such manner of computation is necessary since the shares in the
Investee Corporation may be owned both by individual stockholders (Investing Individuals) and
by corporations and partnerships (Investing Corporation). The said rules thus provide for the
determination of nationality depending on the ownership of the Investee Corporation and, in
certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the liberal rule, later coined by the SEC as the Control
Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC
Rules which states, (s)hares belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of Philippine nationality. Under the
liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned
is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in
said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership
in the corporation or partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality." Under the Strict Rule or
Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino
ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the
Investing Corporation and added to the shares directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second
part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt
(i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either
60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since
their common investor, the 100% Canadian corporationMBMI, funded them. However,
petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than
60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails
to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made
an example of an instance where "doubt" as to the ownership of the corporation exists. It would
be ludicrous to limit the application of the said word only to the instances where the stockholdings
of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The
corporations interested in circumventing our laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless for these applying corporations to state in their
respective articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are utilized
to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Courts mind. To determine,
therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.
McArthur Mining, Inc.
 To establish the actual ownership, interest or participation of MBMI in each of petitioners corporate
structure, they have to be "grandfathered."
Esguerra
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired its
Lauro10,000,000)
application from SMMI. McArthur has a capital stock of ten million pesos (PhP Salazar divided Filipino 1 PhP 1,000.00 PhP 1,000.00
into 10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the
following:44 Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00

Hernando
Nationality Number of Shares Amount Subscribed Amount Paid
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Total 10,000 PhP 10,000,000.00 PhP 2,809,90

Filipino 1 PhP 1,000.00 PhP 1,000.00

(emphasis su
Filipino 1 PhP 1,000.00 PhP 1,000.00

Filipino 1 PhP 1,000.00 PhP 1,000.00Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with
respect to the number of shares they subscribed to in the corporation, which is quite absurd since
Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report sheds light on why Olympic
American 1 PhP 1,000.00 PhP 1,000.00
failed to pay any amount with respect to the number of shares it subscribed to. It states that
Olympic entered into joint venture agreements with several Philippine companies, wherein it holds
Canadian 1 PhP 1,000.00 PhP 1,000.00directly and indirectly a 60% effective equity interest in the Olympic Properties.46 Quoting the said
Annual report:
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
(emphasis supplied)
On September 9, 2004, the Company and Olympic Mines & Development Corporation ("Olympic")
entered into a series of agreements including a Property Purchase and Development Agreement
Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure (the Transaction Documents) with respect to three nickel laterite properties in Palawan, Philippines
and composition as McArthur. In fact, it would seem that MBMI is also a major investor and (the "Olympic Properties"). The Transaction Documents effectively establish a joint venture
"controls"45 MBMI and also, similar nominal shareholders were present, i.e. Fernando B. Esguerra between the Company and Olympic for purposes of developing the Olympic Properties. The
(Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell Company holds directly and indirectly an initial 60% interest in the joint venture. Under certain
(Cawkell): circumstances and upon achieving certain milestones, the Company may earn up to a 100%
interest, subject to a 2.5% net revenue royalty.47 (emphasis supplied)
Madridejos Mining Corporation
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company
layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more
Nationality Number of Shares Amount Subscribed Amount Paidthan 60% or more equity interest in McArthur, making the latter a foreign corporation.

Filipino 6,663 PhP 6,663,000.00 PhP 0 Tesoro Mining and Development, Inc.

Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos
(PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share, as
demonstrated below:

Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00

[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]

Filipino 1 PhP 1,000.00 PhP 1,000.00 Name Nationality Number of Amount

Filipino 1 PhP 1,000.00 PhP 1,000.00

 Shares Subscribed
Development
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Corp.
Mining, Inc.
MBMI Resources, Canadian 3,331 PhP 3,331,000
MBMI Canadian 3,998 PhP 3,998,000.00 PhP 1,878,174.60
Inc.
Resources, Inc.
Amanti Limson Filipino 1 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00
Agcaoili
Hernando
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
Total 10,000 PhP 10,000,00
(emphasis supplied)

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as
the corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders
After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the
are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
glaring similarity between SMMI and MMCs corporate structure. Again, the presence of identical
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same.
stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando,
Delving deeper, we scrutinize SMMIs corporate structure:
Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which
Sara Marie Mining, Inc. now reflects the amount of two million seven hundred ninety four thousand pesos (PhP 2,794,000).
Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred
pesos (PhP 2,809,900).
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]]
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation in
SMMIs corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or more
equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and, thus,
Name Nationality Number of Amount Amount Paid
disqualifies it to participate in the exploitation, utilization and development of our natural resources.

Shares Subscribed
Narra Nickel Mining and Development Corporation

Olympic Mines & Filipino 6,663 PhP 6,663,000.00 PhP 0

Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs MPSA
application, whose corporate structures arrangement is similar to that of the first two petitioners
discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which is divided into McCurdy
ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per share, shown as
follows:
Kenneth Cawkell Canadian 1 PhP 1,000.00
[[reference
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/195580.pdf]] Total 10,000 PhP 10,000,00

Name Nationality Number of Amount Amount Paid

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is present
Shares Subscribed in this corporate structure.

Patricia Louise Mining & Development Corporation

Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00

Using the grandfather method, we further look and examine PLMDCs corporate structure:
Mining &

Development Name Nationality Number of Shares Amount Subscribed

Palawan Alpha South Resources Development Corporation Filipino 6,596 PhP 6,596,000.00
Corp.
MBMI Resources, Canadian 3,396 PhP 3,396,000.00
MBMI Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
Inc.
Resources, Inc.
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00

Mendoza, Jr. Henry E. Fernandez Filipino 1 PhP 1,000.00

Henry E. Filipino 1 Lauro L. Salazar PhP 1,000.00 PhP 1,000.00 Filipino 1 PhP 1,000.00

Manuel A. Agcaoili Filipino 1 PhP 1,000.00

Fernandez
Bayani H. Agabin Filipino 1 PhP 1,000.00
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00

Agcaoili Kenneth Cawkell Canadian 1 PhP 1,000.00

Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Total 10,000 PhP 10,000,000.00

Bocalan
Yet again, the usual players in petitioners corporate structures are present. Similarly, the amount
Bayani H. Agabin Filipino 1 PhP 1,000.00 of money paid by the 2nd
PhPtier majority stock holder, in this case, Palawan Alpha South Resources
1,000.00
and Development Corp. (PASRDC), is zero.

Robert L. American 1 PhP 1,000.00 PhP 1,000.00

Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005 explains
the reason behind the intricate corporate layering that MBMI immersed itself in:
JOINT VENTURES The Companys ownership interests in various mining ventures engaged in
the acquisition, exploration and development of mineral properties in the Philippines is described
as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests therein,
are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly an
effective equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders agreement,
the Company exercises joint control over the companies in the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein, are as
follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective equity
interest in the Alpha Property of 60.4%. Pursuant to a shareholders agreement, the Company
exercises joint control over the companies in the Alpha Group. 48 (emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro
and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners corporate owners,
namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMIs Summary of
Significant Accounting Policies statement regarding the "joint venture" agreements that it
entered into with the "Olympic" and "Alpha" groupsinvolves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically
exercising majority control over the corporations mentioned. In effect, whether looking at the
capital structure or the underlying relationships between and among the corporations, petitioners
are NOT Filipino nationals and must be considered foreign since 60% or more of their capital
stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CAs use of the exception of the res inter alios acta or the "admission by
co-partner or agent" rule and "admission by privies" under the Rules of Court in the instant case,
by pointing out that statements made by MBMI should not be admitted in this case since it is not
a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of the
party within the scope of his authority and during the existence of the partnership or agency, may
be given in evidence against such party after the partnership or agency is shown by evidence
other than such act or declaration itself. The same rule applies to the act or declaration of a joint
owner, joint debtor, or other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is evidence
against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the partnership
relation must be shown, and that proof of the fact must be made by evidence other than the
admission itself."49 Thus, petitioners assert that the CA erred in finding that a partnership
relationship exists between them and MBMI because, in fact, no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur. They
challenged the conclusion of the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this particular
partnership can be formed, it should have been formally reduced into writing since the capital
involved is more than three thousand pesos (PhP 3,000). Being that there is no evidence of written
agreement to form a partnership between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money,
property, or industry to a common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed to be "akin" to partnerships
since it is difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so similar
and closely akin to a partnership that it is ordinarily held that their rights, duties, and liabilities are
to be tested by rules which are closely analogous to and substantially the same, if not exactly the
same, as those which govern partnership. In fact, it has been said that the trend in the law has
been to blur the distinctions between a partnership and a joint venture, very little law being found
applicable to one that does not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals, there are
very few rules that differentiate one from the other; thus, joint ventures are deemed "akin" or similar
to a partnership. In fact, in joint venture agreements, rules and legal incidents governing
partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can be assumed that the
relationships entered between and among petitioners and MBMI are no simple "joint venture
agreements." As a rule, corporations are prohibited from entering into partnership agreements;
consequently, corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and MBMI was
executed to circumvent the legal prohibition against corporations entering into partnerships, then
the relationship created should be deemed as "partnerships," and the laws on partnership should
be applied. Thus, a joint venture agreement between and among corporations may be seen as
similar to partnerships since the elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating that "by
entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The
POA has jurisdiction to settle disputes over rights to mining areas which definitely involve the
petitions filed by Redmont against petitioners Narra, McArthur and Tesoro. Redmont, by filing its
petition against petitioners, is asserting the right of Filipinos over mining areas in the Philippines
against alleged foreign-owned mining corporations. Such claim constitutes a "dispute" found in
Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the panel
shall have exclusive and original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
opposition to an application for mineral agreement. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending application for a mineral agreement
filed with the concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of the
DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio announcements, the
authorized officer(s) of the concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any adverse claim, protest,
opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these implementing
rules and regulations. Upon final resolution of any adverse claim, protest or opposition, the Panel
of Arbitrators shall likewise issue a certification to that effect within five (5) working days from the
date of finality of resolution thereof. Where there is no adverse claim, protest or opposition, the
Panel of Arbitrators shall likewise issue a Certification to that effect within five working days
therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of
Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall initially
evaluate the Mineral Agreement applications in areas outside Mineral reservations. He/She shall
thereafter endorse his/her findings to the Bureau for further evaluation by the Director within fifteen
(15) working days from receipt of forwarded documents. Thereafter, the Director shall endorse the
same to the secretary for consideration/approval within fifteen working days from receipt of such
endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen (15)
working days from receipt of the Certification issued by the Panel of Arbitrators as provided for in
Section 38 hereof, the same shall be evaluated and endorsed by the Director to the Secretary for
consideration/approval within fifteen days from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving rights to mining
areas" under Sec. 77(a) specifically refer only to those disputes relative to the applications for a
mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections
may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such
claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
concerned province(s) and municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of publication/posting has
been made and no adverse claim, protest or opposition was filed within the said forty-five (45)
days, the concerned offices shall issue a certification that publication/posting has been made and
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand,
if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45) involving rights to mining areas" has nothing to do with the cancellation of existing mineral
days from the last date of publication/posting, with the Regional Offices concerned, or through the agreements. (emphasis ours)
Departments Community Environment and Natural Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to resolve
resolution of the Panel of Arbitrators. However previously published valid and subsisting mining
disputes over MPSA applications subject of Redmonts petitions. However, said jurisdiction does
claims are exempted from posted/posting required under this Section.
not include either the approval or rejection of the MPSA applications, which is vested only upon
the Secretary of the DENR. Thus, the finding of the POA, with respect to the rejection of petitioners
No mineral agreement shall be approved unless the requirements under this section are fully MPSA applications being that they are foreign corporation, is valid.
complied with and any opposition/adverse claim is dealt with in writing by the Director and resolved
by the Panel of Arbitrators. (Emphasis supplied.)
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not the
POA, that has jurisdiction over the MPSA applications of petitioners.
It has been made clear from the aforecited provisions that the "disputes involving rights to mining
areas" under Sec. 77(a) specifically refer only to those disputes relative to the applications for a
This postulation is incorrect.
mineral agreement or conferment of mining rights.

It is basic that the jurisdiction of the court is determined by the statute in force at the time of the
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
commencement of the action.54
application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:

Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said sections
may also be filed directly with the Panel of Arbitrators within the concerned periods for filing such Act of 1980" reads:
claim, protest or opposition as specified in said Sections.
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise exclusive original
Sec. 43. Publication/Posting of Mineral Agreement Application.- jurisdiction:

xxxx 1. In all civil actions in which the subject of the litigation is incapable of pecuniary estimation.

The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
concerned province(s) and municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of publication/posting has
been made and no adverse claim, protest or opposition was filed within the said forty-five (45)
days, the concerned offices shall issue a certification that publication/posting has been made and
that no adverse claim, protest or opposition of whatever nature has been filed. On the other hand,
if there be any adverse claim, protest or opposition, the same shall be filed within forty-five (45)
days from the last date of publication/posting, with the Regional offices concerned, or through the
Departments Community Environment and Natural Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers (PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However, previously published valid and subsisting mining
claims are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and resolved
by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse claim,
opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to
adverse claims, conflicts and oppositions relating to applications for the grant of mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse claims, conflicts and oppositions
and it has no authority to approve or reject said applications. Such power is vested in the DENR
Secretary upon recommendation of the MGB Director. Clearly, POAs jurisdiction over "disputes
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide the
following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights
to mining areas. One such dispute is an MPSA application to which an adverse claim, protest or
opposition is filed by another interested applicant.1wphi1 In the case at bar, the dispute arose or
originated from MPSA applications where petitioners are asserting their rights to mining areas
subject of their respective MPSA applications. Since respondent filed 3 separate petitions for the
denial of said applications, then a controversy has developed between the parties and it is POAs
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with the
DENR Regional Office or any concerned DENRE or CENRO are MPSA applications. Thus POA
has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary
jurisdiction. Euro-med Laboratories v. Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination requires the
expertise, specialized training and knowledge of an administrative body, relief must first be
obtained in an administrative proceeding before resort to the courts is had even if the matter may
well be within their proper jurisdiction.
SECRETARY ANGELO REYES, in his capacity as Secretary of the Department of Energy
(DOE), SECRETARY JOSE L. ATIENZA, in his capacity as Secretary of the Department of
Environment and Natural Resources (DENR), LEONARDO R. SIBBALUCA, DENR Regional
Director-Region VII and in his capacity as Chairperson of the Taon Strait Protected
Seascape Management Board, Bureau of Fisheries and Aquatic Resources (BFAR),
DIRECTOR MALCOLM J. SARMIENTO, JR., BFAR Regional Director for Region VII ANDRES
M. BOJOS, JAPAN PETROLEUM EXPLORATION CO., LTD. (JAPEX), as represented by its
Philippine Agent, SUPPLY OILFIELD SERVICES, INC. Respondents.

Whatever may be the decision of the POA will eventually reach the court system via a resort to
x-----------------------x
the CA and to this Court as a last recourse.

G.R. No. 181527

Selling of MBMIs shares to DMCI

CENTRAL VISAYAS FISHERFOLK DEVELOPMENT CENTER (FIDEC), CERILO D.

As stated before, petitioners Manifestation and Submission dated October 19, 2012 would want
ENGARCIAL, RAMON YANONG, FRANCISCO LABID, in their personal capacity and as
us to declare the instant petition moot and academic due to the transfer and conveyance of all the
representatives of the SUBSISTENCE FISHERFOLKS OF THE MUNICIPALITIES OF
shareholdings and interests of MBMI to DMCI, a corporation duly organized and existing under
ALOGUINSAN AND PINAMUNGAJAN, CEBU, AND THEIR FAMILIES, AND THE PRESENT
Philippine laws and is at least 60% Philippine-owned.56 Petitioners reasoned that they now cannot
AND FUTURE GENERATIONS OF FILIPINOS WHOSE RIGHTS ARE SIMILARLY
be considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their
AFFECTED, Petitioners,
previous nationality. They claimed that their current FTAA contract with the State should stand
vs.
since "even wholly-owned foreign corporations can enter into an FTAA with the State."57Petitioners
SECRETARY ANGELO REYES, in his capacity as Secretary of the Department of Energy
stress that there should no longer be any issue left as regards their qualification to enter into FTAA
(DOE), JOSE L. ATIENZA, in his capacity as Secretary of the Department of Environment
contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether
and Natural Resources (DENR), LEONARDO R. SIBBALUCA, in his capacity as DENR
the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted
Regional Director-Region VII and as Chairperson of the Taon Strait Protected Seascape
since it would pass both tests.
Management Board, ALAN ARRANGUEZ, in his capacity as Director - Environmental
Management Bureau-Region VII, DOE Regional Director for Region VIII1 ANTONIO LABIOS,
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and JAPAN PETROLEUM EXPLORATION CO., LTD. (JAPEX), as represented by its Philippine
said fact should be disregarded. The manifestation can no longer be considered by us since it is Agent, SUPPLY OILFIELD SERVICES, INC., Respondents.
being tackled in G.R. No. 202877 pending before this Court.1wphi1 Thus, the question of
whether petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's
CONCURRING OPINION
shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this case.

"Until one has loved an animal,

In ending, the "control test" is still the prevailing mode of determining whether or not a corporation
a part of one 's soul remains unawakened."
is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts and circumstances of Anatole France
the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
"grandfather rule."
LEONEN, J.:

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of
I concur in the result, with the following additional reasons.
Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby
AFFIRMED.
I
SO ORDERED.
In G.R. No. 180771, petitioners Resident Marine Mammals allegedly bring their case in their
personal capacity, alleging that they stand to benefit or be injured from the judgment on the issues.
PRESBITERO J. VELASCO, JR.
The human petitioners implead themselves in a representative capacity "as legal guardians of the
Associate Justice
lesser life-forms and as responsible stewards of God's Creations."1 They use Oposa v. Factoran,
Jr.2 as basis for their claim, asserting their right to enforce international and domestic
RESIDENT MARINE MAMMALS OF THE PROTECTED SEASCAPE TAON STRAIT, e.g., environmental laws enacted for their benefit under the concept of stipulation pour autrui. 3As the
TOOTHED WHALES, DOLPHINS, PORPOISES, AND OTHER CETACEAN SPECIES, Joined representatives of Resident Marine Mammals, the human petitioners assert that they have the
in and Represented herein by Human Beings Gloria Estenzo Ramos and Rose-Liza Eisma- obligation to build awareness among the affected residents of Taon Strait as well as to protect
Osorio, In Their Capacity as Legal Guardians of the Lesser Life-Forms and as Responsible the environment, especially in light of the government's failure, as primary steward, to do its duty
Stewards of God's Creations, Petitioners, under the doctrine of public trust.4
vs.
Resident Marine Mammals and the human petitioners also assert that through this case, this court
will have the opportunity to lower the threshold for locus standi as an exercise of "epistolary
jurisdiction."5
The zeal of the human petitioners to pursue their desire to protect the environment and to continue
to define environmental rights in the context of actual cases is commendable. However, the space
for legal creativity usually required for advocacy of issues of the public interest is not so unlimited
that it should be allowed to undermine the other values protected by current substantive and
procedural laws. Even rules of procedure as currently formulated set the balance between
competing interests. We cannot abandon these rules when the necessity is not clearly and
convincingly presented.
The human petitioners, in G.R. No. 180771, want us to create substantive and procedural rights
for animals through their allegation that they can speak for them. Obviously, we are asked to
accept the premises that (a) they were chosen by the Resident Marine Mammals of Taon Strait;
(b) they were chosen by a representative group of all the species of the Resident Marine
Mammals; (c) they were able to communicate with them; and (d) they received clear consent from
their animal principals that they would wish to use human legal institutions to pursue their interests.
Alternatively, they ask us to acknowledge through judicial notice that the interests that they, the
human petitioners, assert are identical to what the Resident Marine Mammals would assert had
they been humans and the legal strategies that they invoked are the strategies that they agree
with.
In the alternative, they want us to accept through judicial notice that there is a relationship of
guardianship between them and all the resident mammals in the affected ecology.
Fundamental judicial doctrines that may significantly change substantive and procedural law
cannot be founded on feigned representation.
Instead, I agree that the human petitioners should only speak for themselves and already have
legal standing to sue with respect to the issue raised in their pleading. The rules on standing have
already been liberalized to take into consideration the difficulties in the assertion of environmental
rights. When standing becomes too liberal, this can be the occasion for abuse.
II
Rule 3, Section 1 of the 1997 Rules of Civil Procedure, in part, provides:
SECTION 1. Who may be parties; plaintiff and defendant. - Only natural or juridical persons, or
entities authorized by law may be parties in a civil action.
The Rules provide that parties may only be natural or juridical persons or entities that may be
authorized by statute to be parties in a civil action.
Basic is the concept of natural and juridical persons in our Civil Code:
ARTICLE 37. Juridical capacity, which is the fitness to be the subject of legal relations, is inherent
in every natural person and is lost only through death. Capacity to act, which is the power to do
acts with legal effect, is acquired and may be lost.
Article 40 further defines natural persons in the following manner:
ARTICLE 40. Birth determines personality; but the conceived child shall be considered born for all
purposes that are favorable to it, provided it be born later with the conditions specified 'in the
following article.
Article 44, on the other hand, enumerates the concept of a juridical person:
ARTICLE 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.
Petitioners in G.R. No. 180771 implicitly suggest that we amend, rather than simply construe, the
provisions of the Rules of Court as well as substantive law to accommodate Resident Marine
Mammals or animals. This we cannot do.
Rule 3, Section 2 of the 1997 Rules of Civil Procedure further defines real party in interest:
SEC. 2. Parties in interest.-A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be prosecuted or defended in the name of
the real party in interest. (2a)6
A litigant who stands to benefit or sustain an injury from the judgment of a case is a real party in
interest.7 When a case is brought to the courts, the real party in interest must show that another
party's act or omission has caused a direct injury, making his or her interest both material and
based on an enforceable legal right.8
Representatives as parties, on the other hand, are parties acting in representation of the real party
in interest, as defined in Rule 3, Section 3 of the 1997 Rules of Civil Procedure:
SEC. 3. Representatives as parties. - Where the action is allowed to be prosecuted or defended
by a representative or someone acting in a fiduciary capacity, the beneficiary shall be included in
the title of the case and shall be deemed to be the real party in interest. A representative may be
a trustee of an express rust, a guardian, an executor or administrator, or a party authorized by law
or these Rules. An agent acting in his own name and for the benefit of an undisclosed principal
may sue or be sued without joining the principal except when the contract involves things
belonging to the principal.(3a)9
The rule is two-pronged. First, it defines .a representative as a party who is not bound to directly
or actually benefit or suffer from the judgment, but instead brings a case in favor of an identified
real party in interest.10 The representative is an outsider to the cause of action. Second, the rule
provides a list of who may be considered as "representatives." It is not an exhaustive list, but the
rule limits the coverage only to those authorized by law or the Rules of Court. 11
These requirements should apply even in cases involving the environment, which means that for
the Petition of the human petitioners to prosper, they must show that (a) the Resident Marine
Mammals are real parties in interest; and (b) that the human petitioners are authorized by law or
the Rules to act in a representative capacity.
The Resident Marine Mammals are comprised of "toothed whales, dolphins, porpoises, and other
cetacean species inhabiting Taon Strait."12 While relatively new in Philippine jurisdiction, the
issue of whether animals have legal standing before courts has been the subject of academic
discourse in light of the emergence of animal and environmental rights.
In the United States, anim4l rights advocates have managed to establish a system which Hogan
explains as the "guardianship model for nonhuman animals": 13
Despite Animal Lovers, there exists a well-established system by which nonhuman animals may
obtain judicial review to enforce their statutory rights and protections: guardianships. With court
approval, animal advocacy organizations may bring suit on behalf of nonhuman animals in the
same way court-appointed guardians bring suit on behalf of mentally-challenged humans who
possess an enforceable right but lack the ability to enforce it themselves.
In the controversial but pivotal Should Trees Have Standing?-Toward Legal Rights for Natural
Objects, Christopher D. Stone asserts that the environment should possess the right to seek
judicial redress even though it is incapable of representing itself. While asserting the rights of
speechless entities such as the environment or nonhuman animals certainly poses legitimate
challenges - such as identifying the proper spokesman -the American legal system is already well-
equipped with a reliable mechanism by which nonhumans may obtain standing via a judicially
established guardianship. Stone notes that other speechless - and nonhuman - entities such as
corporations, states, estates, and municipalities have standing to bring suit on their own behalf.
There is little reason to fear abuses under this regime as procedures for removal and substitution,
avoiding conflicts of interest, and termination of a guardianship are well established.
In fact, the opinion in Animal Lovers suggests that such an arrangement is indeed possible. The
court indicated that AL VA might have obtained standing in its own right if it had an established
history of dedication to the cause of the humane treatment of animals. It noted that the Fund for
Animals had standing and indicated that another more well-known advocacy organization might
have had standing as well. The court further concluded that an organization's standing is more
than a derivative of its history, but history is a relevant consideration where organizations are not
well-established prior to commencing legal action. ALVA was not the proper plaintiff because it
could not identify previous activities demonstrating its recognized activism for and commitment to
the dispute independent of its desire to pursue legal action. The court's analysis suggests that a
qualified organization with a demonstrated commitment to a cause could indeed bring suit on
behalf of the speechless in the form of a court-sanctioned guardianship.
are qualitatively different from other legally protected nonhumans and therefore have interests
deserving direct legal protection.
Furthermore, the difficulty of enforcing the statutory rights of nonhuman animals threatens the
integrity of the federal statutes designed to protect them, essentially rendering them meaningless.
Sensing that laws protecting nonhuman animals would be difficult to enforce, Congress provided
for citizen suit provisions: the most well-known example is found in the Endangered Species Act
(ESA). Such provisions are evidence of legislative intent to encourage civic participation on behalf
of nonhuman animals. Our law of standing should reflect this intent and its implication that humans
are suitable representatives of the natural environment, which includes nonhuman
animals.14 (Emphasis supplied, citation omitted)
When a court allows guardianship as a basis of representation, animals are considered as similarly
situated as individuals who have enforceable rights but, for a legitimate reason (e.g., cognitive
disability), are unable to bring suit for themselves. They are also similar to entities that by their
very nature are incapable of speaking for themselves (e.g., corporations, states, and others).
In our jurisdiction, persons and entities are recognized both in law and the Rules of Court as having
standing to sue and, therefore, may be properly represented as real parties in interest. The same
cannot be said about animals.
Animals play an important role in households, communities, and the environment. While we, as
humans, may feel the need to nurture and protect them, we cannot go as far as saying we
represent their best interests and can, therefore, speak for them before the courts. As humans,
we cannot be so arrogant as to argue that we know the suffering of animals and that we know
what remedy they need in the face of an injury.
Even in Hogan's discussion, she points out that in a case before the United States District Court
for the Central District of California, Animal Lovers Volunteer Ass'n v. Weinberger,15 the court held
that an emotional response to what humans perceive to be an injury inflicted on an animal is not
within the "zone-of-interest" protected by law.16Such sympathy cannot stand independent of or as
a substitute for an actual injury suffered by the claimant. 17 The ability to represent animals was
further limited in that case by the need to prove "genuine dedication" to asserting and protecting
animal rights:
What ultimately proved fatal to ALVA 's claim, however, was the court's assertion that standing
doctrine further required ALVA to differentiate its genuine dedication to the humane treatment of
animals from the general disdain for animal cruelty shared by the public at large. In doing so, the
court found ALVA 's asserted organizational injury to be abstract and thus relegated ALVA to the
ranks of the "concerned bystander. "
....

This Comment advocates a shift in contemporary standing doctrine to empower non-profit

In fact, the opinion in Animal Lovers suggests that such an arrangement is indeed possible. The
organizations with an established history of dedication to the cause and relevant expertise to serve
court indicated that ALVA might have obtained standing in its own right if it had an established
as official guardians ad !item on behalf of nonhuman animals interests. The American legal system
history of dedication to the cause of the humane treatment of animals. It noted that the Fund for
has numerous mechanisms for representing the rights and interests of nonhumans; any
Animals had standing and indicated that another more well-known advocacy organization might
challenges inherent in extending these pre-existing mechanisms to nonhuman animals are
have had standing as well. The court further concluded that an organization's standing is more
minimal compared to an interest in the proper administration of justice. To adequately protect the
than a derivative of its history, but history is a relevant consideration where organizations are not
statutory rights of nonhuman animals, the legal system must recognize those statutory rights
well-established prior to commencing legal action. ALVA was not the proper plaintiff because it
independent of humans and provide a viable means of enforcement. Moreover, the idea of a
could not identify previous activities demonstrating its recognized activism for and commitment to
guardianship for speechless plaintiffs is not new and has been urged on behalf of the natural
the dispute independent of its desire to pursue legal action. The court's analysis suggests that a
environment. 'Such a model is even more compelling as applied to nonhuman animals, because
qualified organization with a demonstrated commitment to a cause could indeed bring suit on
they are sentient beings with the ability to feel pain and exercise rational thought. Thus, animals
behalf of the speechless in the form of a court-sanctioned guardianship.18(Emphasis supplied,
citation omitted)
What may be argued as being parallel to this concept of guardianship is the principle of human
stewardship over the environment in a citizen suit under the Rules of Procedure for Environmental
Cases. A citizen suit allows any Filipino to act as a representative of a party who has enforceable
rights under environmental laws before Philippine courts, and is defined in Section 5: .
SEC. 5. Citizen suit. - Any Filipino citizen in representation of others, including minors or
generations yet unborn, may file an action to enforce rights or obligations under environmental
laws. Upon the filing of a citizen suit, the court shall issue an order which shall contain a brief
description of the cause of action and the reliefs prayed for, requiring all interested parties to
manifest their interest to intervene in the case within fifteen (15) days from notice thereof. The
plaintiff may publish the order once in a newspaper of a general circulation in the Philippines or
furnish all affected barangays copies of said order.
There is no valid reason in law or the practical requirements of this case to implead and feign
representation on behalf of animals. To have done so betrays a very anthropocentric view of
environmental advocacy. There is no way that we, humans, can claim to speak for animals let
alone present that they would wish to use our court system, which is designed to ensure that
humans seriously carry their responsibility including ensuring a viable ecology for themselves,
which of course includes compassion for all living things.
interests existing within the population represented or those that are yet to be born; and d) there
is an absolute necessity for such standing because there is a threat of catastrophe so imminent
that an immediate protective measure is necessary. Better still, in the light of its costs and risks,
we abandon the precedent all together.23 (Emphasis in the original)
Similarly, in Paje:
A person cannot invoke the court's jurisdiction if he or she has no right or interest to protect. He
or she who invokes the court's jurisdiction must be the "owner of the right sought to be enforced."
In other words, he or she must have a cause of action. An action may be dismissed on the ground
of lack of cause of action if the person who instituted it is not the real party in interest. 24 The term
"interest" under the Rules of Court must refer to a material interest that is not merely a curiosity
about or an "interest in the question involved." The interest must be present and substantial. It is
not a mere expectancy or a future, contingent interest.
A person who is not a real party in interest may institute an action if he or she is suing as
representative of a .real party in interest. When an action is prosecuted or defended by a
representative, that representative is not and does not become the real party in interest. The
person represented is deemed the real party in interest. The representative remains to be a third
party to the action instituted on behalf of another.
....

Our rules on standing are sufficient and need not be further relaxed.
To sue under this rule, two elements must be present: "(a) the suit is brought on behalf of an
identified party whose right has been violated, resulting in some form of damage, and (b) the
In Arigo v. Swift,19 I posed the possibility of further reviewing the broad interpretation we have representative authorized by law or the Rules of Court to represent the victim."
given to the rule on standing. While representatives are not required to establish direct injury on
their part, they should only be allowed to represent after complying with the following: [I]t is
The Rules of Procedure for Environmental Cases allows filing of a citizen's suit. A citizen's suit
imperative for them to indicate with certainty the injured parties on whose behalf they bring the
under this rule allows any Filipino citizen to file an action for the enforcement of environmental law
suit. Furthermore, the interest of those they represent must be based upon concrete legal rights.
on behalf of minors or generations yet unborn. It is essentially a representative suit that allows
It is not sufficient to draw out a perceived interest from a general, nebulous idea of a potential
persons who are not real parties in interest to institute actions on behalf of the real party in interest.
"injury."20

The expansion of what constitutes "real party in interest" to include minors and generations yet
I reiterate my position in Arigo v. Swift and in Paje v. Casio21 regarding this rule alongside the
unborn is a recognition of this court's ruling in Oposa v. Factoran. This court recognized the
appreciation of legal standing in Oposa v. Factoran22 for environmental cases. In Arigo, I opined
capacity of minors (represented by their parents) to file a class suit on behalf of succeeding
that procedural liberality, especially in cases brought by representatives, should be used with great
generations based on the concept of intergenerational responsibility to ensure the future
caution:
generation's access to and enjoyment of [the] country's natural resources.

Perhaps it is time to revisit the ruling in Oposa v. Factoran.

To allow citizen's suits to enforce environmental rights of others, including future generations, is
dangerous for three reasons:
That case was significant in that, at that time, there was need to call attention to environmental
concerns in light of emerging international legal principles. While "intergenerational responsibility"
First, they run the risk of foreclosing arguments of others who are unable to take part in the suit,
is a noble principle, it should not be used to obtain judgments that would preclude future
putting into. question its representativeness. Second, varying interests may potentially result in
generations from making their own assessment based on their actual concerns. The present
arguments that are bordering on political issues, the resolutions of which do not fall upon this court.
generation must restrain itself from assuming that it can speak best for those who will exist at a
Third, automatically allowing a class or citizen's suit on behalf of minors and generations yet
different time, under a different set of circumstances. In essence, the unbridled resort to
unborn may result in the oversimplification of what may be a complex issue, especially in light of
representative suit will inevitably result in preventing future generations from protecting their own
the impossibility of determining future generation's true interests on the matter.
rights and pursuing their own interests and decisions. It reduces the autonomy of our children and
our children 's children. Even before they are born, we again restricted their ability to make their
own arguments. In citizen's suits, persons who may have no interest in the case may file suits for others.
Uninterested persons will argue for the persons they represent, and the court will decide based
on their evidence and arguments. Any decision by the court will be binding upon the beneficiaries,
It is my opinion that, at best, the use of the Oposa doctrine in environmental cases should be
which in this case are the minors and the future generations. The court's decision will be res
allowed only when a) there is a clear legal basis for the representative suit; b) there are actual
judicata upon them and conclusive upon the issues presented.25
concerns based squarely upon an existing legal right; c) there is no possibility of any countervailing
The danger in invoking Oposa v. Factoran to justify all kinds of environmental claims lies in its A party who should have been a plaintiff or petitioner but whose consent cannot be obtained
potential to diminish the value of legitimate environmental rights. Extending the application of "real should be impleaded as a defendant in the nature of an unwilling co-plaintiff under Rule 3, Section
party in interest" to the Resident Marine Mammals, or animals in general, through a judicial 10 of the 1997 Rules of Civil Procedure:
pronouncement will potentially result in allowing petitions based on mere concern rather than an
actual enforcement of a right. It is impossible for animals to tell humans what their concerns are.
SEC. 10. Unwilling co-plaintiff. - If the consent of any party who should be joined as plaintiff can
At best, humans can only surmise the extent of injury inflicted, if there be any. Petitions invoking
not be obtained, he may be made a defendant and the reason therefor shall be stated in the
a right and seeking legal redress before this court cannot be a product of guesswork, and
complaint.30
representatives have the responsibility to ensure that they bring "reasonably cogent, rational,
scientific, well-founded arguments"26 on behalf of those they represent.
The reason for this rule is plain: Indispensable party plaintiffs who should be part of the action but
who do not consent should be put within the jurisdiction of the court through summons or other
Creative approaches to fundamental problems should be welcome. However, they should be
court processes. Petitioners. should not take it upon themselves to simply imp lead any party who
considered carefully so that no unintended or unwarranted consequences should follow. I concur
does not consent as a petitioner. This places the unwilling co-petitioner at the risk of being denied
with the approach of Madame Justice Teresita J. Leonardo-De Castro in her brilliant ponencia as
due process.
it carefully narrows down the doctrine in terms of standing. Resident Marine Mammals and the
human petitioners have no legal standing to file any kind of petition.
Besides, Former President Gloria Macapagal-Arroyo cannot be a party to this suit. As a co-equal
constitutional department, we cannot assume that the President needs to enforce policy directions
However, I agree that petitioners in G.R. No. 181527, namely, Central Visayas Fisherfolk
by suing his or her alter-egos. The procedural situation caused by petitioners may have gained
Development Center,. Engarcial, Yanong, and Labid, have standing both as real parties in interest
public attention, but its legal absurdity borders on the contemptuous. The Former President's
and as representatives of subsistence fisherfolks of the Municipalities of Aloguinsan and
name should be stricken out of the title of this case.
Pinamungahan, Cebu, and their families, and the present and future generations of Filipinos
whose rights are similarly affected. The activities undertaken under Service Contract 46 (SC-46)
directly affected their source of livelihood, primarily felt through the significant reduction of their IV
fish harvest.27 The actual, direct, and material damage they suffered, which has potential long-
term effects transcending generations, is a proper subject of a legal suit.
I also concur with the conclusion that SC-46 is both. illegal and unconstitutional.

III
In our jurisdiction, there is neither reason nor any legal basis for the concept of implied petitioners,
most especially when the implied petitioner was a sitting President of the Republic of the
Philippines. In G.R. No. 180771, apart from adjudicating unto themselves the status of "legal
guardians" of whales, dolphins, porpoises, and other cetacean species, human petitioners also
impleaded Former President Gloria Macapagal-Arroyo as "unwilling co-petitioner" for "her express
declaration and undertaking in the ASEAN Charter to protect Taon Strait." 28
No person may implead any other person as a co-plaintiff or co-petitioner without his or her
consent. In our jurisdiction, only when there is a party that should have been a necessary party
but was unwilling to join would there be an allegation as to why that party has been omitted. In
Rule 3, Section 9 of the 1997 Rules of Civil Procedure:
SEC. 9. Non-joinder of necessary parties to be pleaded. -Whenever in any pleading in which a
claim is asserted a necessary party is not joined, the pleader shall set forth his name, if known,
and shall state why he is omitted. Should the court find the reason for the omission unmeritorious,
it may order the inclusion of the omitted necessary party if jurisdiction over his person may be
obtained.
SC-46 is illegal because it violates Republic Act No. 7586 or the National Integrated Protected
Areas System Act of 1992, and Presidential Decree No. 1234,31 which declared Taon Strait as a
protected seascape. It is unconstitutional because it violates the fourth paragraph of Article XII,
Section 2 of the Constitution.
V
Petitioner Central Visayas Fisherfolk Development Center asserts that SC-46 violated Article XII,
Section 2, paragraph 1 of the .1987 Constitution because Japan Petroleum Exploration Co., Ltd.
(JAPEX) is 100% Japanese-owned.32 It further asserts that SC-46 cannot be validly classified as
a technical and financial assistance agreement executed under Article XII, Section 2, paragraph
4 of the 1987 Constitution.33 Public respondents counter that SC-46 does not fall under the
coverage of paragraph 1, but is a validly executed contract under paragraph 4.34 Public
respondents further aver that SC-46 neither granted exclusive fishing rights to JAPEX nor violated
Central Visayas Fisherfolk Development Center's right to preferential use of communal marine
and fishing resources.35
VI

Article XII, Section 2 of the 1987 Constitution states:

The failure to comply with the order for his inclusion, without justifiable cause, shall be deemed a
waiver of the claim against such party.
The non-inclusion of a necessary party does not prevent the court from proceeding in the action,
and the judgment rendered therein shall be without prejudice to the rights of such necessary
party.29
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception. of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries,
or industrial uses other than the development of water power, beneficial use may be the measure
and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in
rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by law, based on real contributions to the economic growth and general welfare of the country. In
such agreements, the State shall promote the development and use of local scientific and technical
resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution. (Emphasis supplied)
I agree that fully foreign-owned corporations may participate in the exploration, development, and
use of natural resources, but only through either financial agreements or technical ones. This is
the clear import of the words "either financial or technical assistance agreements." This is also
the clear result if we compare the 1987 constitutional provision with the versions in the 1973 and
1935 Constitution:
1973 CONSTITUTION
ARTICLE XIV
THE NATIONAL ECONOMY AND THE PATRIMONY OF THE NATION
SEC. 9. The disposition, exploration, development, of exploitation, or utilization of any of the
natural resources of the Philippines shall be limited to citizens of the Philippines, or to corporations
or association at least sixty per centum of the capital of which is owned by such citizens. The
Batasang Pambansa, in the national interest, may allow such citizens, corporations, or
associations to enter into service contracts for financial, technical, management, or other forms of
assistance with any foreign person or entity for the exploitation, development, exploitation, or
utilization of any of the natural resources. Existing valid and binding service contracts for financial,
the technical, management, or other forms of assistance are hereby recognized as such.
(Emphasis supplied)
1935 CONSTITUTION
ARTICLE XIII
CONSERVATION AND UTILIZATION OF NATURAL RESOURCES
SECTION 1. All agricultural timber, and mineral. lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources
of the Philippines belong to the State, and their disposition, exploitation, development, or utilization
shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease,
or concession at the time of the inauguration of the Government established under this
Constitution. Natural resources, with the exception of public agricultural land, shall not be
alienated, and no license, concession, or lease for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding twenty-five years, renewable
for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases beneficial use may be
the measure and the limit of the grant.
The clear text of the Constitution in light of its history prevails over any attempt to infer
interpretation from the Constitutional Commission deliberations. The constitutional texts are the
product of a full sovereign act: deliberations in a constituent assembly and ratification. Reliance
on recorded discussion of Constitutional Commissions, on the other hand, may result in
dependence on incomplete authorship; Besides, it opens judicial review to further subjectivity from
those who spoke during the Constitutional Commission deliberations who may not have predicted
how their words will be used. It is safer that we use the words already in the Constitution. The
Constitution was their product. Its words were read by those who ratified it. The Constitution is
what society relies upon even at present.
SC-46 is neither a financial assistance nor a technical assistance agreement.
Even supposing for the sake of argument that it is, it could not be declared valid in light of the
standards set forth in La Bugal-B'laan Tribal Association, Inc. v. Ramos:36
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant thereof is subject to several safeguards, among which are these
requirements:
(1) The service contract shall be crafted m accordance with a general law that will set
standard or uniform terms, conditions and requirements, presumably to attain a certain
uniformity in provisions and avoid the possible insertion of terms disadvantageous to
the country.
(2) The President shall be the signatory for the government because, supposedly before
an agreement is presented to the President for signature, it will have been vetted several
times over at different levels to ensure that it conforms to law and can withstand public
scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to
Congress to give that branch of government an opportunity to look over the agreement
and interpose timely objections, if any.37 (Emphasis in the original, citation omitted)
Based on the standards pronounced in La Bugal, SC-46' S validity must be tested against three
important points: (a) whether SC-46 was crafted in accordance with a general law that provides
standards, terms, and conditions; (b) whether SC-46 was signed by the President for and on behalf
of the government; and (c) whether it was reported by the President to Congress within 30 days
of execution.
VII
The general law referred to as a possible basis for SC-46's validity is Presidential Decree No. 87
or the Oil Exploration and Development Act of 1972.1wphi1 It is my opinion that this law is
unconstitutional in that it allows service contracts, contrary to Article XII, Section 2 of the 1987
Constitution:
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions provided
by law, based on real contributions to the economic growth and general welfare of the country. In
such agreements, the State shall promote the development and use of local scientific and technical
resources. (Emphasis supplied)
The deletion of service contracts from the enumeration of the kind of agreements the President
may enter into with foreign-owned corporations for exploration and utilization of resources means
that service contracts are no longer allowed by the Constitution. Pursuant to Article XVIII, Section
3 of the 1987 Constitution,38 this inconsistency renders the law invalid and ineffective.
SC-46 suffers from the lack of a special law allowing its activities. The Main Opinion emphasizes
an important point, which is that SC-46 did not merely involve exploratory activities, but also
provided the rights and obligations of the parties should it be discovered that there is oil in
commercial quantities in the area. The Taon Strait being a protected seascape under Presidential
Decree No. 123439 requires that the exploitation and utilization of energy resources from that area
are explicitly covered by a law passed by Congress specifically for that purpose, pursuant to
Section 14 of Republic Act No. 7586 or the National Integrated Protected Areas System Act of
1992:
SEC. 14. Survey for Energy R6'sources. - Consistent with the policies declared in Section 2,
hereof, protected areas, except strict nature reserves and natural parks, may be subjected to
exploration only for the purpose of gathering information on energy resources and only if such
activity is carried out with the least damage to surrounding areas. Surveys shall be conducted only
in accordance with a program approved by the DENR, and the result of such surveys shall be
made available to the public and submitted to the President for recommendation to Congress. Any
exploitation and utilization of energy resources found within NIP AS areas shall be allowed only
through a law passed by Congress.40 (Emphasis supplied)
No law was passed by Congress specifically providing the standards, terms, and conditions of an
oil exploration, extraction, and/or utilization for Taon Strait and, therefore, no such activities could
have been validly undertaken under SC-46. The National Integrated Protected Areas System Act
of 1992 is clear that exploitation and utilization of energy resources in a protected seascape such
as Taon Strait shall only be allowed through a specific law.
VIII
Former President Gloria Macapagal-Arroyo was not the signatory to SC-46, contrary to the
requirement set by paragraph 4 of Article XII, Section 2 for service contracts involving the
exploration of petroleum. SC-46 was entered into by then Department of Energy Secretary Vicente
S. Perez, Jr., on behalf of the government. I agree with the Main Opinion that in cases where the
Constitution or law requires the President to act personally on the matter, the duty cannot be
delegated to another public official.41 La Bugal highlights the importance of the President's
involvement, being one of the constitutional safeguards against abuse and corruption, as not mere
formality:
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
In their deliberations on what was to become paragraph 4, the framers used the term
service contracts in referring to agreements x x x involving either technical or financial
assistance. They spoke of service contracts as the concept was understood in the
1973 Constitution.
It was obvious from their discussions that they were not about to ban or eradicate
service contracts.
Instead, they were plainly crafting provisions to. put in place safeguards that would
eliminate or m minimize the abuses prevalent during the marital law
regime.42 (Emphasis in the original)
Public respondents failed to show that. Former President Gloria Macapagal-Arroyo was involved
in the signing or execution of SC-46. The failure to comply with this constitutional requirement
renders SC-46 null and void.
IX
Public respondents also failed to show that Congress was subsequently informed of the execution
and existence of SC-46. The reporting requirement is an equally important requisite to the validity
of any service contract involving the exploration, development, and utilization of Philippine
petroleum. Public respondents' failure to report to Congress about SC-46 effectively took away
any opportunity for the legislative branch to scrutinize its terms and conditions.
In sum, SC-46 was executed and implemented absent all the requirements provided under
paragraph 4 of Article XII, Section 2. It is, therefore, null and void.
X
I am of the view that SC-46, aside from not having complied with the 1987 Constitution, is also
null and void for being violative of environmental laws protecting Taon Strait. In particular, SC-
46 was implemented despite falling short of the requirements of the National Integrated Protected
Areas System Act of 1992.
As a protected seascape under Presidential Decree No. 1234, 43 Taon Strait is covered by the
National Integrated Protected Areas System Act of 1992. This law declares as a matter of policy:
SEC. 2. Declaration of Policy. Cognizant of the profound impact of man's activities on all
components of the natural environment particularly the effect of increasing population, resource
exploitation and industrial advancement and recognizing the critical importance of protecting and
maintaining the natural biological and physical diversities of the environment notably on areas with
biologically unique features to sustain human life and development, as well as plant and animal
life, it is hereby declared the policy of the State to secure for the Filipino people of present and
future generations the perpetual existence of all native plants and animals through the
establishment of a comprehensive system of integrated protected areas within the classification
of national park as provided for in the Constitution.
It is hereby recognized that these areas, although distinct in features, possess common ecological
values that may be incorporated into a holistic plan representative of our natural heritage; that
effective administration of these areas is possible only through cooperation among national
government, local and concerned private organizations; that the use and enjoyment of these
protected areas must be consistent with the principles of biological diversity and sustainable
development.
To this end, there is hereby established a National Integrated Protected Areas System (NIPAS),
which shall encompass outstanding remarkable areas and biologically important public lands that
are habitats of rare and endangered species of plants and animals, biogeographic zones and
related ecosystems, whether terrestrial, wetland or marine, all of which shall be designated as
"protected areas."44 (Emphasis supplied)
Pursuant to this law, any proposed activity in Taon Strait must undergo an Environmental Impact
Assessment:
SEC. 12. Environmental Impact Assessment. - Proposals for activities which are outside the scope
of the management plan for protected areas shall be subject to an environmental impact
assessment as required by law before they are adopted, and the results thereof shall be taken
into consideration in the decision-making process.45(Emphasis supplied)
Section 14 is not an exception to Section 12, but instead provides additional requirements for
cases involving Philippine energy resources. The National Integrated Protected Areas System Act
of 1992 was enacted to recognize the importance of protecting the environment in light of resource
exploitation, among others.50 Systems are put in place to secure for Filipinos local resources under
the most favorable conditions. With the status of Taon Strait as a protected seascape, the
institution of additional legal safeguards is even more significant.
Public respondents did not validly obtain an Environmental Compliance Certificate for SC-46.
Based on the records, JAPEX commissioned an environmental impact evaluation only in the
second subphase of its project, with the Environmental Management .Bureau of Region
VII granting the project an Environmental Compliance Certificate on March 6, 2007. 51
Despite its scale, the seismic surveys from May 9 to 18, 2005 were conducted without any
environmental assessment contrary to Section 12 of the National Integrated Protected Areas
System Act of 1992.

The same provision further requires that an Environmental Compliance Certificate be secured
under the Philippine Environmental Impact Assessment System before arty project is
implemented:
No actual implementation of such activities shall be allowed without the required Environmental
Compliance Certificate (ECC) under the Philippine Environment Impact Assessment (EIA) system.
In instances where such activities are allowed to be undertaken, the proponent shall plan and
carry them out in such manner as will minimize any adverse effects and take preventive and
remedial action when appropriate. The proponent shall be liable for any damage due to lack of
caution or indiscretion.46 (Emphasis supplied)
In projects involving the exploration or utilization of energy resources, the National Integrated
Protected Areas System Act of 1992 additionally requires that a program be approved by the
Department of Environment and Natural Resources, which shall be publicly accessible. The
program shall also be submitted to the President, who in turn will recommend the program to
Congress. Furthermore, Congress must enact a law specifically allowing the exploitation of energy
resources found within a protected area such as Taon Strait:
XI
Finally, we honor every living creature when we take care of our environment. As sentient species,
we do not lack in the wisdom or sensitivity to realize that we only borrow the resources that we
use to survive and to thrive. We are not incapable of mitigating the greed that is slowly causing
the demise of our planet. Thus, there is no need for us to feign representation of any other species
or some imagined unborn generation in filing any action in our courts of law to claim any of our
fundamental rights to a healthful ecology. In this way and with candor and courage, we fully
shoulder the responsibility deserving of the grace and power endowed on our species.
ACCORDINGLY, I vote:
(a) to DISMISS G.R. No. 180771 for lack of standing and STRIKE OUT the name of
Former President Gloria Macapagal-Arroyo from the title of this case;
(b) to GRANT G.R. No. 181527; and

SEC. 14. Survey for Energy Resources. - Consistent with the policies declared in Section 2, (c) to DECLARE SERVICE CONTRACT 46 NULL AND VOID for violating the 1987
hereof, protected areas, except strict nature reserves and natural parks, may be subjected to Constitution, Republic Act No. 7586, and Presidential Decree No. 1234.
exploration only for the purpose of gathering information on energy resources and only if such
activity is carried out with the least damage to surrounding areas. Surveys shall be conducted only
MARVIC M.V.F. LEONEN
in accordance with a program approved by the DENR, and the result of such surveys shall be
made available to the public and submitted to the President for recommendation to Congress. Any Associate Justice
exploitation and utilization of energy resources found within NIPAS areas shall be allowed only
through a taw passed by Congress.47 (Emphasis supplied)
MANILA INTERNATIONAL G.R. No. 155650
Public respondents argue that SC-46 complied with the procedural requirements of obtaining an AIRPORT AUTHORITY,
Petitioner, Present:
Environmental Compliance Certificate.48 At any rate, they assert that the activities covered by SC-
46 fell under Section 14 of the National Integrated Protected Areas System Act of 1992, which
PANGANIBAN, C.J.,
they interpret to be an exception to Section 12. They argue that the Environmental Compliance
PUNO,
Certificate is not a strict requirement for the validity of SC-46 since (a) the Taon Strait is not a
QUISUMBING,
nature' reserve or natural park; (b) the exploration was merely for gathering information; and ( c)
YNARES-SANTIAGO,
measures were in place to ensure that the exploration caused the least possible damage to the
SANDOVAL-GUTIERREZ,
area.49
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA, *E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
CARPIO MORALES, *E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
CALLEJO, SR., *E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
AZCUNA, GRAND P392,435,861. P232,070,863. P 624,506,725.
COURT OF APPEALS, CITY OF TINGA, TOTAL 95 47 42
PARAAQUE, CITY MAYOR OF CHICO-NAZARIO,
PARAAQUE, SANGGUNIANG GARCIA, and 1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
PANGLUNGSOD NG PARAAQUE, VELASCO, JR., JJ. #9476101 for P28,676,480.00
CITY ASSESSOR OF PARAAQUE, #9476103 for P49,115.00[6]
and CITY TREASURER OF Promulgated:
PARAAQUE,
Respondents. July 20, 2006
On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of
levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
thus sought a clarification of OGCC Opinion No. 061.
D E C I S I ON On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate
CARPIO, J.: tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that
MIAA is exempt from real estate tax.
The Antecedents
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to
International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public
as the Revised Charter of the Manila International Airport Authority (MIAA Charter). Executive Order No.
sale the Airport Landsand Buildings. The petition was docketed as CA-G.R. SP No. 66878.
903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-
Nos. 909[1] and 298[2] amended the MIAA Charter. day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAAs motion for
reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the
As operator of the international airport, MIAA administers the land, improvements and present petition for review.[7]
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares
of land,[3] including the runways and buildings (Airport Lands and Buildings) then under the Bureau of Air Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls
Transportation.[4] The MIAA Charter further provides that no portion of the land transferred to MIAA shall of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta;
be disposed of through sale or any other mode unless specifically approved by the President of
and in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10
the Philippines.[5] January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in
the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City.
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real
estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion
already due. sought to restrain respondents the City of Paraaque, City Mayor
of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City
of Paraaque (respondents) from auctioning the Airport Lands and Buildings.
of Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency is broken down as
follows: On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public auction
the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued
it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public
TAX TAXABLEYEA TAX DUE PENALTY TOTAL auction.
DECLARATIO R On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
N
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20 On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49 during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00 their respective Memoranda.
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00 MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24 the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99 the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00 mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since
the Airport Lands and Buildings are devoted to public use and public service, the ownership of these
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject
to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the
Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify
the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of government-owned and-controlled corporations upon the effectivity of the
Local Government Code. Respondents also argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all others. An international airport is not among the
exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA
cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos[8] where we held that the Local Government Code has withdrawn the exemption from real estate tax
granted to international airports. Respondents further argue that since MIAA has already paid some of the
real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by
the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the
other issues raised in this petition become moot.
The Courts Ruling
We rule that MIAAs Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not
exempt from real estate tax. Respondents claim that the deletion of the phrase any government-owned or
controlled so exempt by its charter in Section 234(e) of the Local Government Code withdrew the real estate
tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section
40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled
corporation as follows:
SEC. 2. General Terms Defined. x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be organized as a stock or non-stock
corporation. MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section
10 of the MIAA Charter[9] provides:
SECTION 10. Capital. The capital of the Authority to be contributed by
the National Government shall be increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which may be
contributed by the National Government or transferred by it from any of its agencies,
the valuation of which shall be determined jointly with the Department of Budget and
Management and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other deductions taking
into account the loans and other liabilities of the Authority at the time of the takeover
of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted share of the National
Government from 1983 to 1986 to be remitted to the National Treasury as provided
for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of
the National Government in the Authority. Thereafter, the Government contribution
to the capital of the Authority shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code[10] defines a stock corporation as one whose capital stock
is divided into shares and x x x authorized to distribute to the holders of such shares dividends
x x x. MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as one where no part of its income is distributable as
dividends to its members, trustees or officers. A non-stock corporation must have members. Even if we
assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating
income to the National Treasury.[11] This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and like chambers. MIAA is not organized
for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic
airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the National
Government?
 MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative
Code defines a government instrumentality as follows:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter.
x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain,[12] police authority[13] and the
levying of fees and charges.[14] At the same time, MIAA exercises all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. [15]
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a separate and
autonomous body[16] will make its operation more financially viable.[17]
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of
the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate
powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government,
which historically merely delegated to local governments the power to tax. While the 1987 Constitution
now includes taxation as one of the powers of local governments, local governments may only exercise such
power subject to such guidelines and limitations as the Congress may provide. [18]
When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable
is resolved against taxation. This rule applies with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality from
local taxation, such exemption is construed liberally in favor of the national government instrumentality. As
this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running
to the benefit of the government itself or its agencies. In such case the practical effect
of an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-
liability of such agencies.[19]
There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when the
legislature clearly intended to tax government instrumentalities for the delivery of essential public
services for sound and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities.Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that unless otherwise provided in the
Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise,
to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government.
(MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government
over local governments.
Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on the part of
the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them. (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as a tool for regulation (U.S. v. Sanchez,
340 US 42).
The power to tax which was called by Justice Marshall as the power to
destroy (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
 instrumentality or creation of the very entity which has the inherent power to wield
it. [20]
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and
others of similar character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
(Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for
public use or for public service, shall form part of the patrimonial property of the
State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by the
State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings constitute
a portconstructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings
are properties of public dominion and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects terminal fees
and other charges from the public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway does not change the character of the
road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those among the public who actually use the road through
the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner
of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is
of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended
for public use. Even if the government collects toll fees, the road is still intended for public use if anyone
can use the road under the same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the
use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does
not change the character of MIAA as an airport for public use. Such fees are often termed 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.[21]
The Airport Lands and Buildings of MIAA, which its Charter calls the principal airport of
the Philippines for both international and domestic air traffic,[22] are properties of public dominion because
they are intended for public use. As properties of public dominion, they indisputably belong to the State
or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the AirportLands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: Property for public use in
provinces and in towns comprises the provincial and town roads, the squares, streets,
fountains, and public waters, the promenades, and public works of general service
supported by said towns or provinces.
The said Plaza Soledad being a promenade for public use, the municipal
council of Cavite could not in 1907 withdraw or exclude from public use a portion
thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In
leasing a portion of said plaza or public place to the defendant for private use the
plaintiff municipality exceeded its authority in the exercise of its powers by executing
a contract over a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and plazas and streets
are outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: Communal things that cannot be sold
because they are by their very nature outside of commerce are those for public
use, such as the plazas, streets, common lands, rivers, fountains, etc. (Emphasis
supplied) [23]
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion
are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They are outside the
commerce of manand cannot be disposed of or even leased by the municipality to
private parties. While in case of war or during an emergency, town plazas may be
occupied temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the town
plazas should ever be kept open to the public and free from encumbrances or illegal
private constructions.[24] (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale.[25]
 Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will stop
if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen
if the City of 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[26] the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land
Law or Commonwealth Act No. 141, which remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral lands,[27] provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture
and Natural Resources, the President may designate by proclamation any tract or
tracts of land of the public domain as reservations for the use of the Republic of the
Philippines or of any of its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or purposes when
the public interest requires it, including reservations for highways, rights of way for
railroads, hydraulic power sites, irrigation systems, communal pastures
or lequas communales, public parks, public quarries, public fishponds, working mens
village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the
provisions of Section eighty-three shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the President.
(Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public
use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy
on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use,
their ownership remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code
of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of
the Government. (1) The President shall have the power to reserve for settlement
or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
presidential proclamation from public use, they are properties of public dominion, owned by the Republic
and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like
MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. Whenever real
property of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is expressly vested by
law in another officer.
(2) For property belonging to the Republic of the Philippines but
titled in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality. (Emphasis
supplied)
In MIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President
of the Republic can sign such deed of conveyance.[28]
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of
the Manila International Airport Authority. x x x x
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are hereby
transferred, conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other
appropriate government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive Order and the
corresponding title to be issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All
existing public airport facilities, runways, lands, buildings and other property,
movable or immovable, belonging to the Airport, and all assets, powers, rights,
interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the
operation of crash fire and rescue facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division
in the Bureau of Air Transportation and Transitory
Provisions. The Manila International Airportincluding
the Manila Domestic Airport as a division under the Bureau of Air Transportation is
hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving
cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and
Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of
the Philippines for both international and domestic air traffic, is required to provide
standards of airport accommodation and service comparable with the best airports in
the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have
to be upgraded to meet the current and future air traffic and other demands of aviation
in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives
of providing high standards of accommodation and service within the context of
a financially viable operation, will best be achieved by a separate and
autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree
No. 1772, the President of the Philippines is given continuing authority to reorganize
the National Government, which authority includes the creation of new entities,
agencies and instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA
was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation into a separate and
autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA
itself is owned solely by the Republic. No party claims any ownership rights over MIAAs assets adverse to
the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings shall not be
disposed through sale or through any other mode unless specifically approved by the President of
the Philippines. This only means that the Republic retained the beneficial ownership of
the Airport Lands and Buildings because under Article 428 of the Civil Code, only the owner has the right
to x x x dispose of a thing. Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not
own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the
President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This
only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any [r]eal property
owned by the Republic of the Philippines. Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing [t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x. The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property
owned by the Republic loses its tax exemption only if the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person. MIAA, as a government instrumentality, is not a taxable
person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has
granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such land area is subject to real estate tax. In Lung
Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities
as well as those parts of the hospital leased to private individuals are not exempt from
such taxes.On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.[29]
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of
the Local Government Code of 1991 withdrew the tax exemption of all persons, whether natural
or juridical upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since
the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt
from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government
Code that the withdrawn exemptions from realty tax cover not just GOCCs, but
all persons. To repeat, the provisions lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term All persons encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously, MIAA is
not a natural person. Thus, the determinative test is not just whether MIAA is a
 GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)
The minority posits that the determinative test whether MIAA is exempt from local taxation is
its status whether MIAA is a juridical person or not. The minority also insists that Sections 193 and 234
may be examined in isolation from Section 133(o) to ascertain MIAAs claim of exemption.
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons [u]nlessotherwise provided in this
Code. Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the exercise of 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 kinds on the National Government,
its agencies and instrumentalities, and local government units. (Emphasis and
underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind
of tax on national government instrumentalities like the MIAA.Local governments are devoid of power
to tax the national government, its agencies and instrumentalities. The taxing powers of local
governments do not extend to the national government, its agencies and instrumentalities, [u]nless otherwise
provided in this Code as stated in the saving clause of Section 133. The saving clause refers to Section
234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical persons exempt
from local taxation are limited to the three classes of entities specifically enumerated as exempt in
Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and
non-profit hospitals and educational institutions. It would be belaboring the
obvious why the MIAA does not fall within any of the exempt entities under Section
193. (Emphasis supplied)
The minoritys theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by local governments since the national
government is not included in the enumeration of exempt entities in Section 193. Under this theory, local
governments can impose any kind of local tax, and not only real estate tax, on the national government.
Under the minoritys theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,[30] Philippine RiceResearch Institute,[31] Laguna Lake
Development Authority,[32] Fisheries Development Authority,[33] Bases Conversion Development
Authority,[34] Philippine Ports Authority,[35] Cagayan de Oro Port Authority,[36] San Fernando Port
Authority,[37] Cebu Port Authority,[38] and Philippine National Railways.[39]
The minoritys theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government instrumentalities
with or without juridical personalities.Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without
juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether
MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o)
of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local
governments from imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause [u]nless otherwise provided in
this Code. This means that unless the Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies and instrumentalities. Clearly,
the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of
the Code, which makes the national government subject to real estate tax when it gives the beneficial use
of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception
to this exemption is when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real property, although owned by the Republic, is
not devoted to public use or public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following
an accepted rule of construction, in case of conflict the subsequent provisions
should prevail.Therefore, MIAA, as a juridical person, is subject to real property
taxes, the general exemptions attaching to instrumentalities under Section 133(o) of
the Local Government Code being qualified by Sections 193 and 234 of the same
law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on
one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less
has any one presented a persuasive argument that there is such a conflict. The minoritys assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Codewhen Section 193
states [u]nless otherwise provided in this Code. By its own words, Section 193 admits the superiority of
other provisions of the Local Government Code that limit the exercise of the taxing power in Section
193. When a provision of law grants a power but withholds such power on certain matters, there is no
conflict between the grant of power and the withholding of power. The grantee of the power simply cannot
exercise the power on matters withheld from its power.
Second, Section 133 is entitled Common Limitations on the Taxing Powers of Local Government
Units. Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of
a delegated power to tax. Section 133 states that the taxing powers of local governments shall not extend
to the levy of any kind of tax on the national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the common limitations on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local governments such taxing
powers. By their very meaning and purpose, the common limitations on the taxing power prevail over
the grant or exercise of the taxing power. If the taxing power of local governments in Section 193 prevails
over the limitations on such taxing power in Section 133, then local governments can impose any kind of
tax on the national government, its agencies and instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause
in Section 133 stating [u]nless otherwise provided in this Code. This exception which is an exception to the
exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of the
Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic,
whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if
the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase government-owned or
controlled corporation is not controlling. The minority points out that Section 2 of the Introductory
Provisions of the Administrative Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is flawed.
The minoritys argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a
statute may require a different meaning than that defined in the Administrative Code. However, this does
not automatically mean that the definition in the Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code clearly states that unless the specific words
x x x of a particular statute shall require a different meaning, the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code
defining the phrase government-owned or controlled corporation differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
government-owned or controlled corporation differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
government-owned or controlled corporation. The Administrative Code, however, expressly defines the
phrase government-owned or controlled corporation. The inescapable conclusion is that the Administrative
Code definition of the phrase government-owned or controlled corporation applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code incorporates in a unified
document the major structural, functional and procedural principles and rules of governance. Thus,
the Administrative Code is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase government-owned or controlled corporation should apply only
to corporations organized under the Corporation Code, the general incorporation law, and not to corporations
created by special charters. The minority sees no reason why government corporations with special charters
should have a capital stock. Thus, the minority declares:
I submit that the definition of government-owned or controlled
corporations under the Administrative Code refer to those corporations owned by the
government or its instrumentalities which are created not by legislative enactment,
but formed and organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs without original
charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a
capital structure for GOCCs whose full ownership is limited by its charter to the State
or Republic. Such GOCCs are not empowered to declare dividends or alienate their
capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase government-owned or controlled corporation does
not distinguish between one incorporated under the Corporation Code or under a special charter. Where the
law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations organized
as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of
the Philippines. The special charter[40] of the Land Bank of the Philippines provides:
SECTION 81. Capital. The authorized capital stock of the Bank shall
be nine billion pesos, divided into seven hundred and eighty million common
shares with a par value of ten pesos each, which shall be fully subscribed by the
Government, and one hundred and twenty million preferred shares with a par value
of ten pesos each, which shall be issued in accordance with the provisions of Sections
seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter[41] of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock Par value. The capital stock of
the Bank shall be Five Billion Pesos to be divided into Fifty Million common
shares with par value of P100 per share. These shares are available for subscription
by the National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock worth
Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation, [42] Philippine International Trading
Corporation,[43] and the Philippine National Bank[44] before it was reorganized as a stock corporation under
the Corporation Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of the Local Government Code,
thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation must be established for the common
good. The second condition is that the government-owned or controlled corporation must meet the
test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-owned
or controlled corporations may be created or established by special charters in
the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create government-owned or controlled
corporations through special charters only if these entities are required to meet the twin conditions of
common good and economic viability. In other words, Congress has no power to create government-
owned or controlled corporations with special charters unless they are made to comply with the two
conditions of common good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and need to
compete in the market place. Being essentially economic vehicles of the State for the common good meaning
for economic development purposes these government-owned or controlled corporations with special
charters are usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These instrumentalities
perform essential public services for the common good, services that every modern State must provide its
citizens. These instrumentalities need not be economically viable since the government may even subsidize
their entire operations. These instrumentalities are not the government-owned or controlled corporations
referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform
economic or commercial activities, such entities known as government-owned or controlled corporations
must meet the test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of
the Philippines and similar government-owned or controlled corporations, which derive their income to
meet operating expenses solely from commercial transactions in competition with the private sector. The
intent of the Constitution is to prevent the creation of government-owned or controlled corporations that
cannot survive on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which this corporation
becomes exempt from the test of economic performance. We know what happened
in the past. If a government corporation loses, then it makes its claim upon the
taxpayers money through new equity infusions from the government and what is
always invoked is the common good. That is the reason why this year, out of a budget
of P115 billion for the entire government, about P28 billion of this will go into equity
infusions to support a few government financial institutions. And this is all taxpayers
money which could have been relocated to agrarian reform, to social services like
health and education, to augment the salaries of grossly underpaid public employees.
And yet this is all going down the drain.
Therefore, when we insert the phrase ECONOMIC VIABILITY together
with the common good, this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the market test so
that they become viable. And so, Madam President, I reiterate, for the committees
consideration and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of ECONOMIC VIABILITY OR THE ECONOMIC
TEST, together with the common good.[45]
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase in the interest of the
common good and subject to the test of economic viability. The addition includes
the ideas that they must show capacity to function efficiently in business and that
they should not go into activities which the private sector can do better.
Moreover, economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in financial
terms.[46] (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from withholding such essential services
from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability. These are the
government-owned or controlled corporations that are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are
the government-owned or controlled corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of government-owned or controlled
corporations in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create
MIAA to compete in the market place. MIAA does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA performs an essential public service
as the primary domestic and international airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold departure
orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;
 5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the
airport; and
7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international
airport.
MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees[47] and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter.
x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or
controlled corporation. Without a change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase government-owned or controlled corporations
under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase government-owned
or controlled corporation as merely clarificatory or illustrative.This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of government-owned or controlled corporations. The
Administrative Code defines what constitutes a government-owned or controlled corporation. To belittle
this phrase as clarificatory or illustrative is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)
of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII
of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of the national
wealth. (Emphasis supplied)
The term ports x x x constructed by the State includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least
intended for public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local
Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the
legal relation and status of government units, agencies and offices within the entire government machinery,
MIAA is a government instrumentality and not a government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to [t]axes, fees or charges of any kind by local governments. The only
exception is when MIAA leases its real property to a taxable person as provided in Section 234(a) of the
Local Government Code, in which case the specific real property leased becomes subject to real estate
tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private
partiesare 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.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the
Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No.
66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all the
real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City
of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for
the portions that the Manila International Airport Authority has leased to private parties. We also
declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.
No costs.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
 DANTE V. LIBAN, REYNALDO M. BERNARDO and G. R. No. 175352 government office or an office in a government-owned or controlled corporation for purposes of the
SALVADOR M. VIARI, prohibition in Section 13, Article VI of the 1987 Constitution. [5] The Decision, however, further declared
Petitioners, Present: void the PNRC Charter insofar as it creates the PNRC as a private corporation and consequently ruled that
the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange
CORONA, C.J., Commission if it wants to be a private corporation.[6] The dispositive portion of the Decision reads as
CARPIO, follows:
CARPIO MORALES,
VELASCO, JR., WHEREFORE, we declare that the office of the Chairman of the
NACHURA, Philippine National Red Cross is not a government office or an office in a
- versus - LEONARDO-DE CASTRO, government-owned or controlled corporation for purposes of the prohibition in
BRION, Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3,
PERALTA, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red
BERSAMIN, Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and
DEL CASTILLO, 1643, are VOID because they create the PNRC as a private corporation or grant it
ABAD, corporate powers.[7]
VILLARAMA, JR., In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1)
RICHARD J. GORDON, PEREZ, as the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised by the parties, the Court went
Respondent. MENDOZA, and beyond the case in deciding such issue; and (2) as the Court decided that Petitioners did not have standing
SERENO, JJ. to file the instant Petition, the pronouncement of the Court on the validity of R.A. No. 95 should be
PHILIPPINE NATIONAL RED CROSS, considered obiter.[8]
Intervenor. Promulgated:
Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary
January 18, 2011 for the Court to decide on that question. Respondent cites Laurel v. Garcia,[9] wherein the Court said that it
will not pass upon a constitutional question although properly presented by the record if the case can be
disposed of on some other ground and goes on to claim that since this Court, in the Decision, disposed of
the petition on some other ground, i.e., lack of standing of petitioners, there was no need for it to delve into
the validity of R.A. No. 95, and the rest of the judgment should be deemed obiter.

In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the
constitutionality of its Charter on the following grounds:

A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL

REPUBLIC ACT NO. 95 AS AMENDED DEPRIVED INTERVENOR
PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS.

1. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT

CONTROVERSY.

2. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS

AMENDED WAS NEVER AN ISSUE IN THIS CASE.

x--------------------------------------------------x B. THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO.

RESOLUTION
LEONARDO-DE CASTRO, J.:
This resolves the Motion for Clarification and/or for Reconsideration[1] filed on August 10, 2009 by
respondent Richard J. Gordon (respondent) of the Decisionpromulgated by this Court on July 15, 2009
(the Decision), the Motion for Partial Reconsideration[2] filed on August 27, 2009 by movant-
intervenor Philippine National Red Cross (PNRC), and the latters Manifestation and Motion to Admit
Attached Position Paper[3] filed on December 23, 2009.
In the Decision,[4] the Court held that respondent did not forfeit his seat in the Senate when he
accepted the chairmanship of the PNRC Board of Governors, as the office of the PNRC Chairman is not a
1264 AND NOT REPUBLIC ACT NO. 95. PRESIDENTIAL DECREE NO.
1264 WAS NOT A CREATION OF CONGRESS.
C. PNRCS STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN.
WHILE IT IS PERFORMING HUMANITARIAN FUNCTIONS AS AN
AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE
AND INDEPENDENT OF GOVERNMENT CONTROL, YET IT DOES NOT
QUALIFY AS STRICTLY PRIVATE IN CHARACTER.
In his Comment and Manifestation[10] filed on November 9, 2009, respondent manifests: (1)
that he agrees with the position taken by the PNRC in its Motion for Partial Reconsideration dated August
27, 2009; and (2) as of the writing of said Comment and Manifestation, there was pending before the
Congress of the Philippines a proposed bill entitled An Act Recognizing the PNRC as an Independent,
Autonomous, Non-Governmental Organization Auxiliary to the Authorities of the Republic of the
Philippines in the Humanitarian Field, to be Known as The Philippine Red Cross. [11]

After a thorough study of the arguments and points raised by the respondent as well as those of movant-
intervenor in their respective motions, we have reconsidered our pronouncements in our Decision dated July
15, 2009 with regard to the nature of the PNRC and the constitutionality of some provisions of the PNRC
Charter, R.A. No. 95, as amended.
As correctly pointed out in respondents Motion, the issue of constitutionality of R.A. No. 95 was not raised
by the parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis
mota of the case. We have reiterated the rule as to when the Court will consider the issue of constitutionality
in Alvarez v. PICOP Resources, Inc.,[12] thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis
mota. It is a well-established rule that a court should not pass upon a
constitutional question and decide a law to be unconstitutional or invalid, unless
such question is raised by the parties and that when it is raised, if the record also
presents some other ground upon which the court may [rest] its judgment, that course
will be adopted and the constitutional question will be left for consideration until such
question will be unavoidable.[13]
Under the rule quoted above, therefore, this Court should not have declared void certain sections
of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter. Instead,
the Court should have exercised judicial restraint on this matter, especially since there was some other
ground upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most
adversely affected by this declaration of unconstitutionality, which was not even originally a party to this
case, was being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under
the Corporation Code, after more than sixty (60) years of existence in this country.
Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality
notwithstanding that R.A. No. 95 was enacted on March 22, 1947 during the effectivity of the 1935
Constitution, which provided for a proscription against the creation of private corporations by special law,
to wit:
SEC. 7. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such
corporations are owned and controlled by the Government or any subdivision or
instrumentality thereof. (Art. XIV, 1935 Constitution.)
Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16
of the 1987 Constitution. The latter reads:
SECTION 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special charters in
the interest of the common good and subject to the test of economic viability.
Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August
16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No.
1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRCs corporate
existence notwithstanding the effectivity of the constitutional proscription on the creation of private
corporations by law, is a recognition that the PNRC is not strictly in the nature of a private corporation
contemplated by the aforesaid constitutional ban.
A closer look at the nature of the PNRC would show that there is none like it not just in terms of
structure, but also in terms of history, public service and official status accorded to it by the State and the
international community. There is merit in PNRCs contention that its structure is sui generis.
The PNRC succeeded the chapter of the American Red Cross which was in existence in the
Philippines since 1917. It was created by an Act of Congress after the Republic of the Philippines became
an independent nation on July 6, 1946 and proclaimed on February 14, 1947 its adherence to the Convention
of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in
the Field (the Geneva Red Cross Convention). By that action the Philippines indicated its desire to
participate with the nations of the world in mitigating the suffering caused by war and to establish in the
Philippines a voluntary organization for that purpose and like other volunteer organizations established in
other countries which have ratified the Geneva Conventions, to promote the health and welfare of the people
in peace and in war.[14]
The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by
P.D. Nos. 1264 and 1643, show the historical background and legal basis of the creation of the PNRC by
legislative fiat, as a voluntary organization impressed with public interest. Pertinently R.A. No. 95, as
amended by P.D. 1264, provides:
WHEREAS, during the meeting in Geneva, Switzerland, on 22 August
1894, the nations of the world unanimously agreed to diminish within their power the
evils inherent in war;
WHEREAS, more than one hundred forty nations of the world have
ratified or adhered to the Geneva Conventions of August 12, 1949 for the
Amelioration of the Condition of the Wounded and Sick of Armed Forces in the Field
and at Sea, The Prisoners of War, and The Civilian Population in Time of War
referred to in this Charter as the Geneva Conventions;
WHEREAS, the Republic of the Philippines became an independent
nation on July 4, 1946, and proclaimed on February 14, 1947 its adherence to
the Geneva Conventions of 1929, and by the action, indicated its desire to
participate with the nations of the world in mitigating the suffering caused by
war and to establish in the Philippines a voluntary organization for that purpose
as contemplated by the Geneva Conventions;
WHEREAS, there existed in the Philippines since 1917 a chapter of the
American National Red Cross which was terminated in view of the independence of
the Philippines; and
WHEREAS, the volunteer organizations established in other countries
which have ratified or adhered to the Geneva Conventions assist in promoting the
health and welfare of their people in peace and in war, and through their mutual
assistance and cooperation directly and through their international organizations
promote better understanding and sympathy among the people of the world;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution as Commander-
in-Chief of all the Armed Forces of the Philippines and pursuant to Proclamation No.
1081 dated September 21, 1972, and General Order No. 1 dated September 22, 1972,
do hereby decree and order that Republic Act No. 95, Charter of the Philippine
National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be
further amended as follows:
Section 1. There is hereby created in the Republic of the Philippines
a body corporate and politic to be the voluntary organization officially
designated to assist the Republic of the Philippines in discharging the obligations
set forth in the Geneva Conventions and to perform such other duties as are
inherent upon a national Red Cross Society. The national headquarters of this
Corporation shall be located in Metropolitan Manila. (Emphasis supplied.)
 The significant public service rendered by the PNRC can be gleaned from Section 3 of its
Charter, which provides:
Section 3. That the purposes of this Corporation shall be as follows:
(a) To provide volunteer aid to the sick and wounded of armed forces in
time of war, in accordance with the spirit of and under the conditions prescribed by
the Geneva Conventions to which the Republic of the Philippines proclaimed its
adherence;
(b) For the purposes mentioned in the preceding sub-section, to perform
all duties devolving upon the Corporation as a result of the adherence of the Republic
of the Philippines to the said Convention;
(c) To act in matters of voluntary relief and in accordance with the
authorities of the armed forces as a medium of communication between people of the
Republic of the Philippines and their Armed Forces, in time of peace and in time of
war, and to act in such matters between similar national societies of other
governments and the Governments and people and the Armed Forces of the Republic
of the Philippines;
(d) To establish and maintain a system of national and international relief
in time of peace and in time of war and apply the same in meeting and emergency
needs caused by typhoons, flood, fires, earthquakes, and other natural disasters and
to devise and carry on measures for minimizing the suffering caused by such
disasters;
(e) To devise and promote such other services in time of peace and in time
of war as may be found desirable in improving the health, safety and welfare of the
Filipino people;
(f) To devise such means as to make every citizen and/or resident of the
Philippines a member of the Red Cross.
The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with
the International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International
Red Cross and Red Crescent Movement (the Movement). They constitute a worldwide humanitarian
movement, whose mission is:
[T]o prevent and alleviate human suffering wherever it may be found, to protect life
and health and ensure respect for the human being, in particular in times of armed
conflict and other emergencies, to work for the prevention of disease and for the
promotion of health and social welfare, to encourage voluntary service and a constant
readiness to give help by the members of the Movement, and a universal sense of
solidarity towards all those in need of its protection and assistance. [15]
The PNRC works closely with the ICRC and has been involved in humanitarian activities in the
Philippines since 1982. Among others, these activities in the country include:
1. Giving protection and assistance to civilians displaced or otherwise affected by armed
clashes between the government and armed opposition groups, primarily in Mindanao;
2. Working to minimize the effects of armed hostilities and violence on the population;
3. Visiting detainees; and
4. Promoting awareness of international humanitarian law in the public and private sectors.[16]
National Societies such as the PNRC act as auxiliaries to the public authorities of their own
countries in the humanitarian field and provide a range of services including disaster relief and health and
social programmes.
The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position
Paper,[17] submitted by the PNRC, is instructive with regard to the elements of the specific nature of the
National Societies such as the PNRC, to wit:
National Societies, such as the Philippine National Red Cross and its sister
Red Cross and Red Crescent Societies, have certain specificities deriving from the
1949 Geneva Convention and the Statutes of the International Red Cross and Red
Crescent Movement (the Movement). They are also guided by the seven Fundamental
Principles of the Red Cross and Red Crescent Movement: Humanity, Impartiality,
Neutrality, Independence, Voluntary Service, Unity and Universality.
A National Society partakes of a sui generis character. It is a protected
component of the Red Cross movement under Articles 24 and 26 of the First Geneva
Convention, especially in times of armed conflict. These provisions require that the
staff of a National Society shall be respected and protected in all circumstances. Such
protection is not ordinarily afforded by an international treaty to ordinary private
entities or even non-governmental organisations (NGOs). This sui generis character
is also emphasized by the Fourth Geneva Convention which holds that an Occupying
Power cannot require any change in the personnel or structure of a National
Society. National societies are therefore organizations that are directly regulated
by international humanitarian law, in contrast to other ordinary private entities,
including NGOs.
xxxx
In addition, National Societies are not only officially recognized by their
public authorities as voluntary aid societies, auxiliary to the public authorities in the
humanitarian field, but also benefit from recognition at the International level. This
is considered to be an element distinguishing National Societies from other
organisations (mainly NGOs) and other forms of humanitarian response.
x x x. No other organisation belongs to a world-wide Movement in which
all Societies have equal status and share equal responsibilities and duties in helping
each other. This is considered to be the essence of the Fundamental Principle of
Universality.
Furthermore, the National Societies are considered to be auxiliaries to the
public authorities in the humanitarian field. x x x.
The auxiliary status of [a] Red Cross Society means that it is at one and
the same time a private institution and a public service organization because the
very nature of its work implies cooperation with the authorities, a link with the
State. In carrying out their major functions, Red Cross Societies give their
humanitarian support to official bodies, in general having larger resources than the
Societies, working towards comparable ends in a given sector.
x x x No other organization has a duty to be its governments
humanitarian partner while remaining independent. [18] (Emphases ours.)
It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and
effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the
effectivity of the 1973 Constitution and the 1987 Constitution.

The PNRC Charter and its amendatory laws have not been questioned or challenged on
constitutional grounds, not even in this case before the Court now.
In the Decision, the Court, citing Feliciano v. Commission on Audit,[19] explained that the purpose of the
constitutional provision prohibiting Congress from creating private corporations was to prevent the granting
of special privileges to certain individuals, families, or groups, which were denied to other groups. Based
on the above discussion, it can be seen that the PNRC Charter does not come within the spirit of this
constitutional provision, as it does not grant special privileges to a particular individual, family, or group,
but creates an entity that strives to serve the common good.
Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will
hinder the State in adopting measures that will serve the public good or national interest. It should be noted
that a special law, R.A. No. 9520, the Philippine Cooperative Code of 2008, and not the general corporation
code, vests corporate power and capacities upon cooperatives which are private corporations, in order to
implement the States avowed policy.
In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC
as the governments partner in the observance of its international commitments, to wit:
The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization,
whose mission is to bring timely, effective, and compassionate humanitarian
assistance for the most vulnerable without consideration of nationality, race, religion,
gender, social status, or political affiliation. The PNRC provides six major services:
Blood Services, Disaster Management, Safety Services, Community Health and
Nursing, Social Services and Voluntary Service.
The Republic of the Philippines, adhering to the Geneva Conventions,
established the PNRC as a voluntary organization for the purpose contemplated in
the Geneva Convention of 27 July 1929. x x x.[20] (Citations omitted.)
So must this Court recognize too the countrys adherence to the Geneva Convention and
respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva
Convention has the force and effect of law.[21] Under the Constitution, the Philippines adopts the generally
accepted principles of international law as part of the law of the land.[22] This constitutional provision must
be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to
negate the former.
By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRCs special status under international
humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations under
the Geneva Conventions.Although the PNRC is called to be independent under its Fundamental Principles,
it interprets such independence as inclusive of its duty to be the governments humanitarian partner. To be
recognized in the International Committee, the PNRC must have an autonomous status, and carry out its
humanitarian mission in a neutral and impartial manner.
However, in accordance with the Fundamental Principle of Voluntary Service of National
Societies of the Movement, the PNRC must be distinguished from private and profit-making entities. It is
the main characteristic of National Societies that they are not inspired by the desire for financial gain but by
individual commitment and devotion to a humanitarian purpose freely chosen or accepted as part of the
service that National Societies through its volunteers and/or members render to the Community.[23]
The PNRC, as a National Society of the International Red Cross and Red Crescent Movement,
can neither be classified as an instrumentality of the State, so as not to lose its character of neutrality as well
as its independence, nor strictly as a private corporation since it is regulated by international humanitarian
law and is treated as an auxiliary of the State.[24]
Based on the above, the sui generis status of the PNRC is now sufficiently established. Although
it is neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -
controlled corporation or a subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so
much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does notipso facto imply that the PNRC is a
private corporation within the contemplation of the provision of the Constitution, that must be organized
under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character
of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government
in the humanitarian field in accordance with its commitments under international law. This Court cannot all
of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC
Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all
national disasters since 1947, and is widely known to provide a substantial portion of the countrys blood
requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the core in
an untimely and drastic manner that would not only have negative consequences to those who depend on it
in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must therefore
stay.
WHEREFORE, premises considered, respondent Richard J. Gordons Motion for
Clarification and/or for Reconsideration and movant-intervenor PNRCs Motion for Partial
Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The
constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross, was not
raised by the parties as an issue and should not have been passed upon by this Court. The structure of the
PNRC is sui generis being neither strictly private nor public in nature. R.A. No. 95 remains valid and
constitutional in its entirety. The dispositive portion of the Decision should therefore be MODIFIED by
deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the
Philippine National Red Cross is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in
Section 13, Article VI of the 1987 Constitution.
SO ORDERED.
BOYSCOUTS V COA
LEONARDO-DE CASTRO, J.:
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the
subject matter of this controversy that reached us via petition for prohibition[1] filed by the BSP under Rule
65 of the 1997 Rules of Court. In this petition, the BSP seeks that the COA be prohibited from implementing
its June 18, 2002 Decision,[2] its February 21, 2007 Resolution,[3] as well as all other issuances arising
therefrom, and that all of the foregoing be rendered null and void. [4]
Antecedent Facts and Background of the
Case
This case arose when the COA issued Resolution No. 99-011[5] on August 19, 1999 (the
COA Resolution), with the subject Defining the Commissions policy with respect to the audit of the
Boy Scouts of the Philippines. In its whereas clauses, the COA Resolution stated that the BSP was
created as a public corporation under Commonwealth Act No. 111, as amended by Presidential
 Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor
Relations Commission,[6] the Supreme Court ruled that the BSP, as constituted under its charter,
was a government-controlled corporation within the meaning of Article IX(B)(2)(1) of the
Constitution; and that the BSP is appropriately regarded as a government instrumentality under
the 1987 Administrative Code.[7] The COA Resolution also cited its constitutional mandate under
Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the
COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an
annual financial audit of the Boy Scouts of the Philippines in accordance with
generally accepted auditing standards, and express an opinion on whether the
financial statements which include the Balance Sheet, the Income Statement and
the Statement of Cash Flows present fairly its financial position and results of
operations.
xxxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit
supervision, the Boy Scouts of the Philippines shall be classified among the
government corporations belonging to the Educational, Social, Scientific, Civic and
Research Sector under the Corporate Audit Office I, to be audited, similar to the
subsidiary corporations, by employing the team audit approach.[8] (Emphases
supplied.)
The BSP sought reconsideration of the COA Resolution in a letter[9] dated November
26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President of
the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the Commissions
jurisdiction on the following grounds:
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National
Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a
government-controlled corporation is anchored on the substantial Government
participation in the National Executive Board of the BSP. It is to be noted that the
case was decided when the BSP Charter is defined by Commonwealth Act No. 111
as amended by Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs
charter after the cited case was decided. The most salient of all amendments in
RA No. 7278 is the alteration of the composition of the National Executive Board
of the BSP.
The said RA virtually eliminated the substantial government participation in the
National Executive Board by removing: (i) the President of the Philippines and
executive secretaries, with the exception of the Secretary of Education, as
members thereof; and (ii) the appointment and confirmation power of the
President of the Philippines, as Chief Scout, over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278. Thereby
weakening the cases conclusion that the BSP is a government-controlled
corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC
relied on for some terms, defines government-owned and controlled corporations
as agencies organized as stock or non-stock corporations which the BSP, under its
present charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in the BSP.
What RA 7278 only provides is that the Government or any of its subdivisions,
branches, offices, agencies and instrumentalities can from time to time donate
and contribute funds to the BSP.
xxxx
Also the BSP respectfully believes that the BSP is not appropriately regarded as a
government instrumentality under the 1987 Administrative Code as stated in the
COA resolution. As defined by Section 2(10) of the said code, instrumentality refers
to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter.
The BSP is not an entity administering special funds. It is not even included in the DECS
National Budget. x x x
It may be argued also that the BSP is not an agency of the Government. The 1987
Administrative Code, merely referred the BSP as an attached agency of the DECS
as distinguished from an actual line agency of departments that are included in
the National Budget. The BSP believes that an attached agency is different from
an agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined
as any of the various units of the Government including a department, bureau,
office, instrumentality, government-owned or controlled corporation or local
government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government; a department
which refers to an executive department as created by law (Section 2[7] of the
Administrative Code); nor a bureau which refers to any principal subdivision or
unit of any department (Section 2[8], Administrative Code).[10]
Subsequently, requests for reconsideration of the COA Resolution were also made
separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City and
Eugenio F. Capreso, Council Scout Executive of Calbayog City.[11]
In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer
(CAO) I of the COA, furnished the BSP with a copy of the Memorandum[13] dated June 20, 2000 of
Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA General
Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of
the Philippines v. National Labor Relations Commission, even though said law eliminated the
substantial government participation in the selection of members of the National Executive Board
of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation is only
one (1) of the three (3) grounds relied upon by the Court in the resolution of the
case. Other considerations include the character of the BSPs purposes and
functions which has a public aspect and the statutory designation of the BSP as a
public corporation. These grounds have not been deleted by R.A. No. 7278. On the
contrary, these were strengthened as evidenced by the amendment made relative
to BSPs purposes stated in Section 3 of R.A. No. 7278.
 On the argument that BSP is not appropriately regarded as a government
instrumentality and agency of the government, such has already been answered and
clarified. The Supreme Court has elucidated this matter in the BSP case when it
declared that BSP is regarded as, both a government-controlled corporation with an
original charter and as an instrumentality of the Government. Likewise, it is not
disputed that the Administrative Code of 1987 designated the BSP as one of the
attached agencies of DECS. Being an attached agency, however, it does not change
its nature as a government-controlled corporation with original charter and,
necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of
the Constitution provides that COA shall have the power, authority, and duty to
examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining
to, the Government, or any of its subdivisions, agencies or instrumentalities,
including government-owned or controlled corporations with original charters.[14]
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA
Resolution No. 99-011, we have to comply with the provisions of the latter, among
which is to conduct an annual financial audit of the Boy Scouts of the Philippines.[15]
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I,
the COA informed the BSP that a preliminary survey of its organizational structure, operations
and accounting system/records shall be conducted on November 21 to 22, 2000.[16]
Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed
a Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order
before the COA. This was denied by the COA in its questioned Decision, which held that the BSP
is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied
under its questioned Resolution.[17]
This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls
under the COAs audit jurisdiction.
The Parties Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of the COA as the
issue therein was the jurisdiction of the National Labor Relations Commission over a case for
illegal dismissal and unfair labor practice filed by certain BSP employees.[18]
While the BSP concedes that its functions do relate to those that the government
might otherwise completely assume on its own, it avers that this alone was not determinative of
the COAs audit jurisdiction over it. The BSP further avers that the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission simply stated x x x that in respect of functions,
the BSP is akin to a public corporation but this was not synonymous to holding that the BSP is a
government corporation or entity subject to audit by the COA. [19]
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its
charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor
Relations Commission are no longer valid as the government has ceased to play a controlling
influence in it. The BSP claims that the pronouncements of the Court therein must be taken only
within the context of that case; that the Court had categorically found that its assets were
acquired from the Boy Scouts of America and not from the Philippine government, and that its
operations are financed chiefly from membership dues of the Boy Scouts themselves as well as
from property rentals; and that the BSP may correctly be characterized as non-governmental, and
hence, beyond the audit jurisdiction of the COA. It further claims that the designation by the Court
of the BSP as a government agency or instrumentality is mere obiter dictum.[20]
The BSP maintains that the provisions of Republic Act No. 7278 suggest that
governance of BSP has come to be overwhelmingly a private affair or nature, with government
participation restricted to the seat of the Secretary of Education, Culture and Sports.[21] It
cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the Court declared that, PAL,
having ceased to be a government-owned or controlled corporation is no longer under the audit
jurisdiction of the COA.[23] Claiming that the amendments introduced by Republic Act No. 7278
constituted a supervening event that changed the BSPs corporate identity in the same way that
the governments privatization program changed PALs, the BSP makes the case that the
government no longer has control over it; thus, the COA cannot use the Boy Scouts of the
Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction
and the issuance of COA Resolution No. 99-011.[24] The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSPs funds and assets are private
in character. Unlike ordinary public corporations, such as provinces, cities, and
municipalities, or government-owned and controlled corporations, such as Land Bank of
the Philippines and the Development Bank of the Philippines, the assets and funds of BSP
are not derived from any government grant. For its operations, BSP is not dependent in
any way on any government appropriation; as a matter of fact, it has not even been
included in any appropriations for the government. To be sure, COA has not alleged, in
its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP
received, receives or continues to receive assets and funds from any agency of the
government. The foregoing simply point to the private nature of the funds and assets of
petitioner BSP.
xxxx
As stated in petitioners third argument, BSPs assets and funds were never
acquired from the government. Its operations are not in any way financed by the
government, as BSP has never been included in any appropriations act for the
government. Neither has the government invested funds with BSP. BSP, has not been, at
any time, a user of government property or funds; nor have properties of the government
been held in trust by BSP. This is precisely the reason why, until this time, the COA has
not attempted to subject BSP to its audit jurisdiction. x x x.[25]
To summarize its other arguments, the BSP contends that it is not a government-
owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the
government.
In its Comment,[26] the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111
dated October 31, 1936, and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general improvement of the moral
spirit and fiber of the youth. The manner of creation and the purpose for which
the BSP was created indubitably prove that it is a government agency.
2. Being a government agency, the funds and property owned or held in trust by
the BSP are subject to the audit authority of respondent Commission on Audit
pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a government-
owned or controlled corporation and government instrumentality.[27]
The COA maintains that the functions of the BSP that include, among others, the teaching
to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign
functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the
Philippines v. National Labor Relations Commission.The COA contends that any attempt to classify
the BSP as a private corporation would be incomprehensible since no less than the law which
created it had designated it as a public corporation and its statutory mandate embraces
performance of sovereign functions.[28]
The COA claims that the only reason why the BSP employees fell within the scope of
the Civil Service Commission even before the 1987 Constitution was the fact that it was a
government-owned or controlled corporation; that as an attached agency of the Department of
Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP
is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987,
embraced under the term government instrumentality.[29]
The COA concludes that being a government agency, the funds and property owned
or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article
IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the Philippines
(VFP) v. Reyes,[30] wherein the Court held that among the reasons why the VFP is a public
corporation is that its charter, Republic Act No. 2640, designates it as one. Furthermore, the COA
quotes the Court as saying in that case:
In several cases, we have dealt with the issue of whether certain specific
activities can be classified as sovereign functions. These cases, which deal with activities
not immediately apparent to be sovereign functions, upheld the public sovereign nature
of operations needed either to promote social justice or to stimulate patriotic sentiments
and love of country.
xxxx
Petitioner claims that its funds are not public funds because no budgetary
appropriations or government funds have been released to the VFP directly or indirectly
from the DBM, and because VFP funds come from membership dues and lease rentals
earned from administering government lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the VFP does
not prove that it is a private corporation. The DBM indeed did not see it fit to propose
budgetary appropriations to the VFP, having itself believed that the VFP is a private
corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature
of VFP's incorporation, its previous assertions will not prevent future budgetary
appropriations to the VFP. The erroneous application of the law by public officers does
not bar a subsequent correct application of the law.[31] (Citations omitted.)
The COA points out that the government is not precluded by law from extending
financial support to the BSP and adding to its funds, and that as a government instrumentality
which continues to perform a vital function imbued with public interest and reflective of the
governments policy to stimulate patriotic sentiments and love of country, the BSPs funds from
whatever source are public funds, and can be used solely for public purpose in pursuance of the
provisions of Republic Act No. [7278].[32]
The COA claims that the fact that it has not yet audited the BSPs funds may not bar the
subsequent exercise of its audit jurisdiction.
The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory designation
as a public corporation and the public character of its purpose and functions are not
determinative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines
v. National Labor Relations Commission is not applicable anymore because the aspect of
government ownership and control has been removed by Republic Act No. 7278; and concluding
that the funds and property that it either owned or held in trust are not public funds and are not
subject to the COAs audit jurisdiction.
Thereafter, considering the BSPs claim that it is a private corporation, this Court, in
a Resolution[34] dated July 20, 2010, required the parties to file, within a period of twenty (20)
days from receipt of said Resolution, their respective comments on the issue of whether
Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional.
In compliance with the Courts resolution, the parties filed their respective Comments.
In its Comment[35] dated October 22, 2010, the COA argues that the constitutionality
of Commonwealth Act No. 111, as amended, is not determinative of the resolution of the present
controversy on the COAs audit jurisdiction over petitioner, and in fact, the controversy may be
resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth
in Commissioner of Internal Revenue v. Court of Tax Appeals,[36] have not been fully
met.[37] Moreover, the COA maintains that behind every law lies the presumption of
constitutionality.[38] The COA likewise argues that contrary to the BSPs position, repeal of a law by
implication is not favored.[39] Lastly, the COA claims that there was no violation of Section 16,
Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government
corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on
Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or
private is found in the totality of the relation of the corporation to the State. If the
corporation is created by the State as the latters own agency or instrumentality to help
it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. x x x.[41]
For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that its
charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional as
it does not violate Section 16, Article XII of the Constitution. The BSP alleges that while [it] is not
a public corporation within the purview of COAs audit jurisdiction, neither is it a private
corporation created by special law falling within the ambit of the constitutional prohibition x x
x.[43] The BSP further alleges:

Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by
Section 1 of R.A. No. 7278, thus:
xxxx
A reading of the foregoing provision shows that petitioner was created to
advance the interest of the youth, specifically of young boys, and to mold them into
becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit,
not only of those boys, but of the public good or welfare. Hence, it can be said that
petitioners purpose and functions are more of a public rather than a private character.
Petitioner caters to all boys who wish to join the organization without any distinction. It
does not limit its membership to a particular class of boys. Petitioners members are
trained in scoutcraft and taught patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, preparing them
to become model citizens and outstanding leaders of the country.[44]
The BSP reiterates its stand that the public character of its purpose and functions do
not place it within the ambit of the audit jurisdiction of the COA as it lacks the government
ownership or control that the Constitution requires before an entity may be subject of said
jurisdiction.[45] It avers that it merely stated in its Reply that the withdrawal of government control
is akin to privatization, but it does not necessarily mean that petitioner is a private
corporation.[46] The BSP claims that it has a unique characteristic which neither classifies it as a
purely public nor a purely private corporation;[47] that it is not a quasi-public corporation; and that
it may belong to a different class altogether.[48]
The BSP claims that assuming arguendo that it is a private corporation, its creation is
not contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil sought
to be avoided by said provision is inexistent in the enactment of the BSPs charter, [49] as, (i) it was
not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation are
not its officers but its entire membership consisting of boys being trained in scoutcraft all over
the country; (iii) it caters to all boys who wish to join the organization without any distinction; and
(iv) it does not limit its membership to a particular class or group of boys. Thus, the enactment of
its charter confers no special privilege to particular individuals, families, or groups; nor does it
bring about the danger of granting undue favors to certain groups to the prejudice of others or of
the interest of the country, which are the evils sought to be prevented by the constitutional
provision involved.[50]
Finally, the BSP states that the presumption of constitutionality of a legislative
enactment prevails absent any clear showing of its repugnancy to the Constitution.[51]
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying
the applicable laws and the arguments of both parties, we find that the BSP is a public corporation
and its funds are subject to the COAs audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled An Act
to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers
and Purposes created the BSP as a public corporation to serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through
organization and cooperation with other agencies, the ability of boys to do useful
things for themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline
and kindred virtues, and moral values, using the method which are in common use by
boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No.
111 and provided substantial changes in the BSP organizational structure. Pertinent provisions are
quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National
Executive Board composed of (a) the President of the Philippines or his
representative; (b) the charter and life members of the Boy Scouts of the Philippines;
(c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d)
the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of
Education and Culture, the Secretary of Social Welfare, the Secretary of National
Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth
and Sports, and the Secretary of Local Government and Community Development;
(f) an equal number of individuals from the private sector; (g) the National President
of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout
Region to represent the boy membership; and (i) three representatives of the
cultural minorities. Except for the Regional Chairman who shall be elected by the
Regional Scout Councils during their annual meetings, and the Scouts of their
respective regions, all members of the National Executive Board shall be either by
appointment or cooption, subject to ratification and confirmation by the Chief
Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled
by a majority vote of the remaining members, subject to ratification and
confirmation by the Chief Scout. The by-laws may prescribe the number of members
of the National Executive Board necessary to constitute a quorum of the board,
which number may be less than a majority of the whole number of the board. The
National Executive Board shall have power to make and to amend the by-laws, and,
by a two-thirds vote of the whole board at a meeting called for this purpose, may
authorize and cause to be executed mortgages and liens upon the property of the
corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act
No. 111 by strengthening the volunteer and democratic characterof the BSP and reducing government
representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended,
is hereby amended to read as follows:
"Sec. 2. The said corporation shall have the powers of perpetual
succession, to sue and be sued; to enter into contracts; to acquire, own, lease,
convey and dispose of such real and personal estate, land grants, rights and choses
in action as shall be necessary for corporate purposes, and to accept and receive
funds, real and personal property by gift, devise, bequest or other means, to
conduct fund-raising activities; to adopt and use a seal, and the same to alter and
destroy; to have offices and conduct its business and affairs in Metropolitan Manila
and in the regions, provinces, cities, municipalities, and barangays of the Philippines,
to make and adopt by-laws, rules and regulations not inconsistent with this Act and
the laws of the Philippines, and generally to do all such acts and things, including the
establishment of regulations for the election of associates and successors, as may
be necessary to carry into effect the provisions of this Act and promote the purposes
of said corporation: Provided, That said corporation shall have no power to issue
certificates of stock or to declare or pay dividends, its objectives and purposes being
solely of benevolent character and not for pecuniary profit of its members.
"Sec. 3. The purpose of this corporation shall be to promote through
organization and cooperation with other agencies, the ability of boys to do useful
things for themselves and others, to train them in scoutcraft, and to inculcate in
them patriotism, civic consciousness and responsibility, courage, self-reliance,
discipline and kindred virtues, and moral values, using the method which are in
common use by boy scouts."
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby
repealed and in lieu thereof, Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout of the
Boy Scouts of the Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as
amended, are hereby amended to read as follows:
"Sec. 5. The governing body of the said corporation shall consist of a
National Executive Board, the members of which shall be Filipino citizens of good
moral character. The Board shall be composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who
shall be elected by the members of the National Council at its meeting called for this
purpose;
"(b) The regional chairmen of the scout regions who shall be elected by
the representatives of all the local scout councils of the region during its meeting
called for this purpose: Provided, That a candidate for regional chairman need not
be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas,
to be elected by the senior scout delegates of the local scout councils to the scout
youth forums in their respective areas, in its meeting called for this purpose, to
represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the
National Council in its meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional members
from the private sector who shall be elected by the members of the National
Executive Board referred to in the immediately preceding paragraphs (a), (b), (c),
(d), (e) and (f) at the organizational meeting of the newly reconstituted National
Executive Board which shall be held immediately after the meeting of the National
Council wherein the twelve (12) regular members and the one (1) charter member
were elected.
xxxx
"Sec. 8. Any donation or contribution which from time to time may be
made to the Boy Scouts of the Philippines by the Government or any of its
subdivisions, branches, offices, agencies or instrumentalities or by a foreign
government or by private, entities and individuals shall be expended by the National
Executive Board in pursuance of this Act.
The BSP as a Public Corporation under Par. 2, Art.
2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as
presently constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose created by law; their personality begins as soon as they have been
constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and distinct from
that of each shareholder, partner or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law
creating it under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding
article are governed by the laws creating or recognizing them.
Private corporations are regulated by laws of general application on the
subject.
Partnerships and associations for private interest or purpose are
governed by the provisions of this Code concerning partnerships. (Emphasis and
underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in order to
implement a State policy declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES
Section 13. The State recognizes the vital role of the youth in nation-
building and shall promote and protect their physical, moral, spiritual, intellectual,
and social well-being. It shall inculcate in the youth patriotism and nationalism, and
encourage their involvement in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a
constitutional mandate, comes within the class of public corporations defined by paragraph 2, Article 44 of
the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code.
The BSPs Classification Under the
Administrative Code of 1987
 The public, rather than private, character of the BSP is recognized by the fact that, along with
the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under Executive Order
No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS
Chapter 8 Attached Agencies
SEC. 20. Attached Agencies. The following agencies are hereby attached
to the Department:
xxxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the department is defined in the
Administrative Code of 1987 as follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. Unless otherwise
expressly stated in the Code or in other laws defining the special relationships of
particular agencies, administrative relationships shall be categorized and defined as
follows:
xxxx
(3) Attachment. (a) This refers to the lateral relationship between the
department or its equivalent and the attached agency or corporation for purposes of
policy and program coordination. The coordination may be accomplished by
having the department represented in the governing board of the attached
agency or corporation, either as chairman or as a member, with or without
voting rights, if this is permitted by the charter; having the attached corporation
or agency comply with a system of periodic reporting which shall reflect the progress
of programs and projects; and having the department or its equivalent provide general
policies through its representative in the board, which shall serve as the framework
for the internal policies of the attached corporation or agency. (Emphasis ours.)
As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination
is achieved by having at least one representative of government in its governing board, which in the
case of the BSP is the DECS Secretary. In this sense, the BSP is not under government control or supervision
and control. Still this characteristic does not make the attached chartered agency a private corporation
covered by the constitutional proscription in question.
Art. XII, Sec. 16 of the Constitution refers to
private corporations created by government for
proprietary or economic/business purposes
At the outset, it should be noted that the provision of Section 16 in issue is found in Article
XII of the Constitution, entitled National Economy and Patrimony.Section 1 of Article XII is quoted as
follows:
SECTION 1. The goals of the national economy are a more equitable
distribution of opportunities, income, and wealth; a sustained increase in the
amount of goods and services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of life for all,
especially the underprivileged.
The State shall promote industrialization and full employment based on
sound agricultural development and agrarian reform, through industries that make
full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions
of the country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.
The scope and coverage of Section 16, Article XII of the Constitution can be seen from the
aforementioned declaration of state policies and goals which pertains to national
economy and patrimony and the interests of the people in economic development.
Section 16, Article XII deals with the formation, organization, or regulation of private
corporations,[52] which should be done through a general law enacted by Congress, provides for an
exception, that is: if the corporation is government owned or controlled; its creation is in the interest of
the common good; and it meets the test of economic viability. The rationale behind Article XII, Section 16
of the 1987 Constitution was explained in Feliciano v. Commission on Audit,[53] in the following manner:
The Constitution emphatically prohibits the creation of private
corporations except by a general law applicable to all citizens. The purpose of this
constitutional provision is to ban private corporations created by special charters,
which historically gave certain individuals, families or groups special privileges
denied to other citizens.[54](Emphasis added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the creation
of private corporations by special law. The said constitutional provision should not be construed so as to
prohibit the creation of public corporations or a corporate agency or instrumentality of the government
intended to serve a public interest or purpose, which should not be measured on the basis of economic
viability, but according to the public interest or purpose it serves as envisioned by paragraph (2), of Article
44 of the Civil Code and the pertinent provisions of the Administrative Code of 1987.
The BSP is a Public Corporation Not Subject to
the Test of Government Ownership or Control
and Economic Viability
The BSP is a public corporation or a government agency or instrumentality with juridical
personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government owned or
controlled, are ipso facto to be considered private corporations as there exists another distinct class of
corporations or chartered institutions which are otherwise known as public corporations. These corporations
are treated by law as agencies or instrumentalities of the government which are not subject to the tests of
ownership or control and economic viability but to different criteria relating to their public purposes/interests
or constitutional policies and objectives and their administrative relationship to the government or any of its
Departments or Offices.
Classification of Corporations Under Section
16, Article XII of the Constitution on National
Economy and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the
Constitution recognizes only two classes of corporations: private corporations under a general law,
and government-owned or controlled corporations created by special charters.
We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress
from creating public corporations. In fact, Congress has enacted numerous laws creating public corporations
or government agencies or instrumentalities vested with corporate powers. Moreover, Section 16, Article
XII, which relates to National Economy and Patrimony, could not have tied the hands of Congress in
creating public corporations to serve any of the constitutional policies or objectives.
In his dissent, Justice Carpio contends that this ponente introduces a totally different species of
corporation, which is neither a private corporation nor a government owned or controlled corporation and,
in so doing, is missing the fact that the BSP, which was created as a non-stock, non-profit corporation, can
only be either a private corporation or a government owned or controlled corporation.
Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP,
under its former charter, was regarded as both a government owned or controlled corporation with
original charter and a public corporation. The said case pertinently stated:
While the BSP may be seen to be a mixed type of entity, combining
aspects of both public and private entities, we believe that considering the
character of its purposes and its functions, the statutory designation of the BSP as
"a public corporation" and the substantial participation of the Government in the
selection of members of the National Executive Board of the BSP, the BSP, as
presently constituted under its charter, is a government-controlled
corporation within the meaning of Article IX (B) (2) (1) of the Constitution.
We are fortified in this conclusion when we note that the Administrative
Code of 1987 designates the BSP as one of the attached agencies of the Department
of Education, Culture and Sports ("DECS"). An "agency of the Government" is
defined as referring to any of the various units of the Government including a
department, bureau, office, instrumentality, government-owned or -controlled
corporation, or local government or distinct unit therein. "Government
instrumentality" is in turn defined in the 1987 Administrative Code in the following
manner:
Instrumentality - refers to any agency of the
National Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy usually through a charter. This term includes
regulatory agencies, chartered institutions and government-
owned or controlled corporations.
The same Code describes a "chartered institution" in the following terms:
Chartered institution - refers to any agency
organized or operating under a special charter, and vested
by law with functions relating to specific constitutional
policies or objectives. This term includes the state universities
and colleges, and the monetary authority of the State.
We believe that the BSP is appropriately regarded as "a government
instrumentality" under the 1987 Administrative Code.
It thus appears that the BSP may be regarded as both a "government
controlled corporation with an original charter" and as an "instrumentality" of the
Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x
x.[55] (Emphases supplied.)
The existence of public or government corporate or juridical entities or chartered institutions
by legislative fiat distinct from private corporations and government owned or controlled corporation is
best exemplified by the 1987 Administrative Code cited above, which we quote in part:
Sec. 2. General Terms Defined. Unless the specific words of the text, or
the context as a whole, or a particular statute, shall require a different meaning:
xxxx
(10) "Instrumentality" refers to any agency of the National Government,
not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.
xxxx
(12) "Chartered institution" refers to any agency organized or operating
under a special charter, and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the state universities and
colleges and the monetary authority of the State.
(13) "Government-owned or controlled corporation" refers to any
agency organized as a stock or non-stock corporation, vested with functions relating
to public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51)
per cent of its capital stock: Provided, That government-owned or controlled
corporations may be further categorized by the Department of the Budget, the
Civil Service Commission, and the Commission on Audit for purposes of the
exercise and discharge of their respective powers, functions and responsibilities
with respect to such corporations.
Assuming for the sake of argument that the BSP ceases to be owned or controlled by the
government because of reduction of the number of representatives of the government in the BSP Board,
it does not follow that it also ceases to be a government instrumentality as it still retains all the
characteristics of the latter as an attached agency of the DECS under the Administrative Code. Vesting
corporate powers to an attached agency or instrumentality of the government is not constitutionally
prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative
Code.
Economic Viability and Ownership and Control
Tests Inapplicable to Public Corporations
As presently constituted, the BSP still remains an instrumentality of the national
government. It is a public corporation created by law for a public purpose, attached to the DECS pursuant
to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be
owned or controlled by the government and be economically viable to justify its existence under a special
law.
The dissent of Justice Carpio also submits that by recognizing a new class of public
corporation(s) created by special charter that will not be subject to the test of economic viability, the
constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional Convention reveals the intent of
the framers of the highest law of our land to distinguish between government corporations performing
governmental functions and corporations involved in business or proprietary functions:
THE PRESIDENT. Commissioner Foz is recognized.
MR. FOZ. Madam President, I support the proposal to insert ECONOMIC
VIABILITY as one of the grounds for organizing government corporations. x x x.
MR. OPLE. Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We know
what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers money through new equity infusions from the government
and what is always invoked is the common good. x x x
Therefore, when we insert the phrase ECONOMIC VIABILITY together
with the common good, this becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of meeting the market test
so that they become viable. x x x.
xxxx
THE PRESIDENT. Commissioner Quesada is recognized.
MS. QUESADA. Madam President, may we be clarified by the committee
on what is meant by economic viability?
THE PRESIDENT. Please proceed.
MR. MONSOD. Economic viability normally is determined by cost-benefit
ratio that takes into consideration all benefits, including economic external as well
as internal benefits. These are what they call externalities in economics, so that
these are not strictly financial criteria. Economic viability involves what we call
economic returns or benefits of the country that are not quantifiable in financial
terms. x x x.
xxxx
MS. QUESADA. So, would this particular formulation now really limit the
entry of government corporations into activities engaged in by corporations?
MR. MONSOD. Yes, because it is also consistent with the economic
philosophy that this Commission approved that there should be minimum
government participation and intervention in the economy.
MS. QUESDA. Sometimes this Commission would just refer to Congress
to provide the particular requirements when the government would get into
corporations. But this time around, we specifically mentioned economic viability. x
x x.
MR. VILLEGAS. Commissioner Ople will restate the reason for his
introducing that amendment.
MR. OPLE. I am obliged to repeat what I said earlier in moving for this
particular amendment jointly with Commissioner Foz. During the past three
decades, there had been a proliferation of government corporations, very few of
which have succeeded, and many of which are now earmarked by the Presidential
Reorganization Commission for liquidation because they failed the economic test. x
x x.
xxxx
MS. QUESADA. But would not the Commissioner say that the reason why
many of the government-owned or controlled corporations failed to come up with
the economic test is due to the management of these corporations, and not the idea
itself of government corporations? It is a problem of efficiency and effectiveness of
management of these corporations which could be remedied, not by eliminating
government corporations or the idea of getting into state-owned corporations, but
improving management which our technocrats should be able to do, given the
training and the experience.
MR. OPLE. That is part of the economic viability, Madam President.
MS. QUESADA. So, is the Commissioner saying then that the Filipinos will
benefit more if these government-controlled corporations were given to private
hands, and that there will be more goods and services that will be affordable and
within the reach of the ordinary citizens?
MR. OPLE. Yes. There is nothing here, Madam President, that will
prevent the formation of a government corporation in accordance with a special
charter given by Congress. However, we are raising the standard a little bit so that,
in the future, corporations established by the government will meet the test of
the common good but within that framework we should also build a certain
standard of economic viability.
xxxx
THE PRESIDENT. Commissioner Padilla is recognized.
MR. PADILLA. This is an inquiry to the committee. With regard to
corporations created by a special charter for government-owned or controlled
corporations, will these be in the pioneer fields or in places where the private
 enterprise does not or cannot enter? Or is this so general that these government
corporations can compete with private corporations organized under a general law?
MR. MONSOD. Madam President, x x x. There are two types of
government corporations those that are involved in performing governmental
functions, like garbage disposal, Manila waterworks, and so on; and those
government corporations that are involved in business functions. As we said
earlier, there are two criteria that should be followed for corporations that want
to go into business. First is for government corporations to first prove that they can
be efficient in the areas of their proper functions. This is one of the problems now
because they go into all kinds of activities but are not even efficient in their proper
functions. Secondly, they should not go into activities that the private sector can do
better.
MR. PADILLA. There is no question about corporations performing
governmental functions or functions that are impressed with public interest. But
the question is with regard to matters that are covered, perhaps not exhaustively,
by private enterprise. It seems that under this provision the only qualification is
economic viability and common good, but shall government, through government-
controlled corporations, compete with private enterprise?
MR. MONSOD. No, Madam President. As we said, the government
should not engage in activities that private enterprise is engaged in and can do
better. x x x.[56](Emphases supplied.)
Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental
functions, to which category the BSP belongs. The discussion above conveys the constitutional intent not
to apply this constitutional ban on the creation of public corporations where the economic viability test
would be irrelevant. The said test would only apply if the corporation is engaged in some economic activity
or business function for the government.
It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the
consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP
Charter, one of the bills sponsors, Senator Joey Lina, described the BSP as follows:
Senator Lina. Yes, I can only think of two organizations involving the
masses of our youth, Mr. President, that should be given this kind of a privilege the
Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these
two groups, I do not think there are other groups similarly situated.
The Boy Scouts of the Philippines has a long history of providing value
formation to our young, and considering how huge the population of the young
people is, at this point in time, and also considering the importance of having an
organization such as this that will inculcate moral uprightness among the young
people, and further considering that the development of these young people at
that tender age of seven to sixteen is vital in the development of the country
producing good citizens, I believe that we can make an exception of the Boy
Scouting movement of the Philippines from this general prohibition against
providing tax exemption and privileges.[57]
Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced
by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress to return the
BSP to the private sector. It was not the intent of Congress in enacting Republic Act No. 7278 to give up all
interests in this basic youth organization, which has been its partner in forming responsible citizens for
decades.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No.
7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former
glory reached under its original charter, Commonwealth Act No. 111, and to correct the perceived ills
introduced by the amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different departments in government
who were too busy to attend the meetings of the BSPs National Executive Board (the Board) sent
representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils
established in the provinces and cities were not in touch with what was happening on the national level,
but they were left to implement what was decided by the Board.[58]
A portion of the legislators discussion is quoted below to clearly show their intent:
HON. DEL MAR. x x x I need not mention to you the value and the
tremendous good that the Boy Scout Movement has done not only for the youth
in particular but for the country in general. And that is why, if we look around,
our past and present national leaders, prominent men in the various fields of
endeavor, public servants in government offices, and civic leaders in the
communities all over the land, and not only in our country but all over the world
many if not most of them have at one time or another been beneficiaries of the
Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like
to have the early approval of this measure if only to pay back what we owe much to
the Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I
may just the Scouting Movement was enacted into law in October 31, 1936 under
Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest
scouting organization in the world x x x. And to our mind, Mr. Chairman, this erratic
growth and this decrease in membership [number] is because of the bad policy
measures that were enunciated with the enactment or promulgation by the President
before of Presidential Decree No. 460 which we feel is the culprit of the ills that is
flagging the Boy Scout Movement today. And so, this is specifically what we are
attacking, Mr. Chairman, the disenfranchisement of the National Council in the
election of the national board. x x x. And so, this is what we would like to be appraised
of by the officers of the Boy [Scouts] of the Philippines whom we are also confident,
have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr.
Chairman, that we see no impediment towards working together, the Boy Scout of
the Philippines officers working together with the House of Representatives in
coming out with a measure that will put back the vigor and enthusiasm of the Boy
Scout Movement. x x x.[59] (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill, in the
Committee on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the previous
laws that have created the Boy Scouts of the Philippines did not provide for any
direct government support by way of appropriation from the national budget to
support the activities of this organization. The point here is, and at the same time
they have been subjected to a governmental intervention, which to their mind has
been inimical to the objectives and to the institution per se, that is why they are
seeking legislative fiat to restore back the original mandate that they had under
Commonwealth Act 111. Such having been the experience in the hands of
government, meaning, there has been negative interference on their part and
inasmuch as their mandate is coming from a legislative fiat, then shouldnt it be,
this rhetorical question, shouldnt it be better for this organization to seek a
 mandate from, lets say, the government the Corporation Code of the Philippines
and register with the SEC as non-profit non-stock corporation so that government
intervention could be very very minimal. Maybe thats a rhetorical question, they
may or they may not answer, ano. I dont know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a registration
with the SEC under the Corporation Code of the Philippines inasmuch as they dont
get anything from the government anyway insofar as direct funding. In fact, the only
thing that they got from government was intervention in their affairs. Maybe we can
solicit some commentary comments from the resource persons. Incidentally, dont
take that as an objection, Im not objecting. Im all for the objectives of these two
bills. It just occurred to me that since you have had very bad experience in the hands
of government and you will always be open to such possible intervention even in
the future as long as you have a legislative mandate or your mandate or your charter
coming from legislative action.
xxxx
MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy
Scouts of the Philippines will be required to register with the SEC. If we are
registered with the SEC, there could be a danger of proliferation of scout
organization. Anybody can organize and then register with the SEC. If there will be
a proliferation of this, then the organization will lose control of the entire
organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in
the SEC against the Boy Scouts of the Philippines and the SEC may suspend the
operation or freeze the assets of the organization and hamper the operation of the
organization. I dont know, Mr. Chairman, how you look at it but there could be a
danger for anybody filing a complaint against the organization in the SEC and the
SEC might suspend the registration permit of the organization and we will not be
able to operate.
HON. AQUINO: Well, that I think would be a problem that will not be
exclusive to corporations registered with the SEC because even if you are
government corporation, court action may be taken against you in other judicial
bodies because the SEC is simply another quasi-judicial body. But, I think, the first
point would be very interesting, the first point that you raised. In effect, what you
are saying is that with the legislative mandate creating your charter, in effect, you
have been given some sort of a franchise with this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, thats very well taken so I will proceed with other issues,
Mr. Chairman. x x x.[60] (Emphases added.)
Therefore, even though the amended BSP charter did away with most of the governmental
presence in the BSP Board, this was done to more strongly promote the BSPs objectives, which were not
supported under Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with
the public purpose of the promotion of the well-being of the youth, the future leaders of the country. The
amendments were not done with the view of changing the character of the BSP into a privatized
corporation. The BSP remains an agency attached to a department of the government, the DECS, and it was
not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the
relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised
Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached
government agency as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and
program coordination between the BSP and the DECS.
Requisites for Declaration of
Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain
provisions of the BSP Charter. Even if the parties were asked to Comment on the validity of the BSP
charter by the Court, this alone does not comply with the requisites for judicial review, which were clearly
set forth in a recent case:
When questions of constitutional significance are raised, the Court can
exercise its power of judicial review only if the following requisites are present: (1)
the existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the constitutional question;
(3) recourse to judicial review is made at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case.[61] (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the
very lis mota, or threshold issue, of the case, and that it should be raised by either of the parties. These
requirements would be ignored under the dissents rather overreaching view of how this case should have
been decided. True, it was the Court that asked the parties to comment, but the Court cannot be the one to
raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in the exercise of its
power to pass upon the validity of a law.
Re: the COAs Jurisdiction
Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows the BSP
to receive contributions or donations from the government.Section 8 reads:
Section 8. Any donation or contribution which from time to time may
be made to the Boy Scouts of the Philippines by the Government or any of its
subdivisions, branches, offices, agencies or instrumentalities shall be expended by
the Executive Board in pursuance of this Act.
The sources of funds to maintain the BSP were identified before the House Committee on
Government Enterprises while the bill was being deliberated, and the pertinent portion of the discussion
is quoted below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds
of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not
receive annual allotment from the government. The organization has to raise its own
funds through fund drives and fund campaigns or fund raising activities. Aside from
this, we have some revenue producing projects in the organization that gives us
funds to support the operation. x x x From time to time, Mr. Chairman, when we
have special activities we request for assistance or financial assistance from
government agencies, from private business and corporations, but this is only during
special activities that the Boy Scouts of the Philippines would conduct during the
year. Otherwise, we have to raise our own funds to support the organization.[62]
The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought up in
said congressional deliberations, to wit:
 HON. AQUINO: x x x Insofar as this organization being a government created
organization, in fact, a government corporation classified as such, are your funds or
your finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall
under the jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.
MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written
by then Secretary Jorge Vargas and before and up to the middle of the Martial Law
years, the BSP was receiving a subsidy in the form of an annual a one draw from the
Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but
then this was and the Boy Scouts then because of this funding partly from
government was being subjected to audit in the contributions being made in the
part of the Sweepstakes. But this was removed later during the Martial Law years
with the creation of the Human Settlements Commission. So the situation right now
is that the Boy Scouts does not receive any funding from government, but then in
the case of the local councils and this legislative charter, so to speak, enables the
local councils even the national headquarters in view of the provisions in the existing
law to receive donations from the government or any of its instrumentalities, which
would be difficult if the Boy Scouts is registered as a private corporation with the
Securities and Exchange Commission. Government bodies would be estopped from
making donations to the Boy Scouts, which at present is not the case because there
is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.
xxxx
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because theres no money
put in the organization, but how about donated funds to this organization? What
are the remedies of the donors of how will they know how their money are being
spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and
by the charter we are required to submit a financial report at the end of each year
to the National Executive Board. So all the funds donated or otherwise is accounted
for at the end of the year by our external auditor. In this case the SGV.[63]
Historically, therefore, the BSP had been subjected to government audit in so far as public funds
had been infused thereto. However, this practice should not preclude the exercise of the audit jurisdiction
of COA, clearly set forth under the Constitution, which pertinently provides:
Section 2. (1) The Commission on Audit shall have the power, authority,
and duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in trust
by, or pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies, commissions
and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or
controlled corporations with original charters and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity, directly or indirectly, from or
through the Government, which are required by law of the granting institution to
submit to such audit as a condition of subsidy or equity. x x x. [64]
Since the BSP, under its amended charter, continues to be a public corporation or a government
instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA of its
audit jurisdiction in the manner consistent with the provisions of the BSP Charter.
WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.
SO ORDERED.
ERNESTO S. MERCADO, petitioner, vs. EDUARDO BARRIOS MANZANO and the
COMMISSION ON ELECTIONS, respondents.
DECISION
MENDOZA, J.:
Petitioner Ernesto S. Mercado and private respondent Eduardo B. Manzano were candidates for vice
mayor of the City of Makati in the May 11, 1998 elections. The other one was Gabriel V. Daza III. The
results of the election were as follows:
Eduardo B. Manzano 103,853
Ernesto S. Mercado 100,894
Gabriel V. Daza III 54,275[1]
The proclamation of private respondent was suspended in view of a pending petition for
disqualification filed by a certain Ernesto Mamaril who alleged that private respondent was not a citizen of
the Philippines but of the United States.
In its resolution, dated May 7, 1998,[2] the Second Division of the COMELEC granted the petition of
Mamaril and ordered the cancellation of the certificate of candidacy of private respondent on the ground
that he is a dual citizen and, under 40(d) of the Local Government Code, persons with dual citizenship are
disqualified from running for any elective position. The COMELECs Second Division said:
What is presented before the Commission is a petition for disqualification of Eduardo Barrios Manzano as
candidate for the office of Vice-Mayor of Makati City in the May 11, 1998 elections. The petition is based
on the ground that the respondent is an American citizen based on the record of the Bureau of Immigration
and misrepresented himself as a natural-born Filipino citizen.
In his answer to the petition filed on April 27, 1998, the respondent admitted that he is registered as a
foreigner with the Bureau of Immigration under Alien Certificate of Registration No. B-31632 and alleged
that he is a Filipino citizen because he was born in 1955 of a Filipino father and a Filipino mother. He was
born in the United States, San Francisco, California, on September 14, 1955, and is considered an American
citizen under US Laws. But notwithstanding his registration as an American citizen, he did not lose his
Filipino citizenship.
Judging from the foregoing facts, it would appear that respondent Manzano is both a Filipino and a US
citizen. In other words, he holds dual citizenship.
The question presented is whether under our laws, he is disqualified from the position for which he filed his
certificate of candidacy. Is he eligible for the office he seeks to be elected?
Under Section 40(d) of the Local Government Code, those holding dual citizenship are disqualified from
running for any elective local position.
WHEREFORE, the Commission hereby declares the respondent Eduardo Barrios Manzano
DISQUALIFIED as candidate for Vice-Mayor of Makati City.
On May 8, 1998, private respondent filed a motion for reconsideration. [3] The motion remained
pending even until after the election held on May 11, 1998.
Accordingly, pursuant to Omnibus Resolution No. 3044, dated May 10, 1998, of the COMELEC, the
board of canvassers tabulated the votes cast for vice mayor of Makati City but suspended the proclamation
of the winner.
On May 19, 1998, petitioner sought to intervene in the case for disqualification. [4] Petitioners motion
was opposed by private respondent.
The motion was not resolved. Instead, on August 31, 1998, the COMELEC en banc rendered its
resolution. Voting 4 to 1, with one commissioner abstaining, the COMELEC en banc reversed the ruling of
its Second Division and declared private respondent qualified to run for vice mayor of the City of Makati in
the May 11, 1998 elections.[5] The pertinent portions of the resolution of the COMELEC en banc read:
As aforesaid, respondent Eduardo Barrios Manzano was born in San Francisco, California, U.S.A. He
acquired US citizenship by operation of the United States Constitution and laws under the principle of jus
soli.
He was also a natural born Filipino citizen by operation of the 1935 Philippine Constitution, as his father
and mother were Filipinos at the time of his birth. At the age of six (6), his parents brought him to the
Philippines using an American passport as travel document. His parents also registered him as an alien with
the Philippine Bureau of Immigration. He was issued an alien certificate of registration. This, however, did
not result in the loss of his Philippine citizenship, as he did not renounce Philippine citizenship and did not
take an oath of allegiance to the United States.
It is an undisputed fact that when respondent attained the age of majority, he registered himself as a voter,
and voted in the elections of 1992, 1995 and 1998, which effectively renounced his US citizenship under
American law. Under Philippine law, he no longer had U.S. citizenship.
At the time of the May 11, 1998 elections, the resolution of the Second Division, adopted on May 7, 1998,
was not yet final. Respondent Manzano obtained the highest number of votes among the candidates for vice-
mayor of Makati City, garnering one hundred three thousand eight hundred fifty three (103,853) votes over
his closest rival, Ernesto S. Mercado, who obtained one hundred thousand eight hundred ninety four
(100,894) votes, or a margin of two thousand nine hundred fifty nine (2,959) votes. Gabriel Daza III
obtained third place with fifty four thousand two hundred seventy five (54,275) votes. In applying election
laws, it would be far better to err in favor of the popular choice than be embroiled in complex legal issues
involving private international law which may well be settled before the highest court (Cf.Frivaldo vs.
Commission on Elections, 257 SCRA 727).
WHEREFORE, the Commission en banc hereby REVERSES the resolution of the Second Division, adopted
on May 7, 1998, ordering the cancellation of the respondents certificate of candidacy.
We declare respondent Eduardo Luis Barrios Manzano to be QUALIFIED as a candidate for the position of
vice-mayor of Makati City in the May 11, 1998, elections.
ACCORDINGLY, the Commission directs the Makati City Board of Canvassers, upon proper notice to the
parties, to reconvene and proclaim the respondent Eduardo Luis Barrios Manzano as the winning candidate
for vice-mayor of Makati City.
Pursuant to the resolution of the COMELEC en banc, the board of canvassers, on the evening of
August 31, 1998, proclaimed private respondent as vice mayor of the City of Makati.
This is a petition for certiorari seeking to set aside the aforesaid resolution of the COMELEC en banc
and to declare private respondent disqualified to hold the office of vice mayor of Makati City. Petitioner
contends that
[T]he COMELEC en banc ERRED in holding that:
A. Under Philippine law, Manzano was no longer a U.S. citizen when he:
1. He renounced his U.S. citizenship when he attained the age of majority when he was already 37 years
old; and,
2. He renounced his U.S. citizenship when he (merely) registered himself as a voter and voted in the
elections of 1992, 1995 and 1998.
B. Manzano is qualified to run for and or hold the elective office of Vice-Mayor of the City of Makati;
C. At the time of the May 11, 1998 elections, the resolution of the Second Division adopted on 7 May 1998
was not yet final so that, effectively, petitioner may not be declared the winner even assuming that Manzano
is disqualified to run for and hold the elective office of Vice-Mayor of the City of Makati.
We first consider the threshold procedural issue raised by private respondent Manzano whether
petitioner Mercado has personality to bring this suit considering that he was not an original party in the case
for disqualification filed by Ernesto Mamaril nor was petitioners motion for leave to intervene granted.
I. PETITIONER'S RIGHT TO BRING THIS SUIT
Private respondent cites the following provisions of Rule 8 of the Rules of Procedure of the
COMELEC in support of his claim that petitioner has no right to intervene and, therefore, cannot bring this
suit to set aside the ruling denying his motion for intervention:
Section 1. When proper and when may be permitted to intervene. Any person allowed to initiate an action
or proceeding may, before or during the trial of an action or proceeding, be permitted by the Commission,
in its discretion to intervene in such action or proceeding, if he has legal interest in the matter in litigation,
or in the success of either of the parties, or an interest against both, or when he is so situated as to be
adversely affected by such action or proceeding.
....
Section 3. Discretion of Commission. In allowing or disallowing a motion for intervention, the Commission
or the Division, in the exercise of its discretion, shall consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the original parties and whether or not the intervenors
rights may be fully protected in a separate action or proceeding.
Private respondent argues that petitioner has neither legal interest in the matter in litigation nor an interest
to protect because he is a defeated candidate for the vice-mayoralty post of Makati City [who] cannot be
proclaimed as the Vice-Mayor of Makati City even if the private respondent be ultimately disqualified by
final and executory judgment.
The flaw in this argument is it assumes that, at the time petitioner sought to intervene in the
proceedings before the COMELEC, there had already been a proclamation of the results of the election for
the vice mayoralty contest for Makati City, on the basis of which petitioner came out only second to private
respondent. The fact, however, is that there had been no proclamation at that time. Certainly, petitioner had,
and still has, an interest in ousting private respondent from the race at the time he sought to intervene. The
rule in Labo v. COMELEC,[6] reiterated in several cases,[7]only applies to cases in which the election of the
respondent is contested, and the question is whether one who placed second to the disqualified candidate
may be declared the winner. In the present case, at the time petitioner filed a Motion for Leave to File
Intervention on May 20, 1998, there had been no proclamation of the winner, and petitioners purpose was
precisely to have private respondent disqualified from running for [an] elective local position under 40(d)
of R.A. No. 7160. If Ernesto Mamaril (who originally instituted the disqualification proceedings), a
registered voter of Makati City, was competent to bring the action, so was petitioner since the latter was a
rival candidate for vice mayor of Makati City.
Nor is petitioners interest in the matter in litigation any less because he filed a motion for intervention
only on May 20, 1998, after private respondent had been shown to have garnered the highest number of
votes among the candidates for vice mayor. That petitioner had a right to intervene at that stage of the
proceedings for the disqualification against private respondent is clear from 6 of R.A. No. 6646, otherwise
known as the Electoral Reforms Law of 1987, which provides:
Any candidate who has been declared by final judgment to be disqualified shall not be voted for, and the
votes cast for him shall not be counted. If for any reason a candidate is not declared by final judgment before
an election to be disqualified and he is voted for and receives the winning number of votes in such election,
the Court or Commission shall continue with the trial and hearing of the action, inquiry, or protest and, upon
motion of the complainant or any intervenor, may during the pendency thereof order the suspension of the
proclamation of such candidate whenever the evidence of guilt is strong.
Under this provision, intervention may be allowed in proceedings for disqualification even after
election if there has yet been no final judgment rendered.
The failure of the COMELEC en banc to resolve petitioners motion for intervention was tantamount
to a denial of the motion, justifying petitioner in filing the instant petition for certiorari. As the COMELEC
en banc instead decided the merits of the case, the present petition properly deals not only with the denial
of petitioners motion for intervention but also with the substantive issues respecting private respondents
alleged disqualification on the ground of dual citizenship.
This brings us to the next question, namely, whether private respondent Manzano possesses dual
citizenship and, if so, whether he is disqualified from being a candidate for vice mayor of Makati City.
II. DUAL CITIZENSHIP AS A GROUND FOR DISQUALIFICATION
The disqualification of private respondent Manzano is being sought under 40 of the Local
Government Code of 1991 (R.A. No. 7160), which declares as disqualified from running for any elective
local position: . . . (d) Those with dual citizenship. This provision is incorporated in the Charter of the City
of Makati.[8]
Invoking the maxim dura lex sed lex, petitioner, as well as the Solicitor General, who sides with him
in this case, contends that through 40(d) of the Local Government Code, Congress has command[ed] in
explicit terms the ineligibility of persons possessing dual allegiance to hold local elective office.
To begin with, dual citizenship is different from dual allegiance. The former arises when, as a result
of the concurrent application of the different laws of two or more states, a person is simultaneously
considered a national by the said states.[9] For instance, such a situation may arise when a person whose
parents are citizens of a state which adheres to the principle of jus sanguinisis born in a state which follows
the doctrine of jus soli. Such a person, ipso facto and without any voluntary act on his part, is concurrently
considered a citizen of both states. Considering the citizenship clause (Art. IV) of our Constitution, it is
possible for the following classes of citizens of the Philippines to possess dual citizenship:
(1) Those born of Filipino fathers and/or mothers in foreign countries which follow the principle of
jus soli;
(2) Those born in the Philippines of Filipino mothers and alien fathers if by the laws of their fathers
country such children are citizens of that country;
(3) Those who marry aliens if by the laws of the latters country the former are considered citizens,
unless by their act or omission they are deemed to have renounced Philippine citizenship.
There may be other situations in which a citizen of the Philippines may, without performing any act,
be also a citizen of another state; but the above cases are clearly possible given the constitutional provisions
on citizenship.
Dual allegiance, on the other hand, refers to the situation in which a person simultaneously owes, by
some positive act, loyalty to two or more states. While dual citizenship is involuntary, dual allegiance is the
result of an individuals volition.
With respect to dual allegiance, Article IV, 5 of the Constitution provides: Dual allegiance of citizens
is inimical to the national interest and shall be dealt with by law. This provision was included in the 1987
Constitution at the instance of Commissioner Blas F. Ople who explained its necessity as follows:[10]
. . . I want to draw attention to the fact that dual allegiance is not dual citizenship. I have circulated a
memorandum to the Bernas Committee according to which a dual allegiance and I reiterate a dual
allegiance is larger and more threatening than that of mere double citizenship which is seldom intentional
and, perhaps, never insidious. That is often a function of the accident of mixed marriages or of birth on
foreign soil. And so, I do not question double citizenship at all.
What we would like the Committee to consider is to take constitutional cognizance of the problem of dual
allegiance. For example, we all know what happens in the triennial elections of the Federation of Filipino-
Chinese Chambers of Commerce which consists of about 600 chapters all over the country. There is a Peking
ticket, as well as a Taipei ticket. Not widely known is the fact that the Filipino-Chinese community is
represented in the Legislative Yuan of the Republic of China in Taiwan. And until recently, the sponsor
might recall, in Mainland China in the Peoples Republic of China, they have the Associated Legislative
Council for overseas Chinese wherein all of Southeast Asia including some European and Latin countries
were represented, which was dissolved after several years because of diplomatic friction. At that time, the
Filipino-Chinese were also represented in that Overseas Council.
When I speak of double allegiance, therefore, I speak of this unsettled kind of allegiance of Filipinos, of
citizens who are already Filipinos but who, by their acts, may be said to be bound by a second allegiance,
either to Peking or Taiwan. I also took close note of the concern expressed by some Commissioners
yesterday, including Commissioner Villacorta, who were concerned about the lack of guarantees of
thorough assimilation, and especially Commissioner Concepcion who has always been worried about
minority claims on our natural resources.
Dual allegiance can actually siphon scarce national capital to Taiwan, Singapore, China or Malaysia, and
this is already happening. Some of the great commercial places in downtown Taipei are Filipino-owned,
owned by Filipino-Chinese it is of common knowledge in Manila. It can mean a tragic capital outflow when
we have to endure a capital famine which also means economic stagnation, worsening unemployment and
social unrest.
And so, this is exactly what we ask that the Committee kindly consider incorporating a new section,
probably Section 5, in the article on Citizenship which will read as follows: DUAL ALLEGIANCE IS
INIMICAL TO CITIZENSHIP AND SHALL BE DEALT WITH ACCORDING TO LAW.
In another session of the Commission, Ople spoke on the problem of these citizens with dual
allegiance, thus:[11]
. . . A significant number of Commissioners expressed their concern about dual citizenship in the sense that
it implies a double allegiance under a double sovereignty which some of us who spoke then in a freewheeling
debate thought would be repugnant to the sovereignty which pervades the Constitution and to citizenship
itself which implies a uniqueness and which elsewhere in the Constitution is defined in terms of rights and
obligations exclusive to that citizenship including, of course, the obligation to rise to the defense of the State
when it is threatened, and back of this, Commissioner Bernas, is, of course, the concern for national
security. In the course of those debates, I think some noted the fact that as a result of the wave of
naturalizations since the decision to establish diplomatic relations with the Peoples Republic of China was
made in 1975, a good number of these naturalized Filipinos still routinely go to Taipei every October 10;
and it is asserted that some of them do renew their oath of allegiance to a foreign government maybe just to
enter into the spirit of the occasion when the anniversary of the Sun Yat-Sen Republic is
commemorated. And so, I have detected a genuine and deep concern about double citizenship, with its
attendant risk of double allegiance which is repugnant to our sovereignty and national security. I appreciate
what the Committee said that this could be left to the determination of a future legislature. But considering
the scale of the problem, the real impact on the security of this country, arising from, let us say, potentially
great numbers of double citizens professing double allegiance, will the Committee entertain a proposed
amendment at the proper time that will prohibit, in effect, or regulate double citizenship?
Clearly, in including 5 in Article IV on citizenship, the concern of the Constitutional Commission
was not with dual citizens per se but with naturalized citizens who maintain their allegiance to their
countries of origin even after their naturalization. Hence, the phrase dual citizenship in R.A. No. 7160, 40(d)
and in R.A. No. 7854, 20 must be understood as referring to dual allegiance.Consequently, persons with
mere dual citizenship do not fall under this disqualification. Unlike those with dual allegiance, who must,
therefore, be subject to strict process with respect to the termination of their status, for candidates with dual
citizenship, it should suffice if, upon the filing of their certificates of candidacy, they elect Philippine
citizenship to terminate their status as persons with dual citizenship considering that their condition is the
unavoidable consequence of conflicting laws of different states. As Joaquin G. Bernas, one of the most
perceptive members of the Constitutional Commission, pointed out: [D]ual citizenship is just a reality
imposed on us because we have no control of the laws on citizenship of other countries. We recognize a
child of a Filipino mother. But whether or not she is considered a citizen of another country is something
completely beyond our control.[12]
By electing Philippine citizenship, such candidates at the same time forswear allegiance to the other
country of which they are also citizens and thereby terminate their status as dual citizens. It may be that,
from the point of view of the foreign state and of its laws, such an individual has not effectively renounced
his foreign citizenship. That is of no moment as the following discussion on 40(d) between Senators Enrile
and Pimentel clearly shows:[13]
SENATOR ENRILE. Mr. President, I would like to ask clarification of line 41, page 17: Any person
with dual citizenship is disqualified to run for any elective local position. Under the present
Constitution, Mr. President, someone whose mother is a citizen of the Philippines but his father
is a foreigner is a natural-born citizen of the Republic. There is no requirement that such a natural
born citizen, upon reaching the age of majority, must elect or give up Philippine citizenship.
On the assumption that this person would carry two passports, one belonging to the country of his or
her father and one belonging to the Republic of the Philippines, may such a situation disqualify
the person to run for a local government position?
SENATOR PIMENTEL. To my mind, Mr. President, it only means that at the moment when he would
want to run for public office, he has to repudiate one of his citizenships.
SENATOR ENRILE. Suppose he carries only a Philippine passport but the country of origin or the
country of the father claims that person, nevertheless, as a citizen? No one can renounce. There
are such countries in the world.
SENATOR PIMENTEL. Well, the very fact that he is running for public office would, in effect, be an
election for him of his desire to be considered as a Filipino citizen.
SENATOR ENRILE. But, precisely, Mr. President, the Constitution does not require an election. Under
the Constitution, a person whose mother is a citizen of the Philippines is, at birth, a citizen
without any overt act to claim the citizenship.
SENATOR PIMENTEL. Yes. What we are saying, Mr. President, is: Under the Gentlemans example,
if he does not renounce his other citizenship, then he is opening himself to question. So, if he is
really interested to run, the first thing he should do is to say in the Certificate of Candidacy that:
I am a Filipino citizen, and I have only one citizenship.
SENATOR ENRILE. But we are talking from the viewpoint of Philippine law, Mr. President. He will
always have one citizenship, and that is the citizenship invested upon him or her in the
Constitution of the Republic.
SENATOR PIMENTEL. That is true, Mr. President. But if he exercises acts that will prove that he also
acknowledges other citizenships, then he will probably fall under this disqualification.
This is similar to the requirement that an applicant for naturalization must renounce all allegiance
and fidelity to any foreign prince, potentate, state, or sovereignty[14] of which at the time he is a subject or
citizen before he can be issued a certificate of naturalization as a citizen of the Philippines. In Parado v.
Republic,[15] it was held:
[W]hen a person applying for citizenship by naturalization takes an oath that he renounces his loyalty to any
other country or government and solemnly declares that he owes his allegiance to the Republic of the
Philippines, the condition imposed by law is satisfied and complied with. The determination whether such
renunciation is valid or fully complies with the provisions of our Naturalization Law lies within the province
and is an exclusive prerogative of our courts. The latter should apply the law duly enacted by the legislative
department of the Republic. No foreign law may or should interfere with its operation and application. If
the requirement of the Chinese Law of Nationality were to be read into our Naturalization Law, we would
be applying not what our legislative department has deemed it wise to require, but what a foreign
government has thought or intended to exact. That, of course, is absurd. It must be resisted by all means and
at all cost. It would be a brazen encroachment upon the sovereign will and power of the people of this
Republic.
III. PETITIONER'S ELECTION OF PHILIPPINE CITIZENSHIP
The record shows that private respondent was born in San Francisco, California on September 4,
1955, of Filipino parents. Since the Philippines adheres to the principle of jus sanguinis, while the United
States follows the doctrine of jus soli, the parties agree that, at birth at least, he was a national both of the
Philippines and of the United States. However, the COMELEC en banc held that, by participating in
Philippine elections in 1992, 1995, and 1998, private respondent effectively renounced his U.S. citizenship
under American law, so that now he is solely a Philippine national.
 Petitioner challenges this ruling. He argues that merely taking part in Philippine elections is not
sufficient evidence of renunciation and that, in any event, as the alleged renunciation was made when private
respondent was already 37 years old, it was ineffective as it should have been made when he reached the
age of majority.
In holding that by voting in Philippine elections private respondent renounced his American
citizenship, the COMELEC must have in mind 349 of the Immigration and Nationality Act of the United
States, which provided that A person who is a national of the United States, whether by birth or
naturalization, shall lose his nationality by: . . . (e) Voting in a political election in a foreign state or
participating in an election or plebiscite to determine the sovereignty over foreign territory. To be sure this
provision was declared unconstitutional by the U.S. Supreme Court in Afroyim v. Rusk[16] as beyond the
power given to the U.S. Congress to regulate foreign relations. However, by filing a certificate of candidacy
when he ran for his present post, private respondent elected Philippine citizenship and in effect renounced
his American citizenship. Private respondents certificate of candidacy, filed on March 27, 1998, contained
the following statements made under oath:
6. I AM A FILIPINO CITIZEN (STATE IF NATURAL-BORN OR
NATURALIZED) NATURAL-BORN
....
10. I AM A REGISTERED VOTER OF PRECINCT NO. 747-A, BARANGAY SAN
LORENZO, CITY/MUNICIPALITY OF MAKATI, PROVINCE OF NCR .
11. I AM NOT A PERMANENT RESIDENT OF, OR IMMIGRANT TO, A FOREIGN
COUNTRY.
12. I AM ELIGIBLE FOR THE OFFICE I SEEK TO BE ELECTED. I WILL SUPPORT
AND DEFEND THE CONSTITUTION OF THE PHILIPPINES AND WILL
MAINTAIN TRUE FAITH AND ALLEGIANCE THERETO; THAT I WILL OBEY
THE LAWS, LEGAL ORDERS AND DECREES PROMULGATED BY THE DULY
CONSTITUTED AUTHORITIES OF THE REPUBLIC OF THE PHILIPPINES; AND
THAT I IMPOSE THIS OBLIGATION UPON MYSELF VOLUNTARILY, WITHOUT
MENTAL RESERVATION OR PURPOSE OF EVASION. I HEREBY CERTIFY
THAT THE FACTS STATED HEREIN ARE TRUE AND CORRECT OF MY OWN
PERSONAL KNOWLEDGE.
The filing of such certificate of candidacy sufficed to renounce his American citizenship, effectively
removing any disqualification he might have as a dual citizen. Thus, in Frivaldo v. COMELEC it was
held:[17]
It is not disputed that on January 20, 1983 Frivaldo became an American. Would the retroactivity of his
repatriation not effectively give him dual citizenship, which under Sec. 40 of the Local Government Code
would disqualify him from running for any elective local position? We answer this question in the negative,
as there is cogent reason to hold that Frivaldo was really STATELESS at the time he took said oath of
allegiance and even before that, when he ran for governor in 1988. In his Comment, Frivaldo wrote that he
had long renounced and had long abandoned his American citizenshiplong before May 8, 1995. At best,
Frivaldo was stateless in the interimwhen he abandoned and renounced his US citizenship but before he
was repatriated to his Filipino citizenship.
On this point, we quote from the assailed Resolution dated December 19, 1995:
By the laws of the United States, petitioner Frivaldo lost his American citizenship when he took his oath of
allegiance to the Philippine Government when he ran for Governor in 1988, in 1992, and in 1995.Every
certificate of candidacy contains an oath of allegiance to the Philippine Government.
These factual findings that Frivaldo has lost his foreign nationality long before the elections of 1995 have
not been effectively rebutted by Lee. Furthermore, it is basic that such findings of the Commission are
conclusive upon this Court, absent any showing of capriciousness or arbitrariness or abuse.
There is, therefore, no merit in petitioners contention that the oath of allegiance contained in private
respondents certificate of candidacy is insufficient to constitute renunciation of his American
citizenship. Equally without merit is petitioners contention that, to be effective, such renunciation should
have been made upon private respondent reaching the age of majority since no law requires the election of
Philippine citizenship to be made upon majority age.
Finally, much is made of the fact that private respondent admitted that he is registered as an American
citizen in the Bureau of Immigration and Deportation and that he holds an American passport which he used
in his last travel to the United States on April 22, 1997. There is no merit in this. Until the filing of his
certificate of candidacy on March 21, 1998, he had dual citizenship.The acts attributed to him can be
considered simply as the assertion of his American nationality before the termination of his American
citizenship. What this Court said in Aznar v. COMELEC[18]applies mutatis mutandis to private respondent
in the case at bar:
. . . Considering the fact that admittedly Osmea was both a Filipino and an American, the mere fact that he
has a Certificate stating he is an American does not mean that he is not still a Filipino. . . . [T]he Certification
that he is an American does not mean that he is not still a Filipino, possessed as he is, of both nationalities
or citizenships. Indeed, there is no express renunciation here of Philippine citizenship; truth to tell, there is
even no implied renunciation of said citizenship. When We consider that the renunciation needed to lose
Philippine citizenship must be express, it stands to reason that there can be no such loss of Philippine
citizenship when there is no renunciation, either express or implied.
To recapitulate, by declaring in his certificate of candidacy that he is a Filipino citizen; that he is not
a permanent resident or immigrant of another country; that he will defend and support the Constitution of
the Philippines and bear true faith and allegiance thereto and that he does so without mental reservation,
private respondent has, as far as the laws of this country are concerned, effectively repudiated his American
citizenship and anything which he may have said before as a dual citizen.
On the other hand, private respondents oath of allegiance to the Philippines, when considered with
the fact that he has spent his youth and adulthood, received his education, practiced his profession as an
artist, and taken part in past elections in this country, leaves no doubt of his election of Philippine citizenship.
His declarations will be taken upon the faith that he will fulfill his undertaking made under
oath. Should he betray that trust, there are enough sanctions for declaring the loss of his Philippine
citizenship through expatriation in appropriate proceedings. In Yu v. Defensor-Santiago,[19] we sustained the
denial of entry into the country of petitioner on the ground that, after taking his oath as a naturalized citizen,
he applied for the renewal of his Portuguese passport and declared in commercial documents executed
abroad that he was a Portuguese national. A similar sanction can be taken against any one who, in electing
Philippine citizenship, renounces his foreign nationality, but subsequently does some act constituting
renunciation of his Philippine citizenship.
WHEREFORE, the petition for certiorari is DISMISSED for lack of merit.
SO ORDERED.
THE REPUBLIC OF THE PHILIPPINES, G.R. No. 187567
Petitioner,
Present:
CORONA, C.J.,
- versus - Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
 DEL CASTILLO, and
VILLARAMA, JR., JJ.
NORA FE SAGUN,
Respondent. Promulgated:
February 15, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari filed by the Solicitor General on behalf of the Republic of the
Philippines, seeking the reversal of the April 3, 2009 Decision[1] of the Regional Trial Court (RTC), Branch
3, of Baguio City in Spcl. Pro. Case No. 17-R. The RTC granted the petition[2] filed by respondent Nora Fe
Sagun entitled In re: Judicial Declaration of Election of Filipino Citizenship, Nora Fe Sagun v. The Local
Civil Registrar of Baguio City.
The facts follow:
Respondent is the legitimate child of Albert S. Chan, a Chinese national, and Marta Borromeo, a Filipino
citizen. She was born on August 8, 1959 in Baguio City[3] and did not elect Philippine citizenship upon
reaching the age of majority. In 1992, at the age of 33 and after getting married to Alex Sagun, she executed
an Oath of Allegiance[4] to the Republic of the Philippines. Said document was notarized by Atty. Cristeta
Leung on December 17, 1992, but was not recorded and registered with the Local Civil Registrar of Baguio
City.
Sometime in September 2005, respondent applied for a Philippine passport. Her application was
denied due to the citizenship of her father and there being no annotation on her birth certificate that she has
elected Philippine citizenship. Consequently, she sought a judicial declaration of her election of Philippine
citizenship and prayed that the Local Civil Registrar of Baguio City be ordered to annotate the same on her
birth certificate.
In her petition, respondent averred that she was raised as a Filipino, speaks Ilocano and Tagalog
fluently and attended local schools in Baguio City, including Holy Family Academy and the Saint Louis
University. Respondent claimed that despite her part-Chinese ancestry, she always thought of herself as a
Filipino. She is a registered voter of Precinct No. 0419A of Barangay Manuel A. Roxas in Baguio City and
had voted in local and national elections as shown in the Voter Certification [5]issued by Atty. Maribelle
Uminga of the Commission on Elections of Baguio City.
She asserted that by virtue of her positive acts, she has effectively elected Philippine citizenship
and such fact should be annotated on her record of birth so as to entitle her to the issuance of a Philippine
passport.
On August 7, 2007, the Office of the Solicitor General (OSG) entered its appearance as counsel for the
Republic of the Philippines and authorized the City Prosecutor of Baguio City to appear in the above
mentioned case.[6] However, no comment was filed by the City Prosecutor.
After conducting a hearing, the trial court rendered the assailed Decision on April 3, 2009 granting the
petition and declaring respondent a Filipino citizen. The fallo of the decision reads:
WHEREFORE, the instant petition is hereby GRANTED. Petitioner Nora
Fe Sagun y Chan is hereby DECLARED [a] FILIPINO CITIZEN, having chosen or
elected Filipino citizenship.
Upon payment of the required fees, the Local Civil Registrar of Baguio
City is hereby directed to annotate [on] her birth certificate, this judicial declaration
of Filipino citizenship of said petitioner.
IT IS SO ORDERED.[7]
Contending that the lower court erred in so ruling, petitioner, through the OSG, directly filed the instant
recourse via a petition for review on certiorari before us.Petitioner raises the following issues:
I
Whether or not an action or proceeding for judicial declaration of Philippine
citizenship is procedurally and jurisdictionally permissible; and,
II
Whether or not an election of Philippine citizenship, made twelve (12) years after
reaching the age of majority, is considered to have been made within a reasonable
time as interpreted by jurisprudence.[8]
Petitioner argues that respondents petition before the RTC was improper on two counts: for one,
law and jurisprudence clearly contemplate no judicial action or proceeding for the declaration of Philippine
citizenship; and for another, the pleaded registration of the oath of allegiance with the local civil registry
and its annotation on respondents birth certificate are the ministerial duties of the registrar; hence, they
require no court order. Petitioner asserts that respondents petition before the trial court seeking a judicial
declaration of her election of Philippine citizenship undeniably entails a determination and consequent
declaration of her status as a Filipino citizen which is not allowed under our legal system. Petitioner also
argues that if respondents intention in filing the petition is ultimately to have her oath of allegiance registered
with the local civil registry and annotated on her birth certificate, then she does not have to resort to court
proceedings.
Petitioner further argues that even assuming that respondents action is sanctioned, the trial court
erred in finding respondent as having duly elected Philippine citizenship since her purported election was
not in accordance with the procedure prescribed by law and was not made within a reasonable
time. Petitioner points out that while respondent executed an oath of allegiance before a notary public, there
was no affidavit of her election of Philippine citizenship. Additionally, her oath of allegiance which was not
registered with the nearest local civil registry was executed when she was already 33 years old or 12 years
after she reached the age of majority. Accordingly, it was made beyond the period allowed by law.
In her Comment,[9] respondent avers that notwithstanding her failure to formally elect Filipino
citizenship upon reaching the age of majority, she has in fact effectively elected Filipino citizenship by her
performance of positive acts, among which is the exercise of the right of suffrage. She claims that she had
voted and participated in all local and national elections from the time she was of legal age. She also insists
that she is a Filipino citizen despite the fact that her election of Philippine citizenship was delayed and
unregistered.
In reply,[10] petitioner argues that the special circumstances invoked by respondent, like her
continuous and uninterrupted stay in the Philippines, her having been educated in schools in the country,
her choice of staying here despite the naturalization of her parents as American citizens, and her being a
registered voter, cannot confer on her Philippine citizenship as the law specifically provides the
requirements for acquisition of Philippine citizenship by election.
Essentially, the issues for our resolution are: (1) whether respondents petition for declaration of
election of Philippine citizenship is sanctioned by the Rules of Court and jurisprudence; (2) whether
respondent has effectively elected Philippine citizenship in accordance with the procedure prescribed by
law.
The petition is meritorious.
At the outset, it is necessary to stress that a direct recourse to this Court from the decisions, final
resolutions and orders of the RTC may be taken where only questions of law are raised or involved. There
is a question of law when the doubt or difference arises as to what the law is on a certain state of facts, which
does not call for an examination of the probative value of the evidence presented by the parties-litigants. On
the other hand, there is a question of fact when the doubt or controversy arises as to the truth or falsity of
the alleged facts. Simply put, when there is no dispute as to fact, the question of whether the conclusion
drawn therefrom is correct or not, is a question of law.[11]
In the present case, petitioner assails the propriety of the decision of the trial court declaring
respondent a Filipino citizen after finding that respondent was able to substantiate her election of Filipino
citizenship. Petitioner contends that respondents petition for judicial declaration of election of Philippine
citizenship is procedurally and jurisdictionally impermissible. Verily, petitioner has raised questions of law
as the resolution of these issues rest solely on what the law provides given the attendant circumstances.
In granting the petition, the trial court stated:
This Court believes that petitioner was able to fully substantiate her
petition regarding her election of Filipino citizenship, and the Local Civil Registrar
of Baguio City should be ordered to annotate in her birth certificate her election of
Filipino citizenship. This Court adds that the petitioners election of Filipino
citizenship should be welcomed by this country and people because the petitioner has
the choice to elect citizenship of powerful countries like the United States of America
and China, however, petitioner has chosen Filipino citizenship because she grew up
in this country, and has learned to love the Philippines. Her choice of electing Filipino
citizenship is, in fact, a testimony that many of our people still wish to live in the
Philippines, and are very proud of our country.
WHEREFORE, the instant petition is hereby GRANTED. Petitioner Nora
Fe Sagun y Chan is hereby DECLARED as FILIPINO CITIZEN, having chosen or
elected Filipino citizenship.[12]
For sure, this Court has consistently ruled that there is no proceeding established by law, or the Rules for
the judicial declaration of the citizenship of an individual.[13]There is no specific legislation authorizing the
institution of a judicial proceeding to declare that a given person is part of our citizenry. [14] This was our
ruling in Yung Uan Chu v. Republic[15] citing the early case of Tan v. Republic of the Philippines,[16] where
we clearly stated:
Under our laws, there can be no action or proceeding for the judicial declaration of
the citizenship of an individual. Courts of justice exist for settlement of justiciable
controversies, which imply a given right, legally demandable and enforceable, an act
or omission violative of said right, and a remedy, granted or sanctioned by law, for
said breach of right. As an incident only of the adjudication of the rights of the parties
to a controversy, the court may pass upon, and make a pronouncement relative to
their status. Otherwise, such a pronouncement is beyond judicial power. x x x
Clearly, it was erroneous for the trial court to make a specific declaration of respondents Filipino
citizenship as such pronouncement was not within the courts competence.
As to the propriety of respondents petition seeking a judicial declaration of election of Philippine
citizenship, it is imperative that we determine whether respondent is required under the law to make an
election and if so, whether she has complied with the procedural requirements in the election of Philippine
citizenship.
When respondent was born on August 8, 1959, the governing charter was the 1935 Constitution, which
declares as citizens of the Philippines those whose mothers are citizens of the Philippines and elect
Philippine citizenship upon reaching the age of majority. Sec. 1, Art. IV of the 1935 Constitution reads:
Section 1. The following are citizens of the Philippines:
xxxx
(4) Those whose mothers are citizens of the Philippines and, upon
reaching the age of majority, elect Philippine citizenship.
Under Article IV, Section 1(4) of the 1935 Constitution, the citizenship of a legitimate child born of a
Filipino mother and an alien father followed the citizenship of the father, unless, upon reaching the age of
majority, the child elected Philippine citizenship. The right to elect Philippine citizenship was recognized
in the 1973 Constitution when it provided that [t]hose who elect Philippine citizenship pursuant to the
provisions of the Constitution of nineteen hundred and thirty-five are citizens of the
Philippines.[17] Likewise, this recognition by the 1973 Constitution was carried over to the 1987
Constitution which states that [t]hose born before January 17, 1973 of Filipino mothers, who elect Philippine
citizenship upon reaching the age of majority are Philippine citizens. [18] It should be noted, however, that
the 1973 and 1987 Constitutional provisions on the election of Philippine citizenship should not be
understood as having a curative effect on any irregularity in the acquisition of citizenship for those covered
by the 1935 Constitution. If the citizenship of a person was subject to challenge under the old charter, it
remains subject to challenge under the new charter even if the judicial challenge had not been commenced
before the effectivity of the new Constitution.[19]
Being a legitimate child, respondents citizenship followed that of her father who is Chinese, unless upon
reaching the age of majority, she elects Philippine citizenship. It is a settled rule that only legitimate children
follow the citizenship of the father and that illegitimate children are under the parental authority of the
mother and follow her nationality.[20] An illegitimate child of Filipina need not perform any act to confer
upon him all the rights and privileges attached to citizens of the Philippines; he automatically becomes a
citizen himself.[21] But in the case of respondent, for her to be considered a Filipino citizen, she must have
validly elected Philippine citizenship upon reaching the age of majority.
 Commonwealth Act (C.A.) No. 625,[22] enacted pursuant to Section 1(4), Article IV of the 1935
Constitution, prescribes the procedure that should be followed in order to make a valid election of Philippine
citizenship, to wit:
Section 1. The option to elect Philippine citizenship in accordance with
subsection (4), [S]ection 1, Article IV, of the Constitution shall be expressed in a
statement to be signed and sworn to by the party concerned before any officer
authorized to administer oaths, and shall be filed with the nearest civil registry. The
said party shall accompany the aforesaid statement with the oath of allegiance to the
Constitution and the Government of the Philippines.
Based on the foregoing, the statutory formalities of electing Philippine citizenship are: (1) a
statement of election under oath; (2) an oath of allegiance to the Constitution and Government of the
Philippines; and (3) registration of the statement of election and of the oath with the nearest civil registry. [23]
Furthermore, no election of Philippine citizenship shall be accepted for registration under C.A. No. 625
unless the party exercising the right of election has complied with the requirements of the Alien Registration
Act of 1950. In other words, he should first be required to register as an alien. [24] Pertinently, the person
electing Philippine citizenship is required to file a petition with the Commission of Immigration and
Deportation (now Bureau of Immigration) for the cancellation of his alien certificate of registration based
on his aforesaid election of Philippine citizenship and said Office will initially decide, based on the evidence
presented the validity or invalidity of said election.[25] Afterwards, the same is elevated to the Ministry (now
Department) of Justice for final determination and review.[26]
It should be stressed that there is no specific statutory or procedural rule which authorizes the
direct filing of a petition for declaration of election of Philippine citizenship before the courts. The special
proceeding provided under Section 2, Rule 108 of the Rules of Court on Cancellation or Correction of
Entries in the Civil Registry, merely allows any interested party to file an action for cancellation or
correction of entry in the civil registry, i.e., election, loss and recovery of citizenship, which is not the relief
prayed for by the respondent.
Be that as it may, even if we set aside this procedural infirmity, still the trial courts conclusion
that respondent duly elected Philippine citizenship is erroneous since the records undisputably show that
respondent failed to comply with the legal requirements for a valid election. Specifically, respondent had
not executed a sworn statement of her election of Philippine citizenship. The only documentary evidence
submitted by respondent in support of her claim of alleged election was her oath of allegiance, executed 12
years after she reached the age of majority, which was unregistered. As aptly pointed out by the petitioner,
even assuming arguendo that respondents oath of allegiance suffices, its execution was not within a
reasonable time after respondent attained the age of majority and was not registered with the nearest civil
registry as required under Section 1 of C.A. No. 625. The phrase reasonable time has been interpreted to
mean that the election should be made generally within three (3) years from reaching the age of
majority.[27] Moreover, there was no satisfactory explanation proffered by respondent for the delay and the
failure to register with the nearest local civil registry.
Based on the foregoing circumstances, respondent clearly failed to comply with the procedural
requirements for a valid and effective election of Philippine citizenship. Respondent cannot assert that the
exercise of suffrage and the participation in election exercises constitutes a positive act of election of
Philippine citizenship since the law specifically lays down the requirements for acquisition of citizenship
by election. The mere exercise of suffrage, continuous and uninterrupted stay in the Philippines, and other
similar acts showing exercise of Philippine citizenship cannot take the place of election of Philippine
citizenship. Hence, respondent cannot now be allowed to seek the intervention of the court to confer upon
her Philippine citizenship when clearly she has failed to validly elect Philippine citizenship. As we held
in Ching,[28] the prescribed procedure in electing Philippine citizenship is certainly not a tedious and
painstaking process. All that is required of the elector is to execute an affidavit of election of Philippine
citizenship and, thereafter, file the same with the nearest civil registry. Having failed to comply with the
foregoing requirements, respondents petition before the trial court must be denied.
WHEREFORE, the petition is GRANTED. The Decision dated April 3, 2009 of the Regional
Trial Court, Branch 3 of Baguio City in Spcl. Pro. Case No. 17-R is REVERSED and SET ASIDE. The
petition for judicial declaration of election of Philippine citizenship filed by respondent Nora Fe Sagun is
hereby DISMISSEDfor lack of merit.
EDISON SO, Petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 80437 which reversed the Decision2 of the Regional Trial Court (RTC) of Manila,
Branch 8, in Naturalization Case No. 02-102984. Likewise assailed is the appellate courts
Resolution denying the Motion for Reconsideration of its Decision.
Antecedents
On February 28, 2002, petitioner Edison So filed before the RTC a Petition for
Naturalization3 under Commonwealth Act (C.A.) No. 473, otherwise known as the Revised
Naturalization Law, as amended. He alleged the following in his petition:
He was born on February 17, 1982, in Manila; he is a Chinese citizen who has lived in No. 528
Lavezares St., Binondo, Manila, since birth; as an employee, he derives an average annual
income of around P100,000.00 with free board and lodging and other benefits; he is single, able
to speak and write English, Chinese and Tagalog; he is exempt from the filing of Declaration of
Intention to become a citizen of the Philippines pursuant to Section 6 of Commonwealth Act (C.A.)
No. 473, as amended, because he was born in the Philippines, and studied in a school recognized
by the Government where Philippine history, government and culture are taught; he is a person of
good moral character; he believes in the principles underlying the Philippine constitution; he has
conducted himself in a proper and irreproachable manner during the entire period of his residence
in the Philippines in his relation with the constituted government as well as with the community in
which he is living; he has mingled socially with the Filipinos and has evinced a sincere desire to
learn and embrace the customs, traditions and ideals of the Filipino people; he has all the
qualifications provided under Section 2 and none of the disqualifications under Section 4 of C.A.
No. 473, as amended; he is not opposed to organized government or affiliated with any association
or group of persons who uphold and teach doctrines opposing all organized governments; he is
not defending or teaching the necessity or propriety of violence, personal assault or assassination
for the success or predominance of mens ideas; he is not a polygamist or a believer in the practice
of polygamy; he has not been convicted of any crime involving moral turpitude; he is not suffering
from any incurable contagious diseases or from mental alienation; the nation of which he is a
citizen is not at war with the Philippines; it is his intention in good faith to become a citizen of the
Philippines and to renounce absolutely and forever all allegiance and fidelity to any foreign prince,
potentate, state or sovereignty, and particularly to China; and he will reside continuously in the
Philippines from the time of the filing of the petition up to the time of his admission as citizen of the
Philippines. The petition was docketed as Naturalization Case No. 02-102984.
Attached to the petition were the Joint Affidavit4 of Atty. Artemio Adasa, Jr. and Mark B. Salcedo;
and petitioners Certificate of Live Birth,5 Alien Certificate of Registration,6 and Immigrant
Certificate of Residence.7
On March 22, 2002, the RTC issued an Order8 setting the petition for hearing at 8:30 a.m. of
December 12 and 17, 2002 during which all persons concerned were enjoined to show cause, if
any, why the petition should not be granted. The entire petition and its annexes, including the
order, were ordered published once a week for three consecutive weeks in the Official Gazette
and also in a newspaper of general circulation in the City of Manila. The RTC likewise ordered
that copies of the petition and notice be posted in public and conspicuous places in the Manila
City Hall Building.9
Petitioner thus caused the publication of the above order, as well as the entire petition and its
annexes, in the Official Gazette on May 20, 200210 and May 27, 2002,11 and in Today, a
newspaper of general circulation in the City of Manila, on May 25, 2002 and June 1, 2002.
No one opposed the petition. During the hearing, petitioner presented Atty. Adasa, Jr. who testified
that he came to know petitioner in 1991 as the legal consultant and adviser of the So familys
business. He would usually attend parties and other social functions hosted by petitioners family.
He knew petitioner to be obedient, hardworking, and possessed of good moral character, including
all the qualifications mandated by law. Atty. Adasa, Jr. further testified that petitioner was gainfully
employed and presently resides at No. 528 Lavezares Street, Binondo, Manila; petitioner had
been practicing Philippine tradition and those embodied in the Constitution; petitioner had been
socially active, mingled with some of his neighbors and had conducted himself in a proper and
irreproachable manner during his entire stay in the Philippines; and petitioner and his family
observed Christmas and New Year and some occasions such as fiestas. According to the witness,
petitioner was not disqualified under C.A. No. 473 to become a Filipino citizen: he is not opposed
to organized government or believes in the use of force; he is not a polygamist and has not been
convicted of a crime involving moral turpitude; neither is he suffering from any mental alienation
or any incurable disease.12
Another witness for petitioner, Mark Salcedo, testified that he has known petitioner for ten (10)
years; they first met at a birthday party in 1991. He and petitioner were classmates at the University
of Santo Tomas (UST) where they took up Pharmacy. Petitioner was a member of some school
organizations and mingled well with friends.13 Salcedo further testified that he saw petitioner twice
a week, and during fiestas and special occasions when he would go to petitioners house. He has
known petitioner to have resided in Manila since birth. Petitioner is intelligent, a person of good
moral character, and believes in the principles of the Philippine Constitution. Petitioner has a
gainful occupation, has conducted himself in a proper and irreproachable manner and has all the
qualifications to become a Filipino citizen.
Petitioner also testified and attempted to prove that he has all the qualifications and none of the
disqualifications to become a citizen of the Philippines.
At the conclusion of his testimonial evidence, petitioner offered in evidence the following
documents: (1) Certificate of Live Birth;14 (2) Alien Certificate of Registration;15 (3) Immigrant
Certificate of Residence;16 (4) Elementary Pupils17 and High School Students18 Permanent
Record issued by Chang Kai Shek College; (5) Transcript of Record issued by the University of
Santo Tomas;19 (6) Certification of Part-Time Employment dated November 20, 2002;20 (7) Income
Tax Returns and Certificate of Withholding Tax for the year 2001;21 (8) Certification from
Metrobank that petitioner is a depositor;22 (9) Clearances that he has not been charged or
convicted of any crime involving moral turpitude; 23 and (10) Medical Certificates and Psychiatric
Evaluation issued by the Philippine General Hospital.24 The RTC admitted all these in evidence.
The RTC granted the petition on June 4, 2003.25 The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered GRANTING the petition and declaring that petitioner
EDISON SO has all the qualifications and none of the disqualifications to become a Filipino citizen
and he is hereby admitted as citizen of the Philippines, after taking the necessary oath of
allegiance, as soon as this decision becomes final, subject to payment of cost of P30,000.00.
SO ORDERED.26
The trial court ruled that the witnesses for petitioner had known him for the period required by law,
and they had affirmed that petitioner had all the qualifications and none of the disqualifications to
become a Filipino citizen. Thus, the court concluded that petitioner had satisfactorily supported
his petition with evidence.
Respondent Republic of the Philippines, through the Office of the Solicitor General (OSG),
appealed the decision to the CA on the following grounds:
I.
THE LOWER COURT ERRED IN GRANTING THE PETITION FOR NATURALIZATION DESPITE
THE FACT THAT THE TWO (2) CHARACTER WITNESSES, NAMELY: ARTEMIO ADASA, JR.
AND MARK SALCEDO WERE NOT QUALIFIED CHARACTER WITNESSES.
II.
PETITIONER IS NOT QUALIFIED TO BE ADMITTED AS CITIZEN OF THE PHILIPPINES.27
Respondent contended that based on the evidence on record, appellee failed to prove that he
possesses all the qualifications under Section 2 and none of the disqualifications under Section 4
of C.A. No. 473. It insisted that his two (2) character witnesses did not know him well enough to
vouch for his fitness to become a Filipino citizen; they merely made general statements without
giving specific details about his character and moral conduct.28 The witnesses did not even reside
in the same place as petitioner.29 Respondent likewise argued that petitioner himself failed to
prove that he is qualified to become a Filipino citizen because he did not give any explanation or
specific answers to the questions propounded by his lawyer. He merely answered "yes" or "no" or
gave general statements in answer to his counsels questions. Thus, petitioner was unable to
prove that he had all the qualifications and none of the disqualifications required by law to be a
naturalized Filipino citizen.30
On the other hand, petitioner averred that he graduated cum laude from the UST with the degree
of Bachelor of Science in Pharmacy. He is now on his second year as a medical student at the
UST Medicine and Surgery. He avers that the requirements for naturalization under C.A. No. 473,
as amended by LOI 270, in relation to Presidential Decree Nos. 836 and 1379, had been relaxed
after the Philippine government entered into diplomatic relations with the Peoples Republic of
China; the requirements were further relaxed when Republic Act (R.A.) No. 9139 was signed into
law.31 Petitioner pointed out that the petition, with all its annexes, was published in the official
gazette and a newspaper of general circulation; notices were likewise sent to the National Bureau
of Investigation, Department of Justice, Department of Foreign Affairs, and the OSG. But none
from these offices came forward to oppose the petition before the lower court. 32 Petitioner insisted
that he has all the qualifications and none of the disqualifications to become Filipino. This was
clearly established by his witnesses.
In its Reply Brief, respondent alleged that R.A. No. 9139 applies to administrative naturalization
filed with the Special Committee on Naturalization. It insisted that even in the absence of any
opposition, a petition for naturalization may be dismissed.
In its Decision33 dated August 4, 2005, the CA set aside the ruling of the RTC and dismissed the
petition for naturalization without prejudice.34 According to the CA, petitioners two (2) witnesses
were not credible because they failed to mention specific details of petitioners life or character to
show how well they knew him; they merely "parroted" the provisions of the Naturalization Act
without clearly explaining their applicability to petitioners case. 35The appellate court likewise ruled
that petitioner failed to comply with the requirement of the law that the applicant must not be less
than 21 years of age on the day of the hearing of the petition; during the first hearing on December
12, 2002, petitioner was only twenty (20) years, nine (9) months, and twenty five (25) days old,
falling short of the requirement.36 The CA stated, however, that it was not its intention to forever
close the door to any future application for naturalization which petitioner would file, and that it
believes that he would make a good Filipino citizen in due time, a decided asset to this country. 37
Petitioners motion for reconsideration38 was denied in a Resolution39 dated November 24, 2005;
hence, the present petition grounded on the sole issue:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT REVERSED THE DECISION OF THE REGIONAL TRIAL COURT OF
MANILA.40
In support of his petition, petitioner reiterates the arguments he set forth in the Brief filed before
the CA.
In its Comment41 on the petition, respondent countered that R.A. No. 9139 (which took effect on
August 8, 2001 and where the applicants age requirement was lowered to eighteen (18) years
old), refers only to administrative naturalization filed with the Special Committee on Naturalization;
it does not apply to judicial naturalization before the court, as in the present case. 42 Respondent,
through the OSG, avers that its failure to oppose the petition before the court a quo does not
preclude it from appealing the decision of the RTC to the CA; it is even authorized to question an
already final decision by filing a petition for cancellation of citizenship.43 Lastly, respondent
reiterates its argument that petitioners character witnesses are not qualified to prove the formers
qualifications.
In determining whether or not an applicant for naturalization is entitled to become a Filipino citizen,
it is necessary to resolve the following issues: (1) whether or not R.A. No. 9139 applies to petitions
for naturalization by judicial act; and (2) whether or not the witnesses presented by petitioner are
"credible" in accordance with the jurisprudence and the definition and guidelines set forth in C.A.
No. 473.
The petition is denied for lack of merit.
Naturalization signifies the act of formally adopting a foreigner into the political body of a nation by
clothing him or her with the privileges of a citizen. 44 Under current and existing laws, there are
three ways by which an alien may become a citizen by naturalization: (a) administrative
naturalization pursuant to R.A. No. 9139; (b) judicial naturalization pursuant to C.A. No. 473, as
amended; and (c) legislative naturalization in the form of a law enacted by Congress bestowing
Philippine citizenship to an alien.45
Petitioners contention that the qualifications an applicant for naturalization should possess are
those provided for in R.A. No. 9139 and not those set forth in C.A. No. 473 is barren of merit. The
qualifications and disqualifications of an applicant for naturalization by judicial act are set forth in
Sections 246 and 447 of C.A. No. 473. On the other hand, Sections 348 and 449 of R.A. No. 9139
provide for the qualifications and disqualifications of an applicant for naturalization
by administrative act.
Indeed, R.A. No. 9139 was enacted as a remedial measure intended to make the process of
acquiring Philippine citizenship less tedious, less technical and more encouraging. 50 It likewise
addresses the concerns of degree holders who, by reason of lack of citizenship requirement,
cannot practice their profession, thus promoting "brain gain" for the Philippines. 51 These however,
do not justify petitioners contention that the qualifications set forth in said law apply even to
applications for naturalization by judicial act.
First. C.A. No. 473 and R.A. No. 9139 are separate and distinct laws the former covers all aliens
regardless of class while the latter covers native-born aliens who lived here in the Philippines all
their lives, who never saw any other country and all along thought that they were Filipinos; who
have demonstrated love and loyalty to the Philippines and affinity to the customs and
traditions.52 To reiterate, the intention of the legislature in enacting R.A. No. 9139 was to make the
process of acquiring Philippine citizenship less tedious, less technical and more encouraging
which is administrative rather than judicial in nature. Thus, although the legislature believes that
there is a need to liberalize the naturalization law of the Philippines, there is nothing from which it
can be inferred that C.A. No. 473 was intended to be amended or repealed by R.A. No. 9139.
What the legislature had in mind was merely to prescribe another mode of acquiring Philippine
citizenship which may be availed of by native born aliens. The only implication is that, a native
born alien has the choice to apply for judicial or administrative naturalization, subject to the
prescribed qualifications and disqualifications.
In the instant case, petitioner applied for naturalization by judicial act, though at the time of the
filing of his petition, administrative naturalization under R.A. No. 9139 was already available.
Consequently, his application should be governed by C.A. No. 473.
Second. If the qualifications prescribed in R.A. No. 9139 would be made applicable even to judicial
naturalization, the coverage of the law would be broadened since it would then apply even to
aliens who are not native born. It must be stressed that R.A. No. 9139 applies only to aliens who
were born in the Philippines and have been residing here.
Third. Applying the provisions of R.A. No. 9139 to judicial naturalization is contrary to the intention
of the legislature to liberalize the naturalization procedure in the country. One of the qualifications
set forth in R.A. No. 9139 is that the applicant was born in the Philippines and should have been
residing herein since birth. Thus, one who was born here but left the country, though resided for
more than ten (10) years from the filing of the application is also disqualified. On the other hand,
if we maintain the distinct qualifications under each of the two laws, an alien who is not qualified
under R.A. No. 9139 may still be naturalized under C.A. No. 473.
Thus, absent a specific provision expressly amending C.A. No. 473, the law stands and the
qualifications and disqualifications set forth therein are maintained.
In any event, petitioner failed to prove that the witnesses he presented were competent to vouch
for his good moral character, and are themselves possessed of good moral character. It must be
stressed that character witnesses in naturalization proceedings stand as insurers of the applicants
conduct and character. Thus, they ought to testify on specific facts and events justifying the
inference that the applicant possesses all the qualifications and none of the disqualifications
provided by law.53
Petitioners witnesses, Atty. Adasa and Salcedo, did not testify on his specific acts; they did not
elaborate on his traits. Their testimonies do not convince the Court that they personally know
petitioner well and are therefore in a position to vouch for his qualifications. As correctly found by
the CA, the witnesses testimonies consisted mainly of general statements in answer to the leading
questions propounded by his counsel. What they conveniently did was to enumerate the
qualifications as set forth in the law without giving specific details. The pertinent portion of Atty.
Adasas testimony follows:
q Do you know the petitioner Edison So?
a Yes, Sir.
q Will you please tell us how did you come to know him?
a Well I came to know him[,] the petitioner[,] when I was the legal consultant and adviser of their
family business and I used to ah (sic) me[e]t him during my visit to their place way back in 1991
to 1992.
q From that day of 1991 up to the present, is your relationship with the petitioner more or less
contin[u]ous?
a Yes, sir, because aside from the usual professional visit that I did to their family some social
function was sponsored normally and I am (sic) invited and I used to attend.
q During the birthday party of the petitioner, did you usually attend petitioners birthday?
a On several occasions I attend the birthday.
q Will you please tell us where the petitioner resides at present?
a At present the petitioner resides at No. 528 Lavezares Street, Binondo, Manila.
q Do you know for how long the petitioner resides in the Philippines?
a As far as I personally known (sic) Your Honor is that since birth.
q During all the times that you have know[n] the petitioner, what is your impression of his conduct?
a Well ah (sic) I have personally known him to be obedient and hard working individual and ah
(sic) he has a good moral character and he has been ah (sic) no adverse report concerning the
character of the petitioner.
q In your opinion does the petitioner has the qualifications necessary to become [a] citizen of the
Philippines?
a Yes.
q Can you tell us why do you say so?
a I would say Your Honor that petitioner has posses (sic) all the qualifications mandated by law
and presently he is more than 21 years old and he has resided in the Philippines particularly in the
City of Manila contin[u]ously for more than ten (10) years and that since his birth; and that he has
good moral character and I have observed that ah (sic) he has been practicing Philippine traditions
and ah (sic) those embodied in the Philippine constitution and he has been socially active and
meddle (sic) some of his neighbors and ah (sic) I am sure he has desire to embrace and learn the
customs and ideas and traditions in the Philippine[s] and as I earlier mentioned that he conducted
himself in proper and approachable (sic) manner during his entire residence in our country and he
has a gainful occupation.
q Will you please tell us what are these customs which the petitioner embraced?
a Well I have observed that ah (sic) together with his family they used to ah observed (sic) the
usual Filipino celebration during Christmas and new year and some occasions such as fiestas.
q And do you know whether petitioner is not disqualified under Commonwealth Act to become
Filipino citizen of the Philippines (sic)?
a Ah there has been no incident or occasion which I learned that would disqualify of coming (sic)
the citizen of the Republic of the Philippines. I have noticed that ah (sic) he is qualified under
Commonwealth Act 473 as amended because he is not opposed to ah (sic) organized
government. His family and himself does not believed (sic) in the use of force in the success of
his ideas and ah (sic) he is not a poligamist (sic) or believer in the practice of illegal and he has
not been convicted in any crime involving him in any crime (sic). and he is not suffering from any
mental alienation or any incurable contidious (sic) disease. as provided for.
q Will you please tell us why you know all these stage?
a Because of ah (sic) the personal attachment with his family we have continuously having ah (sic)
the usual contact with his family.54
It can thus be inferred that Atty. Adasa is close to petitioners family, but not specifically to
petitioner. Atty. Adasas statements refer to his observations on the familys practices and not to
petitioner in particular. Nothing in his testimony suggests that he was close to petitioner and knew
him well enough to vouch for his qualifications.
Salcedo, on the other hand, testified thus:
q Now do you know the petitioner in this case Edison So?
a Yes, Sir.
q Are you personally acquainted with him?
a Yes, Sir.
q How long have you known the petitioner?
a I have known him for about ten (10) years, Sir.
q Will you please inform the Honorable court under what circumstances did you come to know the q During all the times that you have known the petitioner, will you please tell us your impression
petitioner? of his conduct?

a I met him in a birthday party in 1991, Sir. a He is a person of good moral, sir, and he believed in the principles of the Philippines (sic)
Constitution.
q And from 1991 up to the present is your relationship with the petitioner more or less contin[u]ous?
q Will you please cite one or two of these principles underlined the principles (sic) of the Philippines
(sic) Constitution?
a Yes, Sir.

a Ah the Philippines is a Republican of the (sic) state, sovereignty preside (sic) over the people
q How often did you see the petitioner?
and the government authority emanate from within; and the other one is the civilian government
is not supreme over the military.
a I see him twice a week, Sir.
q Now in your opinion does the petitioner have all the qualifications necessary to become a citizen
q And during this time that you met the petitioner, what did you usually do? of the Philippines?

a We play some games, Sir. We play Patentero (sic). a Yes, Sir.

q Do you go to church together? q What are these qualifications?

a Yes, Sir. a He is at least 21 years old, he is a person of good moral and has been residing in the Philippines
since birth.
q During fiestas in your place, did the petitioner go?
q What else?
a Yes, Sir.
a He must be a Filipino and ah must practice the traditions and customs, Sir.
q How about during fiestas in the place where the petitioner reside[s], did you also go during
fiestas? q Do you know whether the petitioner conducted himself in a proper and appraochable (sic)
manner during the period of his residence in the Philippines?
a Yes, Sir.
a Yes, Sir.
q During occasion in the house of the petitioner, are you invited?
q Do you know if the petitioner has a gainful occupation?
a Yes, Sir.
a Yes, Sir.
q How many time[s] did you go to his (sic) residence of the petitioner?
q What is the occupation of the petitioner?
a Twice a week, sir.
a Ah (sic) he is the secretary in a wood factory in Commonwealth, Sir.
q Will you please tell us where the petitioner resides?
q And aside from being the secretary, what else did the petitioner do?
a The petitioner resides at 528 Lavezares Street, Tondo, Manila, Sir.
a He help (sic) in the factory cargo, Sir.
q For how long does the petitioner reside in that address?
q Is the petitioner still a student?
a Since birth, Sir.
a Yes, Sir.
q Where is he studying? a Yes, Sir.

a In UST, Sir. q Does the petitioner (sic), do you think the petitioner is not disqualified to become the citizen of
the Republic of the Philippines?
q Is he your classmate?
a Yes, Sir, he is not disqualified, Sir.
a Yes, Sir.
q Why do you say that he is not disqualified?
q What was his course?
a Because he abide [by] any law in the government, sir, ah (sic) he is not polygamus and he is not
convicted of any crime, Sir.
a Pharmacy, Sir.

q Do you know ever the petitioner oppose to any organized government?

q So when you said he was the secretary he only works as part time secretary?

a No, Sir.
a Yes, Sir.

q Do you know whether he believe[s] in the use of force in any such ideas?
q You said the petitioner meddle (sic) socially with the Filipinos?

a No, Sir.
a Yes, Sir.

q Do you know if the petitioner is a believer in the practice of polygamy?

q Will you please name at least one of those Filipinos the petitioner meddle (sic) with?

a No, Sir.
a Samuel Falmera, Sir, Marlon Kahocom, Sir.

q Do you know whether the petitioner suffer[s] from mental alienation or incurable disease
q Who else?
illnesses?

a Elmer Ramos, Sir.

a No, Sir.

q Who else?
q Why do you know?

a Sharmaine Santos, Sir.

a I know him personally, sir, I have been with him as my classmate, sir and ah (sic) he is a very
intelligent person, Sir.
q You said the petitioner is of good moral character?
q Is the petitioner a member also of any organization or association in your school?
a Yes, Sir.
a Yes, Sir.
q Why do you know that?
q What organization?
a As a classmate I can see him I go with him and ah (sic) I can see that he has ah better
approached (sic) with other people and I can see that he mixed very well with friends.
a He is a member of Wishten and a member of starget, Sir.

q So during school days you see him everyday?

q What does starget means?

a Yes, Sir.
a Starget is an organization of Chinese community in UST, Sir.

q When there are no classes during the vacation you see the petitioner twice a week?
q How about the other one which you mentioned?
a Ah (sic) these are twisting, sir he represents the ah the (sic) school intercollegiate, Sir. 55 DECISION

Again, Salcedo did not give specific details on petitioners qualifications. VILLARAMA, JR., J.:

In sum, petitioners witnesses clearly did not personally know him well enough; their testimonies
do not satisfactorily establish that petitioner has all the qualifications and none of the
disqualifications prescribed by law.
In naturalization proceedings, it is the burden of the applicant to prove not only his own good moral
character but also the good moral character of his/her witnesses, who must be credible
persons.56 Within the purview of the naturalization law, a "credible person" is not only an individual
who has not been previously convicted of a crime; who is not a police character and has no police
record; who has not perjured in the past; or whose affidavit or testimony is not incredible. What
must be credible is not the declaration made but the person making it. This implies that such
person must have a good standing in the community; that he is known to be honest and upright;
that he is reputed to be trustworthy and reliable; and that his word may be taken on its face value,
as a good warranty of the applicants worthiness.57
The records likewise do not show that the character witnesses of petitioner are persons of good
standing in the community; that they are honest and upright, or reputed to be trustworthy and
reliable. The most that was established was the educational attainment of the witnesses; however,
this cannot be equated with their credibility. In fine, petitioner focused on presenting evidence
tending to build his own good moral character and neglected to establish the credibility and good
moral character of his witnesses.58
We do not agree with petitioners argument that respondent is precluded from questioning the
RTC decision because of its failure to oppose the petition. A naturalization proceeding is not a
judicial adversary proceeding, and the decision rendered therein does not constitute res judicata.
A certificate of naturalization may be cancelled if it is subsequently discovered that the applicant
obtained it by misleading the court upon any material fact. Law and jurisprudence even authorize
the cancellation of a certificate of naturalization upon grounds or conditions arising subsequent to
the granting of the certificate.59 If the government can challenge a final grant of citizenship, with
more reason can it appeal the decision of the RTC within the reglementary period despite its failure
to oppose the petition before the lower court.
Thus, petitioner failed to show full and complete compliance with the requirements of naturalization
law. For this reason, we affirm the decision of the CA denying the petition for naturalization without
prejudice.
It must be stressed that admission to citizenship is one of the highest privileges that the Republic
of the Philippines can confer upon an alien. It is a privilege that should not be conferred except
upon persons fully qualified for it, and upon strict compliance with the law.60
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
SO
This is a petition for review under Rule 45 seeking to reverse the Order1 dated October
8, 2011 of the Regional Trial Court (RTC) of Pinamalayan, Oriental Mindoro, which
denied the petition for certiorari filed by Renato M. David (petitioner). Petitioner
assailed the Order2 dated March 22, 2011 of the Municipal Trial Court (MTC) of
Socorro, Oriental Mindoro denying his motion for redetermination of probable cause.
The factual antecedents:chanRoblesvirtualLawlibrary
In 1974, petitioner migrated to Canada where he became a Canadian citizen by
naturalization. Upon their retirement, petitioner and his wife returned to the
Philippines. Sometime in 2000, they purchased a 600-square meter lot along the
beach in Tambong, Gloria, Oriental Mindoro where they constructed a residential
house. However, in the year 2004, they came to know that the portion where they
built their house is public land and part of the salvage zone.
On April 12, 2007, petitioner filed a Miscellaneous Lease Application3 (MLA) over the
subject land with the Department of Environment and Natural Resources (DENR) at
the Community Environment and Natural Resources Office (CENRO) in Socorro. In the
said application, petitioner indicated that he is a Filipino citizen.
Private respondent Editha A. Agbay opposed the application on the ground that
petitioner, a Canadian citizen, is disqualified to own land. She also filed a criminal
complaint for falsification of public documents under Article 172 of the Revised Penal
Code (RPC) (I.S. No. 08-6463) against the petitioner.
Meanwhile, petitioner re-acquired his Filipino citizenship under the provisions of
Republic Act No. 9225,4(R.A. 9225) as evidenced by Identification Certificate No. 266-
10-075 issued by the Consulate General of the Philippines (Toronto) on October 11,
2007.
In his defense, petitioner averred that at the time he filed his application, he had
intended to re-acquire Philippine citizenship and that he had been assured by a CENRO
officer that he could declare himself as a Filipino. He further alleged that he bought
the property from the Agbays who misrepresented to him that the subject property
was titled land and they have the right and authority to convey the same. The dispute
had in fact led to the institution of civil and criminal suits between him and private
respondents family.
On January 8, 2008,6 the Office of the Provincial Prosecutor issued its
Resolution7 finding probable cause to indict petitioner for violation of Article 172 of
the RPC and recommending the filing of the corresponding information in court.
Petitioner challenged the said resolution in a petition for review he filed before the
Department of Justice (DOJ).

G.R. No. 199113, March 18, 2015 On June 3, 2008, the CENRO issued an order rejecting petitioners MLA. It ruled that
petitioners subsequent re-acquisition of Philippine citizenship did not cure the defect
in his MLA which was void ab initio.8chanroblesvirtuallawlibrary
RENATO M. DAVID, Petitioner, v. EDITHA A. AGBAY AND PEOPLE OF THE
PHILIPPINES, Respondents.
In the meantime, on July 26, 2010, the petition for review filed by petitioner was
denied by the DOJ which held that the presence of the elements of the crime of
falsification of public document suffices to warrant indictment of the petitioner A. By supporting the prosecution of the petitioner for falsification, the
notwithstanding the absence of any proof that he gained or intended to injure a third lower court has disregarded the undisputed fact that petitioner is a
person in committing the act of falsification.9 Consequently, an information for natural-born Filipino citizen, and that by re-acquiring the same
Falsification of Public Document was filed before the MTC (Criminal Case No. 2012) status under R.A. No. 9225 he was by legal fiction deemed not to
and a warrant of arrest was issued against the petitioner. have lost it at the time of his naturalization in Canada and through
the time when he was said to have falsely claimed Philippine
On February 11, 2011, after the filing of the Information and before his arrest, citizenship.
petitioner filed an Urgent Motion for Re-Determination of Probable Cause10 in the MTC.
Interpreting the provisions of the law relied upon by petitioner, the said court denied B. By compelling petitioner to first return from his legal residence in
the motion, holding that R.A. 9225 makes a distinction between those who became Canada and to surrender or allow himself to be arrested under a
foreign citizens during its effectivity, and those who lost their Philippine citizenship warrant for his alleged false claim to Philippine citizenship, the lower
before its enactment when the governing law was Commonwealth Act No. 6311 (CA court has pre-empted the right of petitioner through his wife and
63). Since the crime for which petitioner was charged was alleged and admitted to counsel to question the validity of the said warrant of arrest against
have been committed on April 12, 2007 before he had re-acquired his Philippine him before the same is implemented, which is tantamount to a
citizenship, the MTC concluded that petitioner was at that time still a Canadian citizen. denial of due process.18
Thus, the MTC ordered:chanRoblesvirtualLawlibrary
WHEREFORE, for lack of jurisdiction over the person of the accused, and for lack of
merit, the motion is DENIED. In his Comment, the Solicitor General contends that petitioners argument regarding
the retroactivity of R.A. 9225 is without merit. It is contended that this Courts rulings
SO ORDERED.12 in Frivaldo v. Commission on Elections19 and Altarejos v. Commission on
In his motion for reconsideration,13 petitioner questioned the foregoing order denying Elections20 on the retroactivity of ones re-acquisition of Philippine citizenship to the
him relief on the ground of lack of jurisdiction and insisted that the issue raised is date of filing his application therefor cannot be applied to the case of herein petitioner.
purely legal. He argued that since his application had yet to receive final evaluation Even assuming for the sake of argument that such doctrine applies in the present
and action by the DENR Region IV-B office in Manila, it is academic to ask the situation, it will still not work for petitioners cause for the simple reason that he had
citizenship of the applicant (petitioner) who had re-acquired Philippine citizenship six not alleged, much less proved, that he had already applied for reacquisition of
months after he applied for lease of public land. The MTC denied the motion for Philippine citizenship before he made the declaration in the Public Land Application
reconsideration.14chanroblesvirtuallawlibrary that he is a Filipino. Moreover, it is stressed that in falsification of public document, it
is not necessary that the idea of gain or intent to injure a third person be present. As
Dissatisfied, petitioner elevated the case to the RTC via a petition15 for certiorari to petitioners defense of good faith, such remains to be a defense which may be
under Rule 65, alleging grave abuse of discretion on the part of the MTC. He asserted properly raised and proved in a full-blown trial.
that first, jurisdiction over the person of an accused cannot be a pre-condition for the
re-determination of probable cause by the court that issues a warrant of arrest; On the issue of jurisdiction over the person of accused (petitioner), the Solicitor
and second, the March 22, 2011 Order disregarded the legal fiction that once a General opines that in seeking an affirmative relief from the MTC when he filed his
natural-born Filipino citizen who had been naturalized in another country re-acquires Urgent Motion for Re-determination of Probable Cause, petitioner is deemed to have
his citizenship under R.A. 9225, his Filipino citizenship is thus deemed not to have submitted his person to the said courts jurisdiction by his voluntary appearance.
been lost on account of said naturalization. Nonetheless, the RTC correctly ruled that the lower court committed no grave abuse
of discretion in denying the petitioners motion after a judicious, thorough and
In his Comment and Opposition,16 the prosecutor emphasized that the act of personal evaluation of the parties arguments contained in their respective pleadings,
falsification was already consummated as petitioner has not yet re-acquired his and the evidence submitted before the court.
Philippine citizenship, and his subsequent oath to re-acquire Philippine citizenship will
only affect his citizenship status and not his criminal act which was long consummated In sum, the Court is asked to resolve whether (1) petitioner may be indicted for
prior to said oath of allegiance. falsification for representing himself as a Filipino in his Public Land Application despite
his subsequent re-acquisition of Philippine citizenship under the provisions of R.A.
On October 8, 2011, the RTC issued the assailed Order denying the petition for 9225; and (2) the MTC properly denied petitioners motion for re-determination of
certiorari after finding no grave abuse of discretion committed by the lower court, probable cause on the ground of lack of jurisdiction over the person of the accused
thus:chanRoblesvirtualLawlibrary (petitioner).
ACCORDINGLY, the petition is hereby DENIED. At any rate petitioner is not left
without any remedy or recourse because he can proceed to trial where he can make
R.A. 9225, otherwise known as the Citizenship Retention and Re-acquisition Act of
use of his claim to be a Filipino citizen as his defense to be adjudicated in a full blown
2003, was signed into law by President Gloria Macapagal-Arroyo on August 29, 2003.
trial, and in case of conviction, to appeal such conviction.
Sections 2 and 3 of said law read:chanRoblesvirtualLawlibrary
SEC. 2. Declaration of Policy.It is hereby declared the policy of the State that all
SO ORDERED.17
Philippine citizens who become citizens of another country shall be deemed not to
Petitioner is now before us arguing that
have lost their Philippine citizenship under the conditions of this Act.

SEC. 3. Retention of Philippine Citizenship.Any provision of law to the contrary

notwithstanding, natural-born citizens of the Philippines who have lost their Philippine These contentions have no merit.
citizenship by reason of their naturalization as citizens of a foreign country are hereby
deemed to have reacquired Philippine citizenship upon taking the following That the law distinguishes between re-acquisition and retention of Philippine
oath of allegiance to the Republic:chanRoblesvirtualLawlibrary citizenship was made clear in the discussion of the Bicameral Conference Committee
I ______________________, solemnly swear (or affirm) that I will support and on the Disagreeing Provisions of House Bill No. 4720 and Senate Bill No. 2130 held
defend the Constitution of the Republic of the Philippines and obey the laws and legal on August 18, 2003, where Senator Franklin Drilon was responding to the query of
orders promulgated by the duly constituted authorities of the Philippines; and I hereby Representative Exequiel Javier:chanRoblesvirtualLawlibrary
declare that I recognize and accept the supreme authority of the Philippines and will REP. JAVIER. I have some questions in Section 3. Here, under Section 3 of the Senate
maintain true faith and allegiance thereto; and that I impose this obligation upon version, Any provision of law on the contrary notwithstanding, natural-born citizens
myself voluntarily without mental reservation or purpose of evasion. of the Philippines who, after the effectivity of this Act, shall and so forth, ano, shall
Natural-born citizens of the Philippines who, after the effectivity of this Act, retain their Philippine citizenship.
become citizens of a foreign country shall retain their Philippine citizenship upon
taking the aforesaid oath. (Emphasis supplied)
Now in the second paragraph, natural-born citizens who have lost their citizenship by
While Section 2 declares the general policy that Filipinos who have become citizens
reason of their naturalization after the effectivity of this Act are deemed to have
of another country shall be deemed not to have lost their Philippine citizenship, such
reacquired
is qualified by the phrase under the conditions of this Act. Section 3 lays down such
conditions for two categories of natural-born Filipinos referred to in the first and
second paragraphs. Under the first paragraph are those natural-born Filipinos who THE CHAIRMAN (SEN. DRILON). Prior to the effectivity.
have lost their citizenship by naturalization in a foreign country who shall re-acquire
their Philippine citizenship upon taking the oath of allegiance to the Republic of the REP. JAVIER. Well, you have two kinds of natural-born citizens here. Natural-born
Philippines. The second paragraph covers those natural-born Filipinos who became citizens who acquired foreign citizenship after the effectivity of this act are considered
foreign citizens after R.A. 9225 took effect, who shall retain their Philippine citizenship to have retained their citizenship. But natural-born citizens who lost their Filipino
upon taking the same oath. The taking of oath of allegiance is required for both citizenship before the effectivity of this act are considered to have reacquired. May I
categories of natural-born Filipino citizens who became citizens of a foreign country, know the distinction? Do you mean to say that natural-born citizens who became,
but the terminology used is different, re-acquired for the first group, and retain lets say, American citizens after the effectivity of this act are considered natural-
for the second group. born?

The law thus makes a distinction between those natural-born Filipinos who became Now in the second paragraph are the natural-born citizens who lost their citizenship
foreign citizens before and after the effectivity of R.A. 9225. Although the heading of before the effectivity of this act are no longer natural born citizens because they have
Section 3 is Retention of Philippine Citizenship, the authors of the law intentionally just reacquired their citizenship. I just want to know this distinction, Mr. Chairman.
employed the terms re-acquire and retain to describe the legal effect of taking the
oath of allegiance to the Republic of the Philippines. This is also evident from the title THE CHAIRMAN (SEN. DRILON). The title of the Senate version is precisely retention
of the law using both re-acquisition and retention. and reacquisition. The reacquisition will apply to those who lost their
Philippine citizenship by virtue of Commonwealth Act 63. Upon the effectivity
In fine, for those who were naturalized in a foreign country, they shall be deemed to -- assuming that we can agree on this, upon the effectivity of this new measure
have re-acquired their Philippine citizenship which was lost pursuant to CA 63, under amending Commonwealth Act 63, the Filipinos who lost their citizenship is deemed to
which naturalization in a foreign country is one of the ways by which Philippine have reacquired their Philippine citizenship upon the effectivity of the act.
citizenship may be lost. As its title declares, R.A. 9225 amends CA 63 by doing away
with the provision in the old law which takes away Philippine citizenship from natural- The second aspect is the retention of Philippine citizenship applying to future
born Filipinos who become naturalized citizens of other countries and allowing dual instances. So thats the distinction.
citizenship,21 and also provides for the procedure for re-acquiring and retaining
Philippine citizenship. In the case of those who became foreign citizens after R.A.
9225 took effect, they shall retain Philippine citizenship despite having acquired REP. JAVIER. Well, Im just asking this question because we are here making
foreign citizenship provided they took the oath of allegiance under the new law. distinctions between natural-born citizens. Because this is very important for certain
government positions, no, because natural-born citizens are only qualified for a
Petitioner insists we should not distinguish between re-acquisition and retention in specific
R.A. 9225. He asserts that in criminal cases, that interpretation of the law which
favors the accused is preferred because it is consistent with the constitutional THE CHAIRMAN (SEN. DRILON). That is correct.
presumption of innocence, and in this case it becomes more relevant when a
seemingly difficult question of law is expected to have been understood by the
REP. JAVIER. ...positions under the Constitution and under the law.
accused, who is a non-lawyer, at the time of the commission of the alleged offense.
He further cites the letter-reply dated January 31, 201122 of the Bureau of
Immigration (BI) to his query, stating that his status as a natural-born Filipino will be THE CHAIRMAN (SEN. DRILON). Yes. We can get to that later on. Its one of the
governed by Section 2 of R.A. 9225. provisions, yes. But just for purposes of the explanation, Congressman Javier, that
is our conceptualization. Reacquired for those who previously lost [Filipino
citizenship] by virtue of Commonwealth Act 63, and retention for those in
the future. (Emphasis supplied)
Considering that petitioner was naturalized as a Canadian citizen prior to the
effectivity of R.A. 9225, he belongs to the first category of natural-born Filipinos under
the first paragraph of Section 3 who lost Philippine citizenship by naturalization in a
foreign country. As the new law allows dual citizenship, he was able to re-acquire his
Philippine citizenship by taking the required oath of allegiance.
For the purpose of determining the citizenship of petitioner at the time of filing his
MLA, it is not necessary to discuss the rulings in Frivaldo and Altarejos on the
retroactivity of such reacquisition because R.A. 9225 itself treats those of his category
as having already lost Philippine citizenship, in contradistinction to those natural-born
Filipinos who became foreign citizens after R.A. 9225 came into force. In other words,
Section 2 declaring the policy that considers Filipinos who became foreign citizens as
not to have lost their Philippine citizenship, should be read together with Section 3,
the second paragraph of which clarifies that such policy governs all cases after the
new laws effectivity.
As to the letter-reply of BI, it simply quoted Section 2 of R.A. 9225 without any
reference to Section 3 on the particular application of reacquisition and retention to
Filipinos who became foreign citizens before and after the effectivity of R.A. 9225.
Petitioners plea to adopt the interpretation most favorable to the accused is likewise
misplaced. Courts adopt an interpretation more favorable to the accused following the
time-honored principle that penal statutes are construed strictly against the State and
liberally in favor of the accused.23 R.A. 9225, however, is not a penal law.
Falsification of documents under paragraph 1, Article 17224 in relation to Article
17125 of the RPC refers to falsification by a private individual, or a public officer or
employee who did not take advantage of his official position, of public, private, or
commercial documents. The elements of falsification of documents under paragraph
1, Article 172 of the RPC are:chanRoblesvirtualLawlibrary
(1) that the offender is a private individual or a public officer or employee who did
not take advantage of his official position;
(2) that he committed any of the acts of falsification enumerated in Article 171 of the
RPC; and
(3) that the falsification was committed in a public, official or commercial document.26
Petitioner made the untruthful statement in the MLA, a public document, that he is a
Filipino citizen at the time of the filing of said application, when in fact he was then
still a Canadian citizen. Under CA 63, the governing law at the time he was naturalized
as Canadian citizen, naturalization in a foreign country was among those ways by
which a natural-born citizen loses his Philippine citizenship. While he re-acquired
Philippine citizenship under R.A. 9225 six months later, the falsification was already
a consummated act, the said law having no retroactive effect insofar as his dual
citizenship status is concerned. The MTC therefore did not err in finding probable
cause for falsification of public document under Article 172, paragraph 1.
The MTC further cited lack of jurisdiction over the person of petitioner accused as
ground for denying petitioners motion for re-determination of probable cause, as the
motion was filed prior to his arrest. However, custody of the law is not required for
the adjudication of reliefs other than an application for bail.27 In Miranda v.
Tuliao,28 which involved a motion to quash warrant of arrest, this Court discussed the
distinction between custody of the law and jurisdiction over the person, and held that
jurisdiction over the person of the accused is deemed waived when he files any
pleading seeking an affirmative relief, except in cases when he invokes the special
jurisdiction of the court by impugning such jurisdiction over his person.
Thus:chanRoblesvirtualLawlibrary
In arguing, on the other hand, that jurisdiction over their person was already acquired
by their filing of the above Urgent Motion, petitioners invoke our pronouncement,
through Justice Florenz D. Regalado, in Santiago v.
Vasquez:chanRoblesvirtualLawlibrary
The voluntary appearance of the accused, whereby the court acquires jurisdiction over
his person, is accomplished either by his pleading to the merits (such as by filing a
motion to quash or other pleadings requiring the exercise of the courts jurisdiction
thereover, appearing for arraignment, entering trial) or by filing bail. On the matter
of bail, since the same is intended to obtain the provisional liberty of the accused, as
a rule the same cannot be posted before custody of the accused has been acquired
by the judicial authorities either by his arrest or voluntary surrender.cralawred
Our pronouncement in Santiago shows a distinction between custody of the
law and jurisdiction over the person. Custody of the law is required before the court
can act upon the application for bail, but is not required for the adjudication of other
reliefs sought by the defendant where the mere application therefor constitutes a
waiver of the defense of lack of jurisdiction over the person of the accused. Custody
of the law is accomplished either by arrest or voluntary surrender, while jurisdiction
over the person of the accused is acquired upon his arrest or voluntary appearance.
One can be under the custody of the law but not yet subject to the jurisdiction of the
court over his person, such as when a person arrested by virtue of a warrant files a
motion before arraignment to quash the warrant. On the other hand, one can be
subject to the jurisdiction of the court over his person, and yet not be in the custody
of the law, such as when an accused escapes custody after his trial has commenced.
Being in the custody of the law signifies restraint on the person, who is thereby
deprived of his own will and liberty, binding him to become obedient to the will of the
law. Custody of the law is literally custody over the body of the accused. It includes,
but is not limited to, detention.
x x x x
While we stand by our above pronouncement in Pico insofar as it concerns bail, we
clarify that, as a general rule, one who seeks an affirmative relief is deemed
to have submitted to the jurisdiction of the court. As we held in the aforecited
case of Santiago, seeking an affirmative relief in court, whether in civil or
criminal proceedings, constitutes voluntary appearance.
x x x x
To recapitulate what we have discussed so far, in criminal cases, jurisdiction over
the person of the accused is deemed waived by the accused when he files
any pleading seeking an affirmative relief, except in cases when he invokes
the special jurisdiction of the court by impugning such jurisdiction over his
person. Therefore, in narrow cases involving special appearances, an accused can
invoke the processes of the court even though there is neither jurisdiction over the
person nor custody of the law. However, if a person invoking the special jurisdiction
of the court applies for bail, he must first submit himself to the custody of the
law.29 (Emphasis supplied)
Considering that petitioner sought affirmative relief in filing his motion for re-
determination of probable cause, the MTC clearly erred in stating that it lacked
jurisdiction over his person. Notwithstanding such erroneous ground stated in the
MTCs order, the RTC correctly ruled that no grave abuse of discretion was committed
by the MTC in denying the said motion for lack of merit. On 30 November 2009, Arnado filed his Certificate of Candidacy for Mayor of Kauswagan, Lanao
del Norte, which contains, among others, the following statements:
WHEREFORE, the petition is DENIED. The Order dated October 8, 2011 of the
Regional Trial Court of Pinamalayan, Oriental Mindoro in Civil Case No. SCA-07-11 I am a natural born Filipino citizen / naturalized Filipino citizen.
(Criminal Case No. 2012) is hereby AFFIRMED and UPHELD.
I am not a permanent resident of, or immigrant to, a foreign country.
CASAN MACODE MAQUILING, Petitioner,
vs.
COMMISSION ON ELECTIONS, ROMMEL ARNADO y CAGOCO, LINOG G. I am eligible for the office I seek to be elected to.
BALUA, Respondents.
I will support and defend the Constitution of the Republic of the Philippines and will maintain true
DECISION faith and allegiance thereto. I will obey the laws, legal orders and decrees promulgated by the duly
constituted authorities.

SERENO, CJ.:
I impose this obligation upon myself voluntarily without mental reservation or purpose of evasion. 8

THE CASE
This is a Petition for Certiorari ender Rule 64 in conjunction with Rule 65 of the Rules of Court to
review the Resolutions of the Commission on Elections (COMELEC). The Resolution1 in SPA No.
10-1 09(DC) of the COMELEC First Division dated 5 October 201 0 is being assailed for applying
Section 44 of the Local Government Code while the Resolution2 of the COMELEC En Banc dated
2 February 2011 is being questioned for finding that respondent Rommel Arnado y Cagoco
(respondent Arnado/Arnado) is solely a Filipino citizen qualified to run for public office despite his
continued use of a U.S. passport.
FACTS
Respondent Arnado is a natural born Filipino citizen.3 However, as a consequence of his
subsequent naturalization as a citizen of the United States of America, he lost his Filipino
citizenship. Arnado applied for repatriation under Republic Act (R.A.) No. 9225 before the
Consulate General of the Philippines in San Franciso, USA and took the Oath of Allegiance to the
Republic of the Philippines on 10 July 2008.4 On the same day an Order of Approval of his
Citizenship Retention and Re-acquisition was issued in his favor.5
On 28 April 2010, respondent Linog C. Balua (Balua), another mayoralty candidate, filed a petition
to disqualify Arnado and/or to cancel his certificate of candidacy for municipal mayor of
Kauswagan, Lanao del Norte in connection with the 10 May 2010 local and national elections. 9
Respondent Balua contended that Arnado is not a resident of Kauswagan, Lanao del Norte and
that he is a foreigner, attaching thereto a certification issued by the Bureau of Immigration dated
23 April 2010 indicating the nationality of Arnado as "USA-American."10To further bolster his claim
of Arnados US citizenship, Balua presented in his Memorandum a computer-generated travel
record11 dated 03 December 2009 indicating that Arnado has been using his US Passport No.
057782700 in entering and departing the Philippines. The said record shows that Arnado left the
country on 14 April 2009 and returned on 25 June 2009, and again departed on 29 July 2009,
arriving back in the Philippines on 24 November 2009.
Balua likewise presented a certification from the Bureau of Immigration dated 23 April 2010,
certifying that the name "Arnado, Rommel Cagoco" appears in the available Computer
Database/Passenger manifest/IBM listing on file as of 21 April 2010, with the following pertinent
travel records:

DATE OF Arrival : 01/12/2010

The aforementioned Oath of Allegiance states:

NATIONALITY : USA-AMERICAN
I, Rommel Cagoco Arnado, solemnly swear that I will support and defend the Constitution of the
Republic of the Philippines and obey the laws and legal orders promulgated by the duly constituted
authorities of the Philippines and I hereby declare that I recognize and accept the supreme PASSPORT : 057782700
authority of the Philippines and will maintain true faith and allegiance thereto; and that I impose
this obligation upon myself voluntarily without mental reservation or purpose of evasion. 6 DATE OF Arrival : 03/23/2010

On 3 April 2009 Arnado again took his Oath of Allegiance to the Republic and executed an Affidavit NATIONALITY : USA-AMERICAN
of Renunciation of his foreign citizenship, which states:

I, Rommel Cagoco Arnado, do solemnly swear that I absolutely and perpetually renounce all
allegiance and fidelity to the UNITED STATES OF AMERICA of which I am a citizen, and I divest
myself of full employment of all civil and political rights and privileges of the United States of
America.
PASSPORT : 05778270012
On 30 April 2010, the COMELEC (First Division) issued an Order13 requiring the respondent to
personally file his answer and memorandum within three (3) days from receipt thereof.

I solemnly swear that all the foregoing statement is true and correct to the best of my knowledge After Arnado failed to answer the petition, Balua moved to declare him in default and to present
and belief.7 evidence ex-parte.
Neither motion was acted upon, having been overtaken by the 2010 elections where Arnado to travel or sojourn in foreign countries." Surely, one who truly divested himself of US citizenship
garnered the highest number of votes and was subsequently proclaimed as the winning candidate would not continue to avail of privileges reserved solely for US nationals.19
for Mayor of Kauswagan, Lanao del Norte.
The dispositive portion of the Resolution rendered by the COMELEC
It was only after his proclamation that Arnado filed his verified answer, submitting the following
documents as evidence:14
First Division reads:

1. Affidavit of Renunciation and Oath of Allegiance to the Republic of the Philippines

WHEREFORE, in view of the foregoing, the petition for disqualification and/or to cancel the
dated 03 April 2009;
certificate of candidacy of Rommel C. Arnado is hereby GRANTED. Rommel C. Arnados
proclamation as the winning candidate for Municipal Mayor of Kauswagan, Lanao del Nore is
2. Joint-Affidavit dated 31 May 2010 of Engr. Virgil Seno, Virginia Branzuela, Leoncio hereby ANNULLED. Let the order of succession under Section 44 of the Local Government Code
Daligdig, and Jessy Corpin, all neighbors of Arnado, attesting that Arnado is a long-time of 1991 take effect.20
resident of Kauswagan and that he has been conspicuously and continuously residing
in his familys ancestral house in Kauswagan;
The Motion for Reconsideration and
the Motion for Intervention
3. Certification from the Punong Barangay of Poblacion, Kauswagan, Lanao del Norte
dated 03 June 2010 stating that Arnado is a bona fide resident of his barangay and that
Arnado sought reconsideration of the resolution before the COMELEC En Banc on the ground
Arnado went to the United States in 1985 to work and returned to the Philippines in
that "the evidence is insufficient to justify the Resolution and that the said Resolution is contrary
2009;
to law."21 He raised the following contentions:22

4. Certification dated 31 May 2010 from the Municipal Local Government Operations
1. The finding that he is not a Filipino citizen is not supported by the evidence consisting
Office of Kauswagan stating that Dr. Maximo P. Arnado, Sr. served as Mayor of
of his Oath of Allegiance and the Affidavit of Renunciation, which show that he has
Kauswagan, from January 1964 to June 1974 and from 15 February 1979 to 15 April
substantially complied with the requirements of R.A. No. 9225;
1986; and

2. The use of his US passport subsequent to his renunciation of his American citizenship
5. Voter Certification issued by the Election Officer of Kauswagan certifying that Arnado
is not tantamount to a repudiation of his Filipino citizenship, as he did not perform any
has been a registered voter of Kauswagan since 03 April 2009.
act to swear allegiance to a country other than the Philippines;

THE RULING OF THE COMELEC FIRST DIVISION

3. He used his US passport only because he was not informed of the issuance of his
Philippine passport, and that he used his Philippine passport after he obtained it;
Instead of treating the Petition as an action for the cancellation of a certificate of candidacy based
on misrepresentation,15 the COMELEC First Division considered it as one for disqualification.
4. Baluas petition to cancel the certificate of candidacy of Arnado was filed out of time,
Baluas contention that Arnado is a resident of the United States was dismissed upon the finding
and the First Divisions treatment of the petition as one for disqualification constitutes
that "Balua failed to present any evidence to support his contention,"16 whereas the First Division
grave abuse of discretion amounting to excess of jurisdiction;23
still could "not conclude that Arnado failed to meet the one-year residency requirement under the
Local Government Code."17
5. He is undoubtedly the peoples choice as indicated by his winning the elections;
In the matter of the issue of citizenship, however, the First Division disagreed with Arnados claim
that he is a Filipino citizen.18 6. His proclamation as the winning candidate ousted the COMELEC from jurisdiction
over the case; and
We find that although Arnado appears to have substantially complied with the requirements of
R.A. No. 9225, Arnados act of consistently using his US passport after renouncing his US 7. The proper remedy to question his citizenship is through a petition for quo warranto,
citizenship on 03 April 2009 effectively negated his Affidavit of Renunciation. which should have been filed within ten days from his proclamation.

xxxx Petitioner Casan Macode Maquiling (Maquiling), another candidate for mayor of Kauswagan, and
who garnered the second highest number of votes in the 2010 elections, intervened in the case
and filed before the COMELEC En Banc a Motion for Reconsideration together with an Opposition
Arnados continued use of his US passport is a strong indication that Arnado had no real intention
to Arnados Amended Motion for Reconsideration. Maquiling argued that while the First Division
to renounce his US citizenship and that he only executed an Affidavit of Renunciation to enable
correctly disqualified Arnado, the order of succession under Section 44 of the Local Government
him to run for office. We cannot turn a blind eye to the glaring inconsistency between Arnados
Code is not applicable in this case. Consequently, he claimed that the cancellation of Arnados
unexplained use of a US passport six times and his claim that he re-acquired his Philippine
candidacy and the nullification of his proclamation, Maquiling, as the legitimate candidate who
citizenship and renounced his US citizenship. As noted by the Supreme Court in the Yu case, "a
obtained the highest number of lawful votes, should be proclaimed as the winner.
passport is defined as an official document of identity and nationality issued to a person intending
Maquiling simultaneously filed his Memorandum with his Motion for Intervention and his Motion
for Reconsideration. Arnado opposed all motions filed by Maquiling, claiming that intervention is
prohibited after a decision has already been rendered, and that as a second-placer, Maquiling
undoubtedly lost the elections and thus does not stand to be prejudiced or benefitted by the final
adjudication of the case.
RULING OF THE COMELEC EN BANC
In its Resolution of 02 February 2011, the COMELEC En Banc held that under Section 6 of
Republic Act No. 6646, the Commission "shall continue with the trial and hearing of the action,
inquiry or protest even after the proclamation of the candidate whose qualifications for office is
questioned."
As to Maquilings intervention, the COMELEC En Banc also cited Section 6 of R.A. No. 6646 which
allows intervention in proceedings for disqualification even after elections if no final judgment has
been rendered, but went on further to say that Maquiling, as the second placer, would not be
prejudiced by the outcome of the case as it agrees with the dispositive portion of the Resolution
of the First Division allowing the order of succession under Section 44 of the Local Government
Code to take effect.
The COMELEC En Banc agreed with the treatment by the First Division of the petition as one for
disqualification, and ruled that the petition was filed well within the period prescribed by
law,24 having been filed on 28 April 2010, which is not later than 11 May 2010, the date of
proclamation.
However, the COMELEC En Banc reversed and set aside the ruling of the First Division and
granted Arnados Motion for Reconsideration, on the following premises:
First:
By renouncing his US citizenship as imposed by R.A. No. 9225, the respondent embraced his
Philippine citizenship as though he never became a citizen of another country. It was at that time,
April 3, 2009, that the respondent became a pure Philippine Citizen again.
xxxx
The use of a US passport does not operate to revert back his status as a dual citizen prior to
his renunciation as there is no law saying such. More succinctly, the use of a US passport does
not operate to "un-renounce" what he has earlier on renounced. The First Divisions reliance in
the case of In Re: Petition for Habeas Corpus of Willy Yu v. Defensor-Santiago, et al. is misplaced.
The petitioner in the said case is a naturalized citizen who, after taking his oath as a naturalized
Filipino, applied for the renewal of his Portuguese passport. Strict policy is maintained in the
conduct of citizens who are not natural born, who acquire their citizenship by choice, thus
discarding their original citizenship. The Philippine State expects strict conduct of allegiance to
those who choose to be its citizens. In the present case, respondent is not a naturalized citizen
but a natural born citizen who chose greener pastures by working abroad and then decided to
repatriate to supposedly help in the progress of Kauswagan. He did not apply for a US passport
after his renunciation. Thus the mentioned case is not on all fours with the case at bar.
xxxx
The respondent presented a plausible explanation as to the use of his US passport. Although he
applied for a Philippine passport, the passport was only issued on June 18, 2009. However, he
was not notified of the issuance of his Philippine passport so that he was actually able to get it
about three (3) months later. Yet as soon as he was in possession of his Philippine passport, the
respondent already used the same in his subsequent travels abroad. This fact is proven by the
respondents submission of a certified true copy of his passport showing that he used the same
for his travels on the following dates: January 31, 2010, April 16, 2010, May 20, 2010, January 12,
2010, March 31, 2010 and June 4, 2010. This then shows that the use of the US passport was
because to his knowledge, his Philippine passport was not yet issued to him for his use. As
probably pressing needs might be undertaken, the respondent used whatever is within his control
during that time.25
In his Separate Concurring Opinion, COMELEC Chairman Sixto Brillantes cited that the use of
foreign passport is not one of the grounds provided for under Section 1 of Commonwealth Act No.
63 through which Philippine citizenship may be lost.
"The application of the more assimilative principle of continuity of citizenship is more appropriate
in this case. Under said principle, once a person becomes a citizen, either by birth or naturalization,
it is assumed that he desires to continue to be a citizen, and this assumption stands until he
voluntarily denationalizes or expatriates himself. Thus, in the instant case respondent after
reacquiring his Philippine citizenship should be presumed to have remained a Filipino despite his
use of his American passport in the absence of clear, unequivocal and competent proof of
expatriation. Accordingly, all doubts should be resolved in favor of retention of citizenship."26
On the other hand, Commissioner Rene V. Sarmiento dissented, thus:
Respondent evidently failed to prove that he truly and wholeheartedly abandoned his allegiance
to the United States. The latters continued use of his US passport and enjoyment of all the
privileges of a US citizen despite his previous renunciation of the afore-mentioned citizenship runs
contrary to his declaration that he chose to retain only his Philippine citizenship. Respondents
submission with the twin requirements was obviously only for the purpose of complying with the
requirements for running for the mayoralty post in connection with the May 10, 2010 Automated
National and Local Elections.
Qualifications for elective office, such as citizenship, are continuing requirements; once any of
them is lost during his incumbency, title to the office itself is deemed forfeited. If a candidate is not
a citizen at the time he ran for office or if he lost his citizenship after his election to office, he is
disqualified to serve as such. Neither does the fact that respondent obtained the plurality of votes
for the mayoralty post cure the latters failure to comply with the qualification requirements
regarding his citizenship.
Since a disqualified candidate is no candidate at all in the eyes of the law, his having received the
highest number of votes does not validate his election. It has been held that where a petition for
disqualification was filed before election against a candidate but was adversely resolved against
him after election, his having obtained the highest number of votes did not make his election valid.
His ouster from office does not violate the principle of vox populi suprema est lex because the
application of the constitutional and statutory provisions on disqualification is not a matter of
popularity. To apply it is to breath[e] life to the sovereign will of the people who expressed it when
they ratified the Constitution and when they elected their representatives who enacted the law. 27
THE PETITION BEFORE THE COURT
Maquiling filed the instant petition questioning the propriety of declaring Arnado qualified to run for
public office despite his continued use of a US passport, and praying that Maquiling be proclaimed
as the winner in the 2010 mayoralty race in Kauswagan, Lanao del Norte.
Ascribing both grave abuse of discretion and reversible error on the part of the COMELEC En
Banc for ruling that Arnado is a Filipino citizen despite his continued use of a US passport,
Maquiling now seeks to reverse the finding of the COMELEC En Banc that Arnado is qualified to
run for public office.
Corollary to his plea to reverse the ruling of the COMELEC En Banc or to affirm the First Divisions
disqualification of Arnado, Maquiling also seeks the review of the applicability of Section 44 of the
Local Government Code, claiming that the COMELEC committed reversible error in ruling that
"the succession of the vice mayor in case the respondent is disqualified is in order."
There are three questions posed by the parties before this Court which will be addressed seriatim
as the subsequent questions hinge on the result of the first.
The first question is whether or not intervention is allowed in a disqualification case.
The second question is whether or not the use of a foreign passport after renouncing foreign
citizenship amounts to undoing a renunciation earlier made.
A better framing of the question though should be whether or not the use of a foreign passport
after renouncing foreign citizenship affects ones qualifications to run for public office.
The third question is whether or not the rule on succession in the Local Government Code is
applicable to this case.
OUR RULING
Intervention of a rival candidate in a
disqualification case is proper when
there has not yet been any
proclamation of the winner.
Petitioner Casan Macode Maquiling intervened at the stage when respondent Arnado filed a
Motion for Reconsideration of the First Division Resolution before the COMELEC En Banc. As the
candidate who garnered the second highest number of votes, Maquiling contends that he has an
interest in the disqualification case filed against Arnado, considering that in the event the latter is
disqualified, the votes cast for him should be considered stray and the second-placer should be
proclaimed as the winner in the elections.
It must be emphasized that while the original petition before the COMELEC is one for cancellation
of the certificate of candidacy and / or disqualification, the COMELEC First Division and the
COMELEC En Banc correctly treated the petition as one for disqualification.
The effect of a disqualification case is enunciated in Section 6 of R.A. No. 6646:
Sec. 6. Effect of Disqualification Case. - Any candidate who has been declared by final judgment
to be disqualified shall not be voted for, and the votes cast for him shall not be counted. If for any
reason a candidate is not declared by final judgment before an election to be disqualified and he
is voted for and receives the winning number of votes in such election, the Court or Commission
shall continue with the trial and hearing of the action, inquiry, or protest and, upon motion of the
complainant or any intervenor, may during the pendency thereof order the suspension of the
proclamation of such candidate whenever the evidence of his guilt is strong.
Mercado v. Manzano28
clarified the right of intervention in a disqualification case. In that case, the Court said:
That petitioner had a right to intervene at that stage of the proceedings for the disqualification
against private respondent is clear from Section 6 of R.A. No. 6646, otherwise known as the
Electoral Reforms Law of 1987, which provides: Any candidate who has been declared by final
judgment to be disqualified shall not be voted for, and the votes cast for him shall not be counted.
If for any reason a candidate is not declared by final judgment before an election to be disqualified
and he is voted for and receives the winning number of votes in such election, the Court or
Commission shall continue with the trial and hearing of the action, inquiry, or protest and, upon
motion of the complainant or any intervenor, may during the pendency thereof order the
suspension of the proclamation of such candidate whenever the evidence of guilt is strong. Under
this provision, intervention may be allowed in proceedings for disqualification even after election
if there has yet been no final judgment rendered.29
Clearly then, Maquiling has the right to intervene in the case. The fact that the COMELEC En Banc
has already ruled that Maquiling has not shown that the requisites for the exemption to the second-
placer rule set forth in Sinsuat v. COMELEC30 are present and therefore would not be prejudiced
by the outcome of the case, does not deprive Maquiling of the right to elevate the matter before
this Court.
Arnados claim that the main case has attained finality as the original petitioner and respondents
therein have not appealed the decision of the COMELEC En Banc, cannot be sustained. The
elevation of the case by the intervenor prevents it from attaining finality. It is only after this Court
has ruled upon the issues raised in this instant petition that the disqualification case originally filed
by Balua against Arnado will attain finality.
The use of foreign passport after renouncing ones foreign citizenship is a positive and
voluntary act of representation as to ones nationality and citizenship; it does not divest
Filipino citizenship regained by repatriation but it recants the Oath of Renunciation
required to qualify one to run for an elective position.
Section 5(2) of The Citizenship Retention and Re-acquisition Act of 2003 provides:
Those who retain or re-acquire Philippine citizenship under this Act shall enjoy full civil and political
rights and be subject to all attendant liabilities and responsibilities under existing laws of the
Philippines and the following conditions:
xxxx
(2)Those seeking elective public in the Philippines shall meet the qualification for holding such
public office as required by the Constitution and existing laws and, at the time of the filing of the
certificate of candidacy, make a personal and sworn renunciation of any and all foreign before any
public officer authorized to administer an oath.
x x x31
Rommel Arnado took all the necessary steps to qualify to run for a public office. He took the Oath
of Allegiance and renounced his foreign citizenship. There is no question that after performing
these twin requirements required under Section 5(2) of R.A. No. 9225 or the Citizenship Retention
and Re-acquisition Act of 2003, he became eligible to run for public office.
Indeed, Arnado took the Oath of Allegiance not just only once but twice: first, on 10 July 2008
when he applied for repatriation before the Consulate General of the Philippines in San Francisco,
USA, and again on 03 April 2009 simultaneous with the execution of his Affidavit of Renunciation.
By taking the Oath of Allegiance to the Republic, Arnado re-acquired his Philippine citizenship. At
the time, however, he likewise possessed American citizenship. Arnado had therefore become a
dual citizen.
After reacquiring his Philippine citizenship, Arnado renounced his American citizenship by
executing an Affidavit of Renunciation, thus completing the requirements for eligibility to run for
public office.
By renouncing his foreign citizenship, he was deemed to be solely a Filipino citizen, regardless of
the effect of such renunciation under the laws of the foreign country. 32
However, this legal presumption does not operate permanently and is open to attack when, after
renouncing the foreign citizenship, the citizen performs positive acts showing his continued
possession of a foreign citizenship.33
Arnado himself subjected the issue of his citizenship to attack when, after renouncing his foreign
citizenship, he continued to use his US passport to travel in and out of the country before filing his
certificate of candidacy on 30 November 2009. The pivotal question to determine is whether he
was solely and exclusively a Filipino citizen at the time he filed his certificate of candidacy, thereby
rendering him eligible to run for public office.
Between 03 April 2009, the date he renounced his foreign citizenship, and 30 November 2009,
the date he filed his COC, he used his US passport four times, actions that run counter to the
affidavit of renunciation he had earlier executed. By using his foreign passport, Arnado positively
and voluntarily represented himself as an American, in effect declaring before immigration
authorities of both countries that he is an American citizen, with all attendant rights and privileges
granted by the United States of America.
The renunciation of foreign citizenship is not a hollow oath that can simply be professed at any
time, only to be violated the next day. It requires an absolute and perpetual renunciation of the
foreign citizenship and a full divestment of all civil and political rights granted by the foreign country
which granted the citizenship.
Mercado v. Manzano34 already hinted at this situation when the Court declared:
His declarations will be taken upon the faith that he will fulfill his undertaking made under oath.
Should he betray that trust, there are enough sanctions for declaring the loss of his Philippine
citizenship through expatriation in appropriate proceedings. In Yu v. Defensor-Santiago, we
sustained the denial of entry into the country of petitioner on the ground that, after taking his oath
as a naturalized citizen, he applied for the renewal of his Portuguese passport and declared in
commercial documents executed abroad that he was a Portuguese national. A similar sanction
can be taken against anyone who, in electing Philippine citizenship, renounces his foreign
nationality, but subsequently does some act constituting renunciation of his Philippine citizenship.
While the act of using a foreign passport is not one of the acts enumerated in Commonwealth Act
No. 63 constituting renunciation and loss of Philippine citizenship,35 it is nevertheless an act which
repudiates the very oath of renunciation required for a former Filipino citizen who is also a citizen
of another country to be qualified to run for a local elective position.
When Arnado used his US passport on 14 April 2009, or just eleven days after he renounced his
American citizenship, he recanted his Oath of Renunciation36 that he "absolutely and perpetually
renounce(s) all allegiance and fidelity to the UNITED STATES OF AMERICA" 37 and that he
"divest(s) himself of full employment of all civil and political rights and privileges of the United
States of America."38
We agree with the COMELEC En Banc that such act of using a foreign passport does not divest
Arnado of his Filipino citizenship, which he acquired by repatriation. However, by representing
himself as an American citizen, Arnado voluntarily and effectively reverted to his earlier status as
a dual citizen. Such reversion was not retroactive; it took place the instant Arnado represented
himself as an American citizen by using his US passport.
This act of using a foreign passport after renouncing ones foreign citizenship is fatal to Arnados
bid for public office, as it effectively imposed on him a disqualification to run for an elective local
position.
Arnados category of dual citizenship is that by which foreign citizenship is acquired through a
positive act of applying for naturalization. This is distinct from those considered dual citizens by
virtue of birth, who are not required by law to take the oath of renunciation as the mere filing of the
certificate of candidacy already carries with it an implied renunciation of foreign citizenship.39 Dual
citizens by naturalization, on the other hand, are required to take not only the Oath of Allegiance
to the Republic of the Philippines but also to personally renounce foreign citizenship in order to
qualify as a candidate for public office.
By the time he filed his certificate of candidacy on 30 November 2009, Arnado was a dual citizen
enjoying the rights and privileges of Filipino and American citizenship. He was qualified to vote,
but by the express disqualification under Section 40(d) of the Local Government Code, 40 he was
not qualified to run for a local elective position.
In effect, Arnado was solely and exclusively a Filipino citizen only for a period of eleven days, or
from 3 April 2009 until 14 April 2009, on which date he first used his American passport after
renouncing his American citizenship.
This Court has previously ruled that:
Qualifications for public office are continuing requirements and must be possessed not only at the
time of appointment or election or assumption of office but during the officer's entire tenure. Once
any of the required qualifications is lost, his title may be seasonably challenged. x x x. 41
The citizenship requirement for elective public office is a continuing one. It must be possessed not
just at the time of the renunciation of the foreign citizenship but continuously. Any act which
violates the oath of renunciation opens the citizenship issue to attack.
We agree with the pronouncement of the COMELEC First Division that "Arnados act of
consistently using his US passport effectively negated his "Affidavit of Renunciation." 42 This does
not mean, that he failed to comply with the twin requirements under R.A. No. 9225, for he in fact
did.
It was after complying with the requirements that he performed positive acts which effectively
disqualified him from running for an elective public office pursuant to Section 40(d) of the Local
Government Code of 1991.
The purpose of the Local Government Code in disqualifying dual citizens from running for any
elective public office would be thwarted if we were to allow a person who has earlier renounced
his foreign citizenship, but who subsequently represents himself as a foreign citizen, to hold any
public office.
Arnado justifies the continued use of his US passport with the explanation that he was not notified
of the issuance of his Philippine passport on 18 June 2009, as a result of which he was only able
to obtain his Philippine passport three (3) months later.43
The COMELEC En Banc differentiated Arnado from Willy Yu, the Portuguese national who sought
naturalization as a Filipino citizen and later applied for the renewal of his Portuguese passport.
That Arnado did not apply for a US passport after his renunciation does not make his use of a US
passport less of an act that violated the Oath of Renunciation he took. It was still a positive act of
representation as a US citizen before the immigration officials of this country.
The COMELEC, in ruling favorably for Arnado, stated "Yet, as soon as he was in possession of
his Philippine passport, the respondent already used the same in his subsequent travels
abroad."44 We cannot agree with the COMELEC. Three months from June is September. If indeed,
Arnado used his Philippine passport as soon as he was in possession of it, he would not have
used his US passport on 24 November 2009.
Besides, Arnados subsequent use of his Philippine passport does not correct the fact that after
he renounced his foreign citizenship and prior to filing his certificate of candidacy, he used his US
passport. In the same way that the use of his foreign passport does not undo his Oath of
Renunciation, his subsequent use of his Philippine passport does not undo his earlier use of his
US passport.
Citizenship is not a matter of convenience. It is a badge of identity that comes with attendant civil
and political rights accorded by the state to its citizens. It likewise demands the concomitant duty
to maintain allegiance to ones flag and country. While those who acquire dual citizenship by
choice are afforded the right of suffrage, those who seek election or appointment to public office
are required to renounce their foreign citizenship to be deserving of the public trust. Holding public
office demands full and undivided allegiance to the Republic and to no other.
We therefore hold that Arnado, by using his US passport after renouncing his American
citizenship, has recanted the same Oath of Renunciation he took. Section 40(d) of the Local
Government Code applies to his situation. He is disqualified not only from holding the public office
but even from becoming a candidate in the May 2010 elections.
We now resolve the next issue.
Resolving the third issue necessitates revisiting Topacio v. Paredes45 which is the jurisprudential
spring of the principle that a second-placer cannot be proclaimed as the winner in an election
contest. This doctrine must be re-examined and its soundness once again put to the test to
address the ever-recurring issue that a second-placer who loses to an ineligible candidate cannot
be proclaimed as the winner in the elections.
The Facts of the case are as follows:
On June 4, 1912, a general election was held in the town of Imus, Province of Cavite, to fill the
office of municipal president. The petitioner, Felipe Topacio, and the respondent, Maximo Abad,
were opposing candidates for that office. Topacio received 430 votes, and Abad 281. Abad
contested the election upon the sole ground that Topacio was ineligible in that he was reelected
the second time to the office of the municipal president on June 4, 1912, without the four years
required by Act No. 2045 having intervened.46
Abad thus questioned the eligibility of To p a c i o on the basis of a statutory prohibition for seeking
a second re-election absent the four year interruption.
The often-quoted phrase in Topacio v. Paredes is that "the wreath of victory cannot be transferred
from an ineligible candidate to any other candidate when the sole question is the eligibility of the
one receiving a plurality of the legally cast ballots."47
This phrase is not even the ratio decidendi; it is a mere obiter dictum. The Court was comparing
"the effect of a decision that a candidate is not entitled to the office because of fraud or irregularities
in the elections x x x with that produced by declaring a person ineligible to hold such an office."
The complete sentence where the phrase is found is part of a comparison and contrast between
the two situations, thus:
Again, the effect of a decision that a candidate is not entitled to the office because of fraud or
irregularities in the elections is quite different from that produced by declaring a person ineligible
to hold such an office. In the former case the court, after an examination of the ballots may find
that some other person than the candidate declared to have received a plurality by the board of
canvassers actually received the greater number of votes, in which case the court issues its
mandamus to the board of canvassers to correct the returns accordingly; or it may find that the
manner of holding the election and the returns are so tainted with fraud or illegality that it cannot
be determined who received a plurality of the legally cast ballots. In the latter case, no question
as to the correctness of the returns or the manner of casting and counting the ballots is before the
deciding power, and generally the only result can be that the election fails entirely. In the former,
we have a contest in the strict sense of the word, because of the opposing parties are striving for
supremacy. If it be found that the successful candidate (according to the board of canvassers)
obtained a plurality in an illegal manner, and that another candidate was the real victor, the former
must retire in favor of the latter. In the other case, there is not, strictly speaking, a contest, as the
wreath of victory cannot be transferred from an ineligible candidate to any other candidate when
the sole question is the eligibility of the one receiving a plurality of the legally cast ballots. In the
one case the question is as to who received a plurality of the legally cast ballots; in the other, the
question is confined to the personal character and circumstances of a single
individual.48 (Emphasis supplied)
Note that the sentence where the phrase is found starts with "In the other case, there is not, strictly
speaking, a contest" in contrast to the earlier statement, "In the former, we have a contest in the
strict sense of the word, because of the opposing parties are striving for supremacy."
The Court in Topacio v. Paredes cannot be said to have held that "the wreath of victory cannot be
transferred from an ineligible candidate to any other candidate when the sole question is the
eligibility of the one receiving a plurality of the legally cast ballots."
A proper reading of the case reveals that the ruling therein is that since the Court of First Instance
is without jurisdiction to try a disqualification case based on the eligibility of the person who
obtained the highest number of votes in the election, its jurisdiction being confined "to determine
which of the contestants has been duly elected" the judge exceeded his jurisdiction when he
"declared that no one had been legally elected president of the municipality of Imus at the general
election held in that town on 4 June 1912" where "the only question raised was whether or not
Topacio was eligible to be elected and to hold the office of municipal president."
The Court did not rule that Topacio was disqualified and that Abad as the second placer cannot
be proclaimed in his stead. The Court therein ruled:
For the foregoing reasons, we are of the opinion and so hold that the respondent judge exceeded
his jurisdiction in declaring in those proceedings that no one was elected municipal president of
the municipality of Imus at the last general election; and that said order and all subsequent
proceedings based thereon are null and void and of no effect; and, although this decision is
rendered on respondents' answer to the order to show cause, unless respondents raised some
new and additional issues, let judgment be entered accordingly in 5 days, without costs. So
ordered.49
On closer scrutiny, the phrase relied upon by a host of decisions does not even have a legal basis
to stand on. It was a mere pronouncement of the Court comparing one process with another and
explaining the effects thereof. As an independent statement, it is even illogical.
Let us examine the statement:
"x x x the wreath of victory cannot be transferred from an ineligible candidate to any other
candidate when the sole question is the eligibility of the one receiving a plurality of the legally cast
ballots."
What prevents the transfer of the wreath of victory from the ineligible candidate to another
candidate?
When the issue being decided upon by the Court is the eligibility of the one receiving a plurality of
the legally cast ballots and ineligibility is thereafter established, what stops the Court from
adjudging another eligible candidate who received the next highest number of votes as the winner
and bestowing upon him that "wreath?"
An ineligible candidate who receives the highest number of votes is a wrongful winner. By express
legal mandate, he could not even have been a candidate in the first place, but by virtue of the lack
of material time or any other intervening circumstances, his ineligibility might not have been
passed upon prior to election date. Consequently, he may have had the opportunity to hold himself
out to the electorate as a legitimate and duly qualified candidate. However, notwithstanding the
outcome of the elections, his ineligibility as a candidate remains unchanged. Ineligibility does not
only pertain to his qualifications as a candidate but necessarily affects his right to hold public office.
The number of ballots cast in his favor cannot cure the defect of failure to qualify with the
substantive legal requirements of eligibility to run for public office.
The popular vote does not cure
ineligibility of a candidate.
The ballot cannot override the constitutional and statutory requirements for qualifications and
disqualifications of candidates. When the law requires certain qualifications to be possessed or
that certain disqualifications be not possessed by persons desiring to serve as elective public
officials, those qualifications must be met before one even becomes a candidate. When a person
who is not qualified is voted for and eventually garners the highest number of votes, even the will
of the electorate expressed through the ballot cannot cure the defect in the qualifications of the
candidate. To rule otherwise is to trample upon and rent asunder the very law that sets forth the
qualifications and disqualifications of candidates. We might as well write off our election laws if the
voice of the electorate is the sole determinant of who should be proclaimed worthy to occupy
elective positions in our republic.
This has been, in fact, already laid down by the Court in Frivaldo v. COMELEC50 when we
pronounced:
x x x. The fact that he was elected by the people of Sorsogon does not excuse this patent violation
of the salutary rule limiting public office and employment only to the citizens of this country. The
qualifications prescribed for elective office cannot be erased by the electorate alone.
The will of the people as expressed through the ballot cannot cure the vice of ineligibility, especially
if they mistakenly believed, as in this case, that the candidate was qualified. Obviously, this rule
requires strict application when the deficiency is lack of citizenship. If a person seeks to serve in
the Republic of the Philippines, he must owe his total loyalty to this country only, abjuring and
renouncing all fealty and fidelity to any other state.51 (Emphasis supplied)
This issue has also been jurisprudentially clarified in Velasco v. COMELEC52 where the Court
ruled that the ruling in Quizon and Saya-ang cannot be interpreted without qualifications lest
"Election victory x x x becomes a magic formula to bypass election eligibility requirements."53
We have ruled in the past that a candidates victory in the election may be considered a sufficient
basis to rule in favor of the candidate sought to be disqualified if the main issue involves defects
in the candidates certificate of candidacy. We said that while provisions relating to certificates of
candidacy are mandatory in terms, it is an established rule of interpretation as regards election
laws, that mandatory provisions requiring certain steps before elections will be construed as
directory after the elections, to give effect to the will of the people. We so ruled in Quizon v.
COMELEC and Saya-ang v. COMELEC:
The present case perhaps presents the proper time and opportunity to fine-tune our above ruling.
We say this with the realization that a blanket and unqualified reading and application of this ruling
can be fraught with dangerous significance for the rule of law and the integrity of our elections.
For one, such blanket/unqualified reading may provide a way around the law that effectively
negates election requirements aimed at providing the electorate with the basic information to make
an informed choice about a candidates eligibility and fitness for office.
The first requirement that may fall when an unqualified reading is made is Section 39 of the LGC
which specifies the basic qualifications of local government officials. Equally susceptive of being
rendered toothless is Section 74 of the OEC that sets out what should be stated in a COC. Section
78 may likewise be emasculated as mere delay in the resolution of the petition to cancel or deny
due course to a COC can render a Section 78 petition useless if a candidate with false COC data
wins. To state the obvious, candidates may risk falsifying their COC qualifications if they know that
an election victory will cure any defect that their COCs may have. Election victory then becomes
a magic formula to bypass election eligibility requirements. (Citations omitted)
the
What will stop an otherwise disqualified individual from filing a seemingly valid COC, concealing
any disqualification, and employing every strategy to delay any disqualification case filed against
him so he can submit himself to the electorate and win, if winning the election will guarantee a
disregard of constitutional and statutory provisions on qualifications and disqualifications of
candidates?
It is imperative to safeguard the expression of the sovereign voice through the ballot by ensuring
that its exercise respects the rule of law. To allow the sovereign voice spoken through the ballot
to trump constitutional and statutory provisions on qualifications and disqualifications of
candidates is not democracy or republicanism. It is electoral anarchy. When set rules are
disregarded and only the electorates voice spoken through the ballot is made to matter in the end, motion of the complainant or any intervenor, may during the pendency thereof order the
it precisely serves as an open invitation for electoral anarchy to set in.1wphi1 suspension of the proclamation of such candidate whenever the evidence of his guilt is strong.

Maquiling is not a second-placer as There was no chance for Arnados proclamation to be suspended under this rule because Arnado
he obtained the highest number of failed to file his answer to the petition seeking his disqualification. Arnado only filed his Answer on
votes from among the qualified 15 June 2010, long after the elections and after he was already proclaimed as the winner.
candidates.
The disqualifying circumstance surrounding Arnados candidacy involves his citizenship. It does
With Arnados disqualification, Maquiling then becomes the winner in the election as he obtained not involve the commission of election offenses as provided for in the first sentence of Section 68
the highest number of votes from among the qualified candidates. of the Omnibus Election Code, the effect of which is to disqualify the individual from continuing as
a candidate, or if he has already been elected, from holding the office.
We have ruled in the recent cases of Aratea v. COMELEC54 and Jalosjos v. COMELEC55 that a
void COC cannot produce any legal effect. The disqualifying circumstance affecting Arnado is his citizenship. As earlier discussed, Arnado
was both a Filipino and an American citizen when he filed his certificate of candidacy. He was a
dual citizen disqualified to run for public office based on Section 40(d) of the Local Government
Thus, the votes cast in favor of the ineligible candidate are not considered at all in determining the
Code.
winner of an election.

Section 40 starts with the statement "The following persons are disqualified from running for any
Even when the votes for the ineligible candidate are disregarded, the will of the electorate is still
elective local position." The prohibition serves as a bar against the individuals who fall under any
respected, and even more so. The votes cast in favor of an ineligible candidate do not constitute
of the enumeration from participating as candidates in the election.
the sole and total expression of the sovereign voice. The votes cast in favor of eligible and
legitimate candidates form part of that voice and must also be respected.
With Arnado being barred from even becoming a candidate, his certificate of candidacy is thus
rendered void from the beginning. It could not have produced any other legal effect except that
As in any contest, elections are governed by rules that determine the qualifications and
Arnado rendered it impossible to effect his disqualification prior to the elections because he filed
disqualifications of those who are allowed to participate as players. When there are participants
his answer to the petition when the elections were conducted already and he was already
who turn out to be ineligible, their victory is voided and the laurel is awarded to the next in rank
proclaimed the winner.
who does not possess any of the disqualifications nor lacks any of the qualifications set in the
rules to be eligible as candidates.
To hold that such proclamation is valid is to negate the prohibitory character of the disqualification
which Arnado possessed even prior to the filing of the certificate of candidacy. The affirmation of
There is no need to apply the rule cited in Labo v. COMELEC56 that when the voters are well
Arnado's disqualification, although made long after the elections, reaches back to the filing of the
aware within the realm of notoriety of a candidates disqualification and still cast their votes in favor
certificate of candidacy. Arnado is declared to be not a candidate at all in the May 201 0 elections.
said candidate, then the eligible candidate obtaining the next higher number of votes may be
deemed elected. That rule is also a mere obiter that further complicated the rules affecting qualified
candidates who placed second to ineligible ones. Arnado being a non-candidate, the votes cast in his favor should not have been counted. This
leaves Maquiling as the qualified candidate who obtained the highest number of votes. Therefore,
the rule on succession under the Local Government Code will not apply.
The electorates awareness of the candidates disqualification is not a prerequisite for the
disqualification to attach to the candidate. The very existence of a disqualifying circumstance
makes the candidate ineligible. Knowledge by the electorate of a candidates disqualification is not WHEREFORE, premises considered, the Petition is GRANTED. The Resolution of the COMELEC
necessary before a qualified candidate who placed second to a disqualified one can be proclaimed En Bane dated 2 February 2011 is hereby ANNULLED and SET ASIDE. Respondent ROMMEL
as the winner. The second-placer in the vote count is actually the first-placer among the qualified ARNADO y CAGOCO is disqualified from running for any local elective position. CASAN MACODE
candidates. MAQUILING is hereby DECLARED the duly elected Mayor of Kauswagan, Lanao del Norte in the
10 May 2010 elections.
That the disqualified candidate has already been proclaimed and has assumed office is of no
moment. The subsequent disqualification based on a substantive ground that existed prior to the This Decision is immediately executory.
filing of the certificate of candidacy voids not only the COC but also the proclamation.
Let a copy of this Decision be served personally upon the parties and the Commission on
Section 6 of R.A. No. 6646 provides: Elections.

Section 6. Effect of Disqualification Case. - Any candidate who has been declared by final No pronouncement as to costs.
judgment to be disqualified shall not be voted for, and the votes cast for him shall not be counted.
If for any reason a candidate is not declared by final judgment before an election to be disqualified
SO
and he is voted for and receives the winning number of votes in such election, the Court or
Commission shall continue with the trial and hearing of the action, inquiry, or protest and, upon