1
EN BANC Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation
G.R. No. 176579 October 9, 2012
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.
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
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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:
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."
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may
not be constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares
into common voting shares and preferred non-voting shares, any 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 (voting) shares in the Japanese group, while retaining 60% of
the total percentage of common and preferred shares in Filipino hands would amount to
circumvention of the principle of control by Philippine stockholders that is implicit in the 60%
Philippine nationality requirement in the Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, 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 complied with unless the
corporation "satisfies the criterion of beneficial ownership" and that in applying the same "the
primordial consideration is situs of control."
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:
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)
Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40
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 in the economic
provisions of the Constitution.
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 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 empowered to issue opinions and approve rules
and regulations. Thus:
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 Commission except its
review or appellate authority and its power to adopt, alter and supplement any rule or regulation.
The Commission may review upon its own initiative or upon the petition of any interested party any
action of any department or office, individual Commissioner, or staff member of the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders;
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.

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because:
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
(1) sixty percent (60%) of its outstanding capital stock entitled to vote is owned by a Philippine national,
commissioners or legal staff, is empowered to issue opinions which have the same binding effect as SEC
the Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine
rules and regulations, thus:
nationals. Still pursuant to the Control Test, MLRC’s investment in 60% of BFDC’s outstanding capital
stock entitled to vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own
private land. JUSTICE CARPIO: So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?


COMMISSIONER GAITE: That’s correct, Your Honor.
JUSTICE CARPIO: Can the Commission En Banc delegate this function to an SEC officer?
COMMISSIONER GAITE: Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO: It can be delegated. What cannot be delegated by the Commission En Banc to a
commissioner or an individual employee of the Commission?
COMMISSIONER GAITE: Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO: What cannot be delegated, among others, is the power to adopt or amend rules and
regulations, correct?
COMMISSIONER GAITE: That’s correct, Your Honor.
JUSTICE CARPIO: So, you combine the two (2), the SEC officer, if delegated that power, can issue an
opinion but that opinion does not constitute a rule or regulation, correct?
COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: So, all of these opinions that you mentioned they are not rules and regulations,
correct?
COMMISSIONER GAITE: They are not rules and regulations.
JUSTICE CARPIO: If they are not rules and regulations, they apply only to that particular situation and will
not constitute a precedent, correct?
COMMISSIONER GAITE: Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue rules 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 adopted to thwart any
circumvention of the required Filipino "ownership and control," is laid down in the 25 March 2010
SEC en banc ruling in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:
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 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 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.
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Compliance with the constitutional limitation(s) on engaging in nationalized activities must be
determined by ascertaining if 60% of the investing corporation’s outstanding capital stock is owned 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 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.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one
of the discussions on what is now Article XII of the present Constitution, the framers made the following
exchange:
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 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. (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 Court’s 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
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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 corporation’s 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)
5
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:
6
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? That’s 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: Yes, Your Honor.

JUSTICE CARPIO: 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 percent (60%) of the voting stock is
owned by citizens of the Philippines, correct?
COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: And, you are also aware that under the predecessor law of the Foreign Investments Act
of 1991, the Omnibus Investments Act of 1987, the same provisions apply: x x x only Philippine nationals
can own and operate a public utility and the Philippine national, if it is a corporation, x x x sixty percent
(60%) of the capital stock of that corporation must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: 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 corporation, sixty percent (60%) of its x x x voting stock,
must be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: And even prior to that, under [the]1967 Investments Incentives Act and the Foreign
Company Act of 1968, the same rules applied, correct?
COMMISSIONER GAITE: Correct, Your Honor.
JUSTICE CARPIO: 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%) of the voting stock must be owned by citizens of the Philippines,
correct?
COMMISSIONER GAITE: Correct, Your Honor.33 (Emphasis supplied)
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 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 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, as well as counsels of foreign investors, should start with
the FIA in determining to what extent a particular foreign investment is allowed in the Philippines.
Foreign investors and their counsels who ignore the FIA do so at their own peril. Foreign investors and
their counsels who rely on opinions of SEC legal officers that obviously contradict the FIA do so also at
their own peril.
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 of a "Philippine
national" in Section 3(a) of the FIA in determining whether a particular corporation is qualified to own
7
and operate a nationalized or partially nationalized business in the Philippines. 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:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine Overseas
Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S.
Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los
Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.
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
8
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 Pangilinan’s
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.
9
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 Court’s 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 Court’s declaration
that the Constitution reserved exclusively to Philippine nationals the ownership and operation of public
utilities consistent with the State’s 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 Sutherland’s
words in Humphrey’s 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
latter’s 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."
THE PRESIDENT: Will Commissioner Jamir first explain?
10
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.
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.
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.
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.
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 managing officers of such
corporation or association must be citizens of the Philippines." In other words, the last sentence of
Section 11, Article XII of the Constitution mandates that (1) the 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 or association must be Filipino citizens.
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
 11

were designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino control FR. BERNAS. Will the committee accept a reformulation of the first part?
of public utilities, thus:
MR. BENGZON. Let us hear it.
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
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads:
BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position paper.
"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..."
THE PRESIDENT. The Commissioner may proceed.
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
Commissioner Romulo mentioned – Philippine Global Communications, Eastern Telecommunications,
Globe Mackay Cable – are 40-percent owned by foreign multinational companies and 60-percent owned
MR. BENGZON. Will Commissioner Bernas read the whole thing again?
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 carriers are foreigners. While the foreigners in these FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC
common carriers are only minority owners, the foreign multinationals are the ones managing and UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF..." I
controlling their operations by virtue of their management contracts and by virtue of their strength in do not have the rest of the copy.
the governing bodies of these carriers.47
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
amendment with respect to the operating management of public utilities, and in this amendment, we
are associated with Fr. Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state MR. VILLEGAS. Yes.
this amendment now.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept the
Thank you. 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. MR. DE LOS REYES. The governing body refers to the board of directors and trustees.

MS. ROSARIO BRAID. Yes. MR. VILLEGAS. That is right.

MR. VILLEGAS. Yes, Madam President. 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 MR. REGALADO. It is accepted.
EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES."
MR. RAMA. The body is now ready to vote, Madam President.

This will prevent management contracts and assure control by Filipino citizens. Will the committee
assure us that this amendment will insure that past activities such as management contracts will no VOTING
longer be possible under this amendment?
The results show 29 votes in favor and none against; so the proposed amendment is approved.
FR. BERNAS. Madam President.
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
THE PRESIDENT. Commissioner Bernas is recognized.
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
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 PLDT’s 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 Court’s jurisdiction, but well
within the SEC’s 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.
12
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
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 SEC’s 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 SEC’s 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 BOC’s 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 Court’s decision and defer to
the Court’s 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 Court’s jurisdiction. It is clear, therefore, that there exists no legal impediment
against the proper and immediate implementation of the Court’s directive to the SEC.
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 Court’s 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 Court’s ruling is
addressed not to PLDT but solely to the SEC, which is the administrative agency tasked to enforce the
60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution.
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 PLDT’s property or denial of PLDT’s right to due process, contrary to Pangilinan and
Nazareno’s 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
13
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.
Villegas’s 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. Villegas’s 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
PLDT’s 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 FIA’s implementing rules explain that "[f]or stocks to
be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voting rights is essential." 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
14
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.
Facts:
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise
and the right to engage in telecommunications business. In 1969, General Telephone and Electronics
Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the
outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of
111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were
sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by
this Court to be owned by the Republic of the Philippines. Since PTIC is a stockholder of PLDT, the sale by
the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million
shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the
common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII
of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not
more than 40 percent.
Issue: Whether or not the term capital in Section 11, Article XII of the Constitution refers to the common
shares of PLDT, a public utility.
Held:
Yes. Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the
Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
 15

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)
dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This
undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with
the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation
to be granted authority to operate a public utility, at least 60 percent of its capital must be owned by
Filipino citizens.

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the
Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore,
ownership of record of shares will not suffice but it must be shown that the legal and beneficial
ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is
already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the
acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the
nominee arrangements between the foreign principals and the Filipino owners is likewise admitted,
there is, therefore, a violation of Section 11, Article XII of the Constitution.

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

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

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands
of Filipino citizens the control and management of public utilities.

As shown in PLDTs 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and have only 1/70 of the

EN BANC
G.R. No. 207246 | April 18, 2017
JOSE M. ROY III, Petitioner
vs.
CHAIRPERSON TERESITA HERBOSA, THE SECURITIES AND EXCHANGE COMMISSION, and PHILIPPINE
LONG DISTANCE TELEPHONE COMP ANY,, Respondents
RESOLUTION
CAGUIOA, J.:
Before the Court is the Motion for Reconsideration dated January 19, 20171 (the Motion) filed by
petitioner Jose M. Roy III (movant) seeking the reversal and setting aside of the Decision dated
November 22, 20162 (the Decision) which denied the movant's petition, and declared that the Securities
and Exchange Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum
Circular No. 8, Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance Secretary Teves,3(Gamboa Decision) and the
resolution4 denying the Motion for Reconsideration therein (Gamboa Resolution).
The Motion presents no compelling and new arguments to justify the reconsideration of the Decision.
The grounds raised by movant are: (1) He has the requisite standing because this case is one of
transcendental importance; (2) The Court has the constitutional duty to exercise judicial review over any
grave abuse of discretion by any instrumentality of government; (3) He did not rely on an obiter
dictum; and (4) The Court should have treated the petition as the appropriate device to explain the
Gamboa Decision.
The Decision has already exhaustively discussed and directly passed upon these grounds. Movant's
petition was dismissed based on both procedural and substantive grounds.
Regarding the procedural grounds, the Court ruled that petitioners (movant and petitioners-in-
intervention) failed to sufficiently allege and establish the existence of a case or controversy and locus
standi on their part to warrant the Court's exercise of judicial review; the rule on the hierarchy of courts
was violated; and petitioners failed to implead indispensable parties such as the Philippine Stock
Exchange, Inc. and Shareholders' Association of the Philippines, Inc. 5
In connection with the failure to implead indispensable parties, the Court's Decision held:
Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-interest without whom
there can be no final determination of an action. Indispensable parties are those with such a material
and direct interest in the controversy that a final decree would necessarily affect their rights, so that the
court cannot proceed without their presence. The interests of such indispensable parties in the subject
matter of the suit and the relief are so bound with those of the other parties that their legal presence as
parties to the proceeding is an absolute necessity and a complete and efficient determination of the
equities and rights of the parties is not possible if they are not joined.
16
Other than PLDT, the petitions failed to join or implead other public utility corporations subject to the
same restriction imposed by Section 11, Article XII of the Constitution. These corporations are in danger
of losing their franchise and property if they are found not compliant with the restrictive interpretation
of the constitutional provision under review which is being espoused by petitioners. They should be
afforded due notice and opportunity to be heard, lest they be deprived of their property without due
process.
Not only are public utility corporations other than PLDT directly and materially affected by the outcome
of the petitions, their shareholders also stand to suffer in case they will be forced to divest their
shareholdings to ensure compliance with the said restrictive interpretation of the term "capital". As
explained by SHAREPHIL, in five corporations alone, more than Php158 Billion worth of shares must be
divested by foreign shareholders and absorbed by Filipino investors if petitioners' position is upheld.
Petitioners' disregard of the rights of these other corporations and numerous shareholders constitutes
another fatal procedural flaw, justifying the dismissal of their petitions. Without giving all of them their
day in court, they will definitely be deprived of their property without due process of law. 6
This is highlighted to clear any misimpression that the Gamboa Decision and Gamboa Resolution made a
categorical ruling on the meaning of the word "capital" under Section 11, Article XII of the Constitution
only in respect of, or only confined to, respondent Philippine Long Distance Telephone Company (PLDT).
Nothing is further from the truth. Indeed, a fair reading of the Gamboa Decision and Gamboa Resolution
shows that the Court's pronouncements therein would affect all public utilities, and not just respondent
PLDT.
On the substantive grounds, the Court disposed of the issue on whether the SEC gravely abused its
discretion in ruling that respondent PLDT is compliant with the limitation on foreign ownership under the
Constitution and other relevant laws as without merit. The Court reasoned that "in the absence of a
definitive ruling by the SEC on PLDT's compliance with the capital requirement pursuant to
the Gamboa Decision and Resolution, any question relative to the inexistent ruling is premature."7
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of petitioners, the petitions,
being anchored on Rule 65, must nonetheless fail because the SEC did not commit grave abuse of
discretion amounting to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the
Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution.8
To belabor the point, movant's petition is not a continuation of the Gamboa case as
the Gamboa Decision attained finality on October 18, 2012, and thereafter Entry of Judgment was issued
on December 11, 2012.9
As regards movant's repeated invocation of the transcendental importance of the Gamboa case, this
does not ipso facto accord locus standi to movant. Being a new petition, movant had the burden to
justify his locus standi in his own petition. The Court, however, was not persuaded by his justification.
Pursuant to the Court's constitutional duty to exercise judicial review, the Court has conclusively found
no grave abuse of discretion on the part of SEC in issuing SEC-MC No. 8.

The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in
the Gamboa Resolution that the constitutional requirement on Filipino ownership should "apply
uniformly and across the board to all classes of shares, regardless of nomenclature and category,
comprising the capital of a corporation."[[9-a]] The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite,
clear and unequivocal. While there is a passage in the body of the Gamboa Resolution that might have
appeared contrary to the fallo of the Gamboa Decision x x x the definiteness and clarity of the fallo of
the Gamboa Decision must control over the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to "each class of shares, regardless of
differences in voting rights, privileges and restrictions." 10
To the Court's mind and, as exhaustively demonstrated in the Decision, the dispositive portion of
the Gamboa Decision was in no way modified by the Gamboa Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which
provides: "No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens x x
x."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull
[and legal] beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent
of the voting rights x x x must rest in the hands of Filipino nationals x x x." 11 And, precisely that is what
SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the
total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to vote x x x." 12
In construing "full beneficial ownership," the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals. 13
In turn, "beneficial owner" or "beneficial ownership" is defined in the Implementing Rules and
Regulations of the Securities Regulation Code (SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract, arrangement, understanding, relationship
or otherwise, has or shares voting power (which includes the power to vote or direct the voting of such
security) and/or investment returns or power (which includes the power to dispose of, or direct the
disposition of such security) x x x. 14
Thus, the definition of "beneficial owner or beneficial ownership" in the SRC-IRR, which is in consonance
with the concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the Decision, relevant in
resolving only the question of who is the beneficial owner or has beneficial ownership of each "specific
17
stock" of the public utility company whose stocks are under review. If the Filipino has the voting
power of the "specific stock", i.e., he can vote the stock or direct another to vote for him, or the Filipino
has the investment power over the "specific stock", i.e., he can dispose of the stock or direct another to
dispose of it for him, or both, i.e., he can vote and dispose of that "specific stock" or direct another to
vote or dispose it for him, then such Filipino is the "beneficial owner" of that "specific stock." Being
considered Filipino, that "specific stock" is then to be counted as part of the 60% Filipino ownership
requirement under the Constitution. The right to the dividends, jus fruendi - a right emanating from
ownership of that "specific stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the dividends accruing to any particular
stock are determinative of that stock's "beneficial ownership." Dividend declaration is dictated by the
corporation's unrestricted retained earnings. On the other hand, the corporation's need of capital for
expansion programs and special reserve for probable contingencies may limit retained earnings available
for dividend declaration. 15 It bears repeating here that the Court in the Gamboa Decision adopted the
foregoing definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in express
recognition of the sensitive and vital position of public utilities both in the national economy and for
national security, so that the evident purpose of the citizenship requirement is to prevent aliens from
assuming control of public utilities, which may be inimical to the national interest. 16 This purpose
prescinds from the "benefits"/dividends that are derived from or accorded to the particular stocks held
by Filipinos vis-a-vis the stocks held by aliens. So long as Filipinos have controlling interest of a public
utility corporation, their decision to declare more dividends for a particular stock over other kinds of
stock is their sole prerogative - an act of ownership that would presumably be for the benefit of the
public utility corporation itself. Thus, as explained in the Decision:
In this regard, it would be apropos to state that since Filipinos own at least 60% of the outstanding
shares of stock entitled to vote directors, which is what the Constitution precisely requires, then the
Filipino stockholders control the corporation, i.e., they dictate corporate actions and decisions, and they
have all the rights of ownership including, but not limited to, offering certain preferred shares that may
have greater economic interest to foreign investors - as the need for capital for corporate pursuits (such
as expansion), may be good for the corporation that they own. Surely, these "true owners" will not allow
any dilution of their ownership and control if such move will not be beneficial to them. 17
Finally, as to how the SEC will classify or treat certain stocks with voting rights held by a trust fund that is
created by the public entity whose compliance with the limitation on foreign ownership under the
Constitution is under scrutiny, and how the SEC will determine if such public utility does, in fact, control
how the said stocks will be voted, and whether, resultantly, the trust fund would be considered as
Philippine national or not - lengthily discussed in the dissenting opinion of Justice Carpio - is speculative
at this juncture. The Court cannot engage in guesswork. Thus, there is need of an actual case or
controversy before the Court may exercise its power of judicial review. The movant's petition is not that
actual case or controversy.
Thus, the discussion of Justice Carpio' s dissenting opinion as to the voting preferred shares created by
respondent PLDT, their acquisition by BTF Holdings, Inc., which appears to be a wholly-owned company
of the PLDT Beneficial Trust Fund (BTF), and whether or not it is respondent PLDT's management that
controls BTF and BTF Holdings, Inc. - all these are factual matters that are outside the ambit of this
Court's review which, as stated in the beginning, is confined to determining whether or not the SEC
committed grave abuse of discretion in issuing SEC-MC No. 8; that is, whether or not SEC-MC No. 8
violated the ruling of the Court in Gamboa v. Finance Secretary Teves, 18 and the resolution in Heirs of
Wilson P. Gamboa v. Finance Sec. Teves19denying the Motion for Reconsideration therein as to the
proper understanding of "capital".

To be sure, it would be more prudent and advisable for the Court to await the SEC's prior determination
of the citizenship of specific shares of stock held in trust - based on proven facts - before the Court
proceeds to pass upon the legality of such determination.
As to whether respondent PLDT is currently in compliance with the Constitutional provision regarding
public utility entities, the Court must likewise await the SEC's determination thereof applying SEC-MC
No. 8. After all, as stated in the Decision, it is the SEC which is the government agency with the
competent expertise and the mandate of law to make such determination.
In conclusion, the basic issues raised in the Motion having been duly considered and passed upon by the
Court in the Decision and no substantial argument having been adduced to warrant the reconsideration
sought, the Court resolves to DENY the Motion with FINALITY.
WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH FINALITY. No further
pleadings or motions shall be entertained in this case. Let entry of final judgment be issued immediately.
SO ORDERED.
Facts:
On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11, Article
XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and
thus in the present case only to common shares, and not to the total outstanding capital stock (common
and non-voting preferred shares).
The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued
on December 11, 2012
On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership
requirement. For purposes of determining compliance therewith, the required percentage of Filipino
ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote
in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not
entitled to vote in the election of directors.
On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition,[15] assailing the validity of
SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for
having been issued by the SEC with grave abuse of discretion.
Issues:
whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision
and Gamboa Resolution
Ruling:
SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued
SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the
Gamboa Decision and Resolution.
Gamboa Decision
18
"capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock entitled to vote in
the election of directors, and thus in the present case only to common shares, and not to the total
outstanding capital stock (common and non-voting preferred shares).
the Gamboa Resolution
Foreign Investments Act of 1991 ("FIA")
Gamboa Resolution put to rest the Court's interpretation of the term "capital"
Full beneficial ownership of stocks, coupled with appropriate voting rights is essential... 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.
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest
requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the
voting stocks; it moreover requires the 60-40 percentage ownership in the total number of outstanding
shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's
unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights is required."[79] Clearly, SEC-MC No. 8 cannot be said
to have been issued with grave abuse of discretion
While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial
ownership of stocks requirement in the FIA, this will not, as it does not, render it invalid meaning, it does
not follow that the SEC will not apply this test in determining whether the shares claimed to be owned
by Philippine nationals are Filipino, i.e., are held by them by mere title or in full beneficial ownership. To
be sure, the SEC takes its guiding lights also from the FIA and its implementing rules, the Securities
Regulation Code
Facts:
Before the Court is the Motion for Reconsideration dated January 19, 2017 (the Motion) filed by
petitioner Jose M. Roy III (movant) seeking the reversal and setting aside of the Decision dated
November 22, 2016 (the Decision) which denied the movant's petition, and declared that the Securities
and Exchange Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum
Circular No. 8, Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance Secretary Teves (Gamboa Decision) and the resolution
denying the Motion for Reconsideration therein (Gamboa Resolution).
The Motion presents no compelling and new arguments to justify the reconsideration of the Decision.
The Decision has already exhaustively discussed and directly passed upon these grounds. Movant's
petition was dismissed based on both procedural and substantive grounds.
Issue: Whether or not SEC committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8.
Held:
SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued
SEC-MC No. 8. The Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and
Resolution.
 19

Pursuant to the Court's constitutional duty to exercise judicial review, the Court has conclusively found
no grave abuse of discretion on the part of SEC in issuing SEC-MC No. 8.

The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in the
Gamboa Resolution that the constitutional requirement on Filipino ownership should "apply uniformly
and across the board to all classes of shares, regardless of nomenclature and category, comprising the
capital of a corporation." The Court stated that:

The fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, clear
and unequivocal. While there is a passage in the body of the Gamboa Resolution that might have
appeared contrary to the fallo of the Gamboa Decision, the definiteness and clarity of the fallo of the
Gamboa Decision must control over the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to "each class of shares, regardless of
differences in voting rights, privileges and restrictions."

To the Court's mind and, as exhaustively demonstrated in the Decision, the dispositive portion of the
Gamboa Decision was in no way modified by the Gamboa Resolution.

The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which
provides: "No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens."

The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is full and
legal beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights must rest in the hands of Filipino nationals. And, precisely that is what SEC-MC No. 8
provides; For purposes of determining compliance with the constitutional or statutory ownership, the
required percentage of Filipino ownership shall be applied to both the total number of outstanding
shares of stock entitled to vote in the election of directors; and (b) the total number of outstanding
shares of stock, whether or not entitled to vote.

In conclusion, the basic issues raised in the Motion having been duly considered and passed upon by the
Court in the Decision and no substantial argument having been adduced to warrant the reconsideration
sought, the Court resolves to deny the Motion with finality.
 20

EN BANC E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
G.R. No. 155650 July 20, 2006
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs. *E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
DECISION
#9476101 for P28,676,480.00
CARPIO, J.:
#9476103 for P49,115.006
The Antecedents
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of
levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
(NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised
thus sought a clarification of OGCC Opinion No. 061.
Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was
issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos.
9091 and 2982 amended the MIAA Charter. On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed
out that Section 206 of the Local Government Code requires persons exempt from real estate tax to
show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA
As operator of the international airport, MIAA administers the land, improvements and equipment
is exempt from real estate tax.
within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of
land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air
Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and
be disposed of through sale or any other mode unless specifically approved by the President of the injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to
Philippines.5 restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public
sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878.
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The
OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day
granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for
Parañaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002
already due. the present petition for review.7

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls
for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta;
and in the main lobby of the Parañaque City Hall. The City of Parañaque published the notices in the 3
and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the
TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20 highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00 sought to restrain respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24 Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of Parañaque
("respondents") — from auctioning the Airport Lands and Buildings.
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The
Court ordered respondents to cease and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the Court issued it. However,
respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive
issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General subsequently
submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of
MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates
MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport
Lands and Buildings are devoted to public use and public service, the ownership of these properties
remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real
estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment
of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the
Local Government Code. Respondents also argue that a basic rule of statutory construction is that the
express mention of one person, thing, or act excludes all others. An international airport is not among
the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that
MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held
that the Local Government Code has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has already paid some of the real
estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt
from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the
City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the
other issues raised in this petition become moot.
The Court's Ruling
21
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from
real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled
so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax
exemption of government-owned or controlled corporations. The deleted phrase appeared in Section
40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate
tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled
corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock
corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section
10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the National
Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to
Ten Billion (P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the Commission on
Audit on the date of such contribution or transfer after making due allowances for
depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to
be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as

amended, shall be converted into the equity of the National Government in the Authority.
Thereafter, the Government contribution to the capital of the Authority shall be provided in
the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA
is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for
public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-
owned or controlled corporation. What then is the legal status of MIAA within the National
Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative
Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police
authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions
of this Executive Order."15
22
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body"16 will make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority,
the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they are not organized as stock or non-
stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalitiesand local government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government,
which historically merely delegated to local governments the power to tax. While the 1987 Constitution
now includes taxation as one of the powers of local governments, local governments may only exercise
such power "subject to such guidelines and limitations as the Congress may provide."18
When local governments invoke the power to tax on national government instrumentalities, such power
is construed strictly against local governments. The rule is that a tax is never presumed and there must
be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is
resolved against taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national government instrumentality. As
this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely
to reduce the amount of money that has to be handled by government in the course of its

operations. For these reasons, provisions granting exemptions to government agencies may
be construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments. The only exception is when the legislature
clearly intended to tax government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in the law empowering
local governments to tax national government instrumentalities. Any doubt whether such power exists is
resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code,
local governments cannot tax national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or
in any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the
State or the Republic of the Philippines. The Civil Code provides:
23
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
"roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the
State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute
a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for
international and domestic travel and transportation. The fact that the MIAA collects terminal fees and
other charges from the public does not remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a tollway does not change the character
of the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use
the road through the toll fees they pay upon using the road. The tollway system is even a more efficient
and equitable manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of
public dominion or not. Article 420 of the Civil Code defines property of public dominion as one
"intended for public use." Even if the government collects toll fees, the road is still "intended for public
use" if anyone can use the road under the same terms and conditions as the rest of the public. The
charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees
does not change the character of MIAA as an airport for public use. Such fees are often termed user's
tax. This means taxing those among the public who actually use a public facility instead of taxing all the
public including those who never use the particular public facility. A user's tax is more equitable — a
principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines
for both international and domestic air traffic,"22 are properties of public dominion because they are
 24

intended for public use. As properties of public dominion, they indisputably belong to the State or the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
Republic of the Philippines. non-payment of real estate tax.

b. Airport Lands and Buildings are Outside the Commerce of Man Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from
public usethe Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth
Act No. 141, which "remains to this day the existing general law governing the classification and
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public
disposition of lands of the public domain other than timber and mineral lands,"27 provide:
dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce
of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of
man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
to public use are outside the commerce of man, thus: 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
According to article 344 of the Civil Code: "Property for public use in provinces and in towns
purposes, or for quasi-public uses or purposes when the public interest requires it, including
comprises the provincial and town roads, the squares, streets, fountains, and public waters,
reservations for highways, rights of way for railroads, hydraulic power sites, irrigation
the promenades, and public works of general service supported by said towns or provinces."
systems, communal pastures or lequas communales, public parks, public quarries, public
fishponds, working men's village and other improvements for the public benefit.
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
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three
for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public
shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other
place to the defendant for private use the plaintiff municipality exceeded its authority in the
disposition until again declared alienable under the provisions of this Act or by
exercise of its powers by executing a contract over a thing of which it could not dispose, nor is
proclamation of the President. (Emphasis and underscoring supplied)
it empowered so to do.

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
public use, these properties remain properties of public dominion and are inalienable. Since the Airport
man may be the object of a contract, and plazas and streets are outside of this commerce, as
Lands and Buildings are inalienable in their present status as properties of public dominion, they are not
was decided by the supreme court of Spain in its decision of February 12, 1895, which says:
subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved
"Communal things that cannot be sold because they are by their very nature outside of
for public use, their ownership remains with the State or the Republic of the Philippines.
commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23
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,
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside
which states:
the commerce of man:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. —
xxx Town plazas are properties of public dominion, to be devoted to public use and to be
(1) The President shall have the power to reserve for settlement or public use, and for
made available to the public in general. They are outside the commerce of man and cannot
specific public purposes, any of the lands of the public domain, the use of which is not
be disposed of or even leased by the municipality to private parties. While in case of war or
otherwise directed by law. The reserved land shall thereafter remain subject to the specific
during an emergency, town plazas may be occupied temporarily by private individuals, as was
public purpose indicated until otherwise provided by law or proclamation;
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 There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or
or illegal private constructions.24 (Emphasis supplied) presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot
be the subject of an auction sale.25 c. MIAA is a Mere Trustee of the Republic

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
through public or private sale. Any encumbrance, levy on execution or auction sale of any property of Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real
public dominion is void for being contrary to public policy. Essential public services will stop if properties properties owned by the Republic, thus:
of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed
in behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head of
the agency or instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its
executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the
Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from
the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA
Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x 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 Airport including the
Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby
abolished.
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.
25
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and
Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport
accommodation and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;
WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a financially
viable operation, will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772,
the President of the Philippines is given continuing authority to reorganize the National
Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not
meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was
merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous
body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned
solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands
and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose
of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings
without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President
is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only
confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned
by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment
of the real property tax:
 26

(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;
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalitiesx x x." The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is
not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that
the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does
not make these real properties subject to real estate tax.
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions
lay down the explicit proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws,
natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its
status — whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234
may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly
withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local
governments from imposing any kind of tax on national government instrumentalities. Section 133(o)
states:

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
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:
(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 asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are
Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical"
subject to tax by local governments. The minority insists that the juridical persons exempt from local
upon the effectivity of the Code. Section 193 provides:
taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193.
Thus, the minority states:
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
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
natural or juridical, including government-owned or controlled corporations, except local
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
educational institutions. It would be belaboring the obvious why the MIAA does not fall within
hospitals and educational institutions are hereby withdrawn upon effectivity of this Code.
any of the exempt entities under Section 193. (Emphasis supplied)
(Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local
Government Code. This theory will result in gross absurdities. It will make the national government,
Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from
which itself is a juridical person, subject to tax by local governments since the national government is not
real estate tax. Thus, the minority declares:

included in the enumeration of exempt entities in Section 193. Under this theory, local governments can
impose any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will
also be subject to any kind of local tax, and not only real estate tax. Some of the national government
instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine
Rice Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development
Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits
local governments from imposing any kind of tax on national government instrumentalities. Section
133(o) does not distinguish between national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o)
applies to all national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality under Section 133(o) of the Local Government
Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any
kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in
this Code." This means that unless the Local Government Code grants an express authorization, local
governments have no power to tax the national government, its agencies and instrumentalities. Clearly,
the rule is local governments have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code,
which makes the national government subject to real estate tax when it gives the beneficial use of its
real properties to a taxable entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are 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.
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
27
the exemption is that the real property, although owned by the Republic, is not devoted to public use or
public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government
Code, the later provisions prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an
accepted rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general
exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and
Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one
presenteda persuasive argument that there is such a conflict. The minority's assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly
admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the
Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of
law grants a power but withholds such power on certain matters, there is no conflict between the grant
of power and the withholding of power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units."
Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a
delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend
to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no
clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By
their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or
exercise of the taxing power. If the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local governments can impose any kind of tax on
the national government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities,
except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133
stating "[u]nless otherwise provided in this Code." This exception — which is an exception to the
exemption of the Republic from real estate tax imposed by local governments — refers to Section 234(a)
of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the
Republic, whether titled in the name of the national government, its agencies or instrumentalities, to
real estate tax if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-
owned or controlled corporation" is not controlling. The minority points out that Section 2 of the

Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it
provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a
whole, or a particular statute, shall require a different meaning:
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a
statute may require a different meaning than that defined in the Administrative Code. However, this
does not automatically mean that the definition in the Administrative Code does not apply to the Local
Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x
x of a particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code
defining the phrase "government-owned or controlled corporation" differently from the definition in the
Administrative Code, the definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative Code, however, expressly defines
the phrase "government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled corporation" applies to
the Local Government Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified
document the major structural, functional and procedural principles and rules of governance." Thus, the
Administrative Code is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply
only to corporations organized under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason why government corporations
with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the
Administrative Code refer to those corporations owned by the government or its
instrumentalities which are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities and Exchange
Commission. In short, these are GOCCs without original charters.
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.
28
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing
legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation"
does not distinguish between one incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos
each, which shall be fully subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be issued in accordance with
the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share.
These shares are available for subscription by the National Government. Upon the effectivity
of this Charter, the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are
the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the
Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code.
All these government-owned corporations organized under special charters as stock corporations are
subject to real estate tax on real properties owned by them. To rule that they are not government-
owned or controlled corporations because they are not registered with the Securities and Exchange
Commission would remove them from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those that
meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is
that the government-owned or controlled corporation must be established for the common good. The
second condition is that the government-owned or controlled corporation must meet the test of
economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability. (Emphasis and underscoring supplied)
 29

The Constitution expressly authorizes the legislature to create "government-owned or controlled am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC
corporations" through special charters only if these entities are required to meet the twin conditions of VIABILITY OR THE ECONOMIC TEST," together with the common good.45
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
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook
conditions of common good and economic viability. The test of economic viability applies only to
The 1987 Constitution of the Republic of the Philippines: A Commentary:
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 The second sentence was added by the 1986 Constitutional Commission. The significant
with special charters are usually organized as stock corporations just like ordinary private corporations. 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
In contrast, government instrumentalities vested with corporate powers and performing governmental
sector can do better. Moreover, economic viability is more than financial viability but also
or public functions need not meet the test of economic viability. These instrumentalities perform
includes capability to make profit and generate benefits not quantifiable in financial
essential public services for the common good, services that every modern State must provide its
terms.46(Emphasis supplied)
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. 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
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities
such essential public service does not excuse the State from withholding such essential services from the
vested with corporate powers but performing essential governmental or public functions. Congress has
public.
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, However, government-owned or controlled corporations with special charters, organized essentially for
such entities — known as "government-owned or controlled corporations" — must meet the test of economic or commercial objectives, must meet the test of economic viability. These are the
economic viability because they compete in the market place. 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
This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and
controlled corporations organized under the Corporation Code, that fall under the definition of
similar government-owned or controlled corporations, which derive their income to meet operating
"government-owned or controlled corporations" in Section 2(10) of the Administrative Code.
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. 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
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional
service as the primary domestic and international airport of the Philippines. The operation of an
Commission the purpose of this test, as follows:
international airport requires the presence of personnel from the following government agencies:

MR. OPLE: Madam President, the reason for this concern is really that when the government
1. The Bureau of Immigration and Deportation, to document the arrival and departure of
creates a corporation, there is a sense in which this corporation becomes exempt from the
passengers, screening out those without visas or travel documents, or those with hold
test of economic performance. We know what happened in the past. If a government
departure orders;
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 2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
billion of this will go into equity infusions to support a few government financial institutions. importations;
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 3. The quarantine office of the Department of Health, to enforce health measures against the
employees. And yet this is all going down the drain. spread of infectious diseases into the country;

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common 4. The Department of Agriculture, to enforce measures against the spread of plant and animal
good," this becomes a restraint on future enthusiasts for state capitalism to excuse diseases into the country;
themselves from the responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration and I am glad that I

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from,
the airport; and
7. The MIAA, to provide the proper premises — such as runway and buildings — for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA
derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and
airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and
not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory
Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government, 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
30
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if
the beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic
and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs
the legal relation and status of government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-owned or controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality
is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable person" as provided
in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes
subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use,
are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions "ports x x x constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly
exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of
5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the
City of Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real
estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the

Manila International Airport Authority, except for the portions that the Manila International Airport
Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects,
of the Airport Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
Public Dominion
Facts:
MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable
years 1992 to 2001. MIAA’s real estate tax delinquency was estimated at P624 million. The City of
Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands
and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands
and Buildings should MIAA fail to pay the real estate tax delinquency.
MIAA filed a petition sought to restrain the City of Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and Buildings.
The City of Parañaque contended that Section 193 of the Local Government Code expressly withdrew the
tax exemption privileges of “government-owned and-controlled corporations” upon the effectivity of the
Local Government Code. Thus, MIAA cannot claim that the Airport Lands and Buildings are exempt from
real estate tax.
MIAA argued that Airport Lands and Buildings are owned by the Republic. The government cannot tax
itself. 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.
Issue: Whether or not the City of Parañaque can impose real tax, levy against and auction for public sale
the Airport Lands and Buildings.
Held:
MIAA is Not a Government-Owned or Controlled Corporation. The Airport Lands and Buildings of MIAA
are property of public dominion and therefore owned by the State or the Republic of the Philippines. No
one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
“roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The
term “ports” includes seaports and airports. The MIAA Airport Lands and Buildings constitute a “port”
constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the Philippines. The Airport Lands and
Buildings are devoted to public use because they are used by the public for international and domestic
31
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
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.”
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot
be the subject of an auction sale. Properties of public dominion, being for public use, are not subject to
levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-
hectare runway of the MIAA for non-payment of real estate tax.
Facts:
Manila International Airport Authority (MIAA) is the operator of the Ninoy International Airport located
at Paranaque City. The Officers of Paranaque City sent notices to MIAA due to real estate tax
delinquency. MIAA then settled some of the amount. When MIAA failed to settle the entire amount, the
officers of Paranaque city threatened to levy and subject to auction the land and buildings of MIAA,
which they did. MIAA sought for a Temporary Restraining Order from the CA but failed to do so within
the 60 days reglementary period, so the petition was dismissed. MIAA then sought for the TRO with the
Supreme Court a day before the public auction, MIAA was granted with the TRO but unfortunately the
TRO was received by the Paranaque City officers 3 hours after the public auction. MIAA claims that
although the charter provides that the title of the land and building are with MIAA still the ownership is
with the Republic of the Philippines. MIAA also contends that it is an instrumentality of the government
and as such exempted from real estate tax. That the land and buildings of MIAA are of public dominion
therefore cannot be subjected to levy and auction sale. On the other hand, the officers of Paranaque City
claim that MIAA is a government owned and controlled corporation therefore not exempted to real
estate tax.
Issues: Whether or not MIAA is an instrumentality of the government and not a government owned and
controlled corporation and as such exempted from tax. Whether or not the land and buildings of MIAA
are part of the public dominion and thus cannot be the subject of levy and auction sale.
Ruling:
Under the Local government code, government owned and controlled corporations are not exempted
from real estate tax. MIAA is not a government owned and controlled corporation, for to become one
MIAA should either be a stock or non stock corporation. MIAA is not a stock corporation for its capital is
not divided into shares. It is not a non stock corporation since it has no members. MIAA is an
instrumentality of the government vested with corporate powers and government functions. Under the
civil code, property may either be under public dominion or private ownership. Those under public
dominion are owned by the State and are utilized for public use, public service and for the development
of national wealth. The ports included in the public dominion pertain either to seaports or airports.
When properties under public dominion cease to be for public use and service, they form part of the
 32

patrimonial property of the State. The court held that the land and buildings of MIAA are part of the
public dominion. Since the airport is devoted for public use, for the domestic and international travel and
transportation. Even if MIAA charge fees, this is for support of its operation and for regulation and does
not change the character of the land and buildings of MIAA as part of the public dominion. As part of the
public dominion the land and buildings of MIAA are outside the commerce of man. To subject them to
levy and public auction is contrary to public policy. Unless the President issues a proclamation
withdrawing the airport land and buildings from public use, these properties remain to be of public
dominion and are inalienable. As long as the land and buildings are for public use the ownership is with
the Republic of the Philippines

EN BANC
G.R. No. 175352
DANTE V. LIBAN, REYNALDO M. BERNARDO, and SALVADOR M. VIARI, Petitioners,
vs.
RICHARD J. GORDON, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition to declare Senator Richard J. Gordon (respondent) as having forfeited his seat in the
Senate.
The Facts
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari (petitioners) filed with this
Court a Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate. Petitioners are
officers of the Board of Directors of the Quezon City Red Cross Chapter while respondent is Chairman of
the Philippine National Red Cross (PNRC) Board of Governors.
During respondent’s incumbency as a member of the Senate of the Philippines,1 he was elected
Chairman of the PNRC during the 23 February 2006 meeting of the PNRC Board of Governors. Petitioners
allege that by accepting the chairmanship of the PNRC Board of Governors, respondent has ceased to be
a member of the Senate as provided in Section 13, Article VI of the Constitution, which reads:
SEC. 13. No Senator or Member of the House of Representatives may hold any other office or
employment in the Government, or any subdivision, agency, or instrumentality thereof, including
government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his
seat. Neither shall he be appointed to any office which may have been created or the emoluments
thereof increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,2 which held that the PNRC is a government-owned or controlled
corporation. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board
of Governors, respondent has automatically forfeited his seat in the Senate, pursuant to Flores v.
Drilon,3 which held that incumbent national legislators lose their elective posts upon their appointment
to another government office.
In his Comment, respondent asserts that petitioners have no standing to file this petition which appears
to be an action for quo warranto, since the petition alleges that respondent committed an act which, by
provision of law, constitutes a ground for forfeiture of his public office. Petitioners do not claim to be
entitled to the Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil Procedure, only
a person claiming to be entitled to a public office usurped or unlawfully held by another may bring an
action for quo warranto in his own name. If the petition is one for quo warranto, it is already barred by
33
prescription since under Section 11, Rule 66 of the Rules of Civil Procedure, the action should be
commenced within one year after the cause of the public officer’s forfeiture of office. In this case,
respondent has been working as a Red Cross volunteer for the past 40 years. Respondent was already
Chairman of the PNRC Board of Governors when he was elected Senator in May 2004, having been
elected Chairman in 2003 and re-elected in 2005.
Respondent contends that even if the present petition is treated as a taxpayer’s suit, petitioners cannot
be allowed to raise a constitutional question in the absence of any claim that they suffered some actual
damage or threatened injury as a result of the allegedly illegal act of respondent. Furthermore, taxpayers
are allowed to sue only when there is a claim of illegal disbursement of public funds, or that public
money is being diverted to any improper purpose, or where petitioners seek to restrain respondent from
enforcing an invalid law that results in wastage of public funds.
Respondent also maintains that if the petition is treated as one for declaratory relief, this Court would
have no jurisdiction since original jurisdiction for declaratory relief lies with the Regional Trial Court.
Respondent further insists that the PNRC is not a government-owned or controlled corporation and that
the prohibition under Section 13, Article VI of the Constitution does not apply in the present case since
volunteer service to the PNRC is neither an office nor an employment.
In their Reply, petitioners claim that their petition is neither an action for quo warranto nor an action for
declaratory relief. Petitioners maintain that the present petition is a taxpayer’s suit questioning the
unlawful disbursement of funds, considering that respondent has been drawing his salaries and other
compensation as a Senator even if he is no longer entitled to his office. Petitioners point out that this
Court has jurisdiction over this petition since it involves a legal or constitutional issue which is of
transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a government- owned or controlled
corporation;
2. Whether Section 13, Article VI of the Philippine Constitution applies to the case of
respondent who is Chairman of the PNRC and at the same time a Member of the Senate;
3. Whether respondent should be automatically removed as a Senator pursuant to Section 13,
Article VI of the Philippine Constitution; and
4. Whether petitioners may legally institute this petition against respondent.4
The substantial issue boils down to whether the office of the PNRC Chairman is 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 Constitution.
The Court’s Ruling

We find the petition without merit.
Petitioners Have No Standing to File this Petition
A careful reading of the petition reveals that it is an action for quo warranto. Section 1, Rule 66 of the
Rules of Court provides:
Section 1. Action by Government against individuals. – An action for the usurpation of a public office,
position or franchise may be commenced by a verified petition brought in the name of the Republic of
the Philippines against:
(a) A person who usurps, intrudes into, or unlawfully holds or exercises a public office,
position or franchise;
(b) A public officer who does or suffers an act which by provision of law, constitutes a ground
for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being legally
incorporated or without lawful authority so to act. (Emphasis supplied)
Petitioners allege in their petition that:
4. Respondent became the Chairman of the PNRC when he was elected as such during the
First Regular Luncheon-Meeting of the Board of Governors of the PNRC held on February 23,
2006, the minutes of which is hereto attached and made integral part hereof as Annex "A."
5. Respondent was elected as Chairman of the PNRC Board of Governors, during his
incumbency as a Member of the House of Senate of the Congress of the Philippines, having
been elected as such during the national elections last May 2004.
6. Since his election as Chairman of the PNRC Board of Governors, which position he duly
accepted, respondent has been exercising the powers and discharging the functions and
duties of said office, despite the fact that he is still a senator.
7. It is the respectful submission of the petitioner[s] that by accepting the chairmanship of the
Board of Governors of the PNRC, respondent has ceased to be a Member of the House of
Senate as provided in Section 13, Article VI of the Philippine Constitution, x x x
10. It is respectfully submitted that in accepting the position of Chairman of the Board of
Governors of the PNRC on February 23, 2006, respondent has automatically forfeited his seat
in the House of Senate and, therefore, has long ceased to be a Senator, pursuant to the ruling
of this Honorable Court in the case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No.
104732, x x x
34
11. Despite the fact that he is no longer a senator, respondent continues to act as such and
still performs the powers, functions and duties of a senator, contrary to the constitution, law
and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and represent himself
as a senator or member of the House of Senate, collecting the salaries, emoluments and
other compensations, benefits and privileges appertaining and due only to the legitimate
senators, to the damage, great and irreparable injury of the Government and the Filipino
people.5 (Emphasis supplied)
Thus, petitioners are alleging that by accepting the position of Chairman of the PNRC Board of
Governors, respondent has automatically forfeited his seat in the Senate. In short, petitioners filed an
action for usurpation of public office against respondent, a public officer who allegedly committed an act
which constitutes a ground for the forfeiture of his public office. Clearly, such an action is for quo
warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.
Quo warranto is generally commenced by the Government as the proper party plaintiff. However, under
Section 5, Rule 66 of the Rules of Court, an individual may commence such an action if he claims to be
entitled to the public office allegedly usurped by another, in which case he can bring the action in his
own name. The person instituting quo warranto proceedings in his own behalf must claim and be able to
show that he is entitled to the office in dispute, otherwise the action may be dismissed at any stage.6 In
the present case, petitioners do not claim to be entitled to the Senate office of respondent. Clearly,
petitioners have no standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a taxpayer’s suit, the petition
would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,7 otherwise known as the
PNRC Charter. 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.8 The
PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community
Health and Nursing, Social Services and Voluntary Service.9
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 1929.10 The
Whereas clauses of the PNRC Charter read:
WHEREAS, there was developed at Geneva, Switzerland, on August 22, 1864, a convention by which the
nations of the world were invited to join together in diminishing, so far lies within their power, the evils
inherent in war;
WHEREAS, more than sixty nations of the world have ratified or adhered to the subsequent revision of
said convention, namely the "Convention of Geneva of July 29 [sic], 1929 for the Amelioration of the
Condition of the Wounded and Sick of Armies in the Field" (referred to in this Charter as the Geneva Red
Cross Convention);

WHEREAS, the Geneva Red Cross Convention envisages the establishment in each country of a voluntary
organization to assist in caring for the wounded and sick of the armed forces and to furnish supplies for
that purpose;
WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946 and proclaimed
its adherence to the Geneva Red Cross Convention on February 14, 1947, and by that 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 Red
Cross Convention;
WHEREAS, there existed in the Philippines since 1917 a Charter of the American National Red Cross
which must be terminated in view of the independence of the Philippines; and
WHEREAS, the volunteer organizations established in the other countries which have ratified or adhered
to the Geneva Red Cross Convention 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 peoples of the world. (Emphasis
supplied)
The PNRC is a member National Society of the International Red Cross and Red Crescent Movement
(Movement), which is composed of the International Committee of the Red Cross (ICRC), the
International Federation of Red Cross and Red Crescent Societies (International Federation), and the
National Red Cross and Red Crescent Societies (National Societies). The Movement is united and guided
by its seven Fundamental Principles:
1. HUMANITY – The International Red Cross and Red Crescent Movement, born of a desire to
bring assistance without discrimination to the wounded on the battlefield, endeavors, in its
international and national capacity, to prevent and alleviate human suffering wherever it may
be found. Its purpose is to protect life and health and to ensure respect for the human being.
It promotes mutual understanding, friendship, cooperation and lasting peace amongst all
peoples.
2. IMPARTIALITY – It makes no discrimination as to nationality, race, religious beliefs, class or
political opinions. It endeavors to relieve the suffering of individuals, being guided solely by
their needs, and to give priority to the most urgent cases of distress.
3. NEUTRALITY – In order to continue to enjoy the confidence of all, the Movement may not
take sides in hostilities or engage at any time in controversies of a political, racial, religious or
ideological nature.
4. INDEPENDENCE – The Movement is independent. The National Societies, while auxiliaries
in the humanitarian services of their governments and subject to the laws of their respective
countries, must always maintain their autonomy so that they may be able at all times to act in
accordance with the principles of the Movement.
5. VOLUNTARY SERVICE – It is a voluntary relief movement not prompted in any manner by
desire for gain.
35
6. UNITY – There can be only one Red Cross or one Red Crescent Society in any one country. It
must be open to all. It must carry on its humanitarian work throughout its territory.
7. UNIVERSALITY – The International Red Cross and Red Crescent Movement, in which all
Societies have equal status and share equal responsibilities and duties in helping each other,
is worldwide. (Emphasis supplied)
The Fundamental Principles provide a universal standard of reference for all members of the Movement.
The PNRC, as a member National Society of the Movement, has the duty to uphold the Fundamental
Principles and ideals of the Movement. In order to be recognized as a National Society, the PNRC has to
be autonomous and must operate in conformity with the Fundamental Principles of the Movement.11
The reason for this autonomy is fundamental. To be accepted by warring belligerents as neutral workers
during international or internal armed conflicts, the PNRC volunteers must not be seen as belonging to
any side of the armed conflict. In the Philippines where there is a communist insurgency and a Muslim
separatist rebellion, the PNRC cannot be seen as government-owned or controlled, and neither can the
PNRC volunteers be identified as government personnel or as instruments of government policy.
Otherwise, the insurgents or separatists will treat PNRC volunteers as enemies when the volunteers tend
to the wounded in the battlefield or the displaced civilians in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be, autonomous, neutral and independent in
order to conduct its activities in accordance with the Fundamental Principles. The PNRC must not appear
to be an instrument or agency that implements government policy; otherwise, it cannot merit the trust
of all and cannot effectively carry out its mission as a National Red Cross Society.12 It is imperative that
the PNRC must be autonomous, neutral, and independent in relation to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC cannot be owned or
controlled by the government. Indeed, the Philippine government does not own the PNRC. The PNRC
does not have government assets and does not receive any appropriation from the Philippine
Congress.13 The PNRC is financed primarily by contributions from private individuals and private entities
obtained through solicitation campaigns organized by its Board of Governors, as provided under Section
11 of the PNRC Charter:
SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be financed
primarily by contributions obtained through solicitation campaigns throughout the year which shall be
organized by the Board of Governors and conducted by the Chapters in their respective jurisdictions.
These fund raising campaigns shall be conducted independently of other fund drives by other
organizations. (Emphasis supplied)
The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty
members of the PNRC Board of Governors are appointed by the President of the Philippines. Thus,
twenty-four members, or four-fifths (4/5), of the PNRC Board of Governors are not appointed by the
President. Section 6 of the PNRC Charter, as amended, provides:
SECTION 6. The governing powers and authority shall be vested in a Board of Governors composed of
thirty members, six of whom shall be appointed by the President of the Philippines, eighteen shall be
elected by chapter delegates in biennial conventions and the remaining six shall be selected by the
twenty-four members of the Board already chosen. x x x.

Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the chapter delegates of
the PNRC, and six are elected by the twenty-four members already chosen — a select group where the
private sector members have three-fourths majority. Clearly, an overwhelming majority of four-fifths of
the PNRC Board are elected or chosen by the private sector members of the PNRC.
The PNRC Board of Governors, which exercises all corporate powers of the PNRC, elects the PNRC
Chairman and all other officers of the PNRC. The incumbent Chairman of PNRC, respondent Senator
Gordon, was elected, as all PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-
fifths of whom are private sector members of the PNRC. The PNRC Chairman is not appointed by the
President or by any subordinate government official.
Under Section 16, Article VII of the Constitution,14 the President appoints all officials and employees in
the Executive branch whose appointments are vested in the President by the Constitution or by law. The
President also appoints those whose appointments are not otherwise provided by law. Under this
Section 16, the law may also authorize the "heads of departments, agencies, commissions, or boards" to
appoint officers lower in rank than such heads of departments, agencies, commissions or
boards.15 In Rufino v. Endriga,16 the Court explained appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the President appoints three groups of officers.
The first group refers to the heads of the Executive departments, ambassadors, other public ministers
and consuls, officers of the armed forces from the rank of colonel or naval captain, and other officers
whose appointments are vested in the President by the Constitution. The second group refers to those
whom the President may be authorized by law to appoint. The third group refers to all other officers of
the Government whose appointments are not otherwise provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers whose appointments
Congress may by law vest in the heads of departments, agencies, commissions, or boards. x x x
In a department in the Executive branch, the head is the Secretary. The law may not authorize the
Undersecretary, acting as such Undersecretary, to appoint lower-ranked officers in the Executive
department. In an agency, the power is vested in the head of the agency for it would be preposterous to
vest it in the agency itself. In a commission, the head is the chairperson of the commission. In a board,
the head is also the chairperson of the board. In the last three situations, the law may not also authorize
officers other than the heads of the agency, commission, or board to appoint lower-ranked officers.
The Constitution authorizes Congress to vest the power to appoint lower-ranked officers specifically in
the "heads" of the specified offices, and in no other person. The word "heads" refers to the chairpersons
of the commissions or boards and not to their members, for several reasons.
The President does not appoint the Chairman of the PNRC. Neither does the head of any department,
agency, commission or board appoint the PNRC Chairman. Thus, the PNRC Chairman is not an official or
employee of the Executive branch since his appointment does not fall under Section 16, Article VII of the
Constitution. Certainly, the PNRC Chairman is not an official or employee of the Judiciary or Legislature.
This leads us to the obvious conclusion that the PNRC Chairman is not an official or employee of the
Philippine Government. Not being a government official or employee, the PNRC Chairman, as such, does
not hold a government office or employment.
Under Section 17, Article VII of the Constitution,17 the President exercises control over all government
offices in the Executive branch. If an office is legally not under the control of the President, then such
36
office is not part of the Executive branch. In Rufino v. Endriga,18 the Court explained the President’s
power of control over all government offices as follows:
Every government office, entity, or agency must fall under the Executive, Legislative, or Judicial
branches, or must belong to one of the independent constitutional bodies, or must be a quasi-judicial
body or local government unit. Otherwise, such government office, entity, or agency has no legal and
constitutional basis for its existence.
The CCP does not fall under the Legislative or Judicial branches of government. The CCP is also not one of
the independent constitutional bodies. Neither is the CCP a quasi-judicial body nor a local government
unit. Thus, the CCP must fall under the Executive branch. Under the Revised Administrative Code of
1987, any agency "not placed by law or order creating them under any specific department" falls "under
the Office of the President."
Since the President exercises control over "all the executive departments, bureaus, and offices," the
President necessarily exercises control over the CCP which is an office in the Executive branch. In
mandating that the President "shall have control of all executive . . . offices," Section 17, Article VII of the
1987 Constitution does not exempt any executive office — one performing executive functions outside
of the independent constitutional bodies — from the President’s power of control. There is no dispute
that the CCP performs executive, and not legislative, judicial, or quasi-judicial functions.
The President’s power of control applies to the acts or decisions of all officers in the Executive branch.
This is true whether such officers are appointed by the President or by heads of departments, agencies,
commissions, or boards. The power of control means the power to revise or reverse the acts or decisions
of a subordinate officer involving the exercise of discretion.
In short, the President sits at the apex of the Executive branch, and exercises "control of all the executive
departments, bureaus, and offices." There can be no instance under the Constitution where an officer of
the Executive branch is outside the control of the President. The Executive branch is unitary since there
is only one President vested with executive power exercising control over the entire Executive branch.
Any office in the Executive branch that is not under the control of the President is a lost command whose
existence is without any legal or constitutional basis. (Emphasis supplied)
An overwhelming four-fifths majority of the PNRC Board are private sector individuals elected to the
PNRC Board by the private sector members of the PNRC. The PNRC Board exercises all corporate powers
of the PNRC. The PNRC is controlled by private sector individuals. Decisions or actions of the PNRC Board
are not reviewable by the President. The President cannot reverse or modify the decisions or actions of
the PNRC Board. Neither can the President reverse or modify the decisions or actions of the PNRC
Chairman. It is the PNRC Board that can review, reverse or modify the decisions or actions of the PNRC
Chairman. This proves again that the office of the PNRC Chairman is a private office, not a government
office.1avvphi1
Although the State is often represented in the governing bodies of a National Society, this can be
justified by the need for proper coordination with the public authorities, and the government
representatives may take part in decision-making within a National Society. However, the freely-elected
representatives of a National Society’s active members must remain in a large majority in a National
Society’s governing bodies.19
 37

The PNRC is not government-owned but privately owned. The vast majority of the thousands of PNRC SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or
members are private individuals, including students. Under the PNRC Charter, those who contribute to regulation of private corporations, unless such corporations are owned or controlled by the Government
the annual fund campaign of the PNRC are entitled to membership in the PNRC for one year. Thus, any or any subdivision or instrumentality thereof.
one between 6 and 65 years of age can be a PNRC member for one year upon contributing ₱35, ₱100,
₱300, ₱500 or ₱1,000 for the year.20 Even foreigners, whether residents or not, can be members of the
The subsequent 1973 and 1987 Constitutions contain similar provisions prohibiting Congress from
PNRC. Section 5 of the PNRC Charter, as amended by Presidential Decree No. 1264,21 reads:
creating private corporations except by general law. Section 1 of the PNRC Charter, as amended, creates
the PNRC as a "body corporate and politic," thus:
SEC. 5. Membership in the Philippine National Red Cross shall be open to the entire population in the
Philippines regardless of citizenship. Any contribution to the Philippine National Red Cross Annual Fund
SECTION 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be
Campaign shall entitle the contributor to membership for one year and said contribution shall be
the voluntary organization officially designated to assist the Republic of the Philippines in discharging the
deductible in full for taxation purposes.
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
Thus, the PNRC is a privately owned, privately funded, and privately run charitable organization. The Metropolitan Manila. (Emphasis supplied)
PNRC is not a government-owned or controlled corporation.
In Feliciano v. Commission on Audit,23 the Court explained the constitutional provision prohibiting
Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,22 which ruled that the Congress from creating private corporations in this wise:
PNRC is a government-owned or controlled corporation. In ruling that the PNRC is a government-owned
or controlled corporation, the simple test used was whether the corporation was created by its own
We begin by explaining the general framework under the fundamental law. The Constitution recognizes
special charter for the exercise of a public function or by incorporation under the general corporation
two classes of corporations. The first refers to private corporations created under a general law. The
law. Since the PNRC was created under a special charter, the Court then ruled that it is a government
second refers to government-owned or controlled corporations created by special charters. Section 16,
corporation. However, the Camporedondo ruling failed to consider the definition of a government-
Article XII of the Constitution provides:
owned or controlled corporation as provided under Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987:
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
SEC. 2. General Terms Defined. – x x x
established by special charters in the interest of the common good and subject to the test of economic
viability.
(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
The Constitution emphatically prohibits the creation of private corporations except by general law
nature, and owned by the Government directly or through its instrumentalities either wholly, or where
applicable to all citizens. The purpose of this constitutional provision is to ban private corporations
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its
created by special charters, which historically gave certain individuals, families or groups special
capital stock: Provided, That government-owned or controlled corporations may be further categorized
privileges denied to other citizens.
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.(Boldfacing and underscoring supplied) In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the
corporation is private, it must necessarily exist under a general law. Stated differently, only corporations
A government-owned or controlled corporation must be owned by the government, and in the case of a
created under a general law can qualify as private corporations. Under existing laws, the general law is
stock corporation, at least a majority of its capital stock must be owned by the government. In the case
the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives.
of a non-stock corporation, by analogy at least a majority of the members must be government officials
holding such membership by appointment or designation by the government. Under this criterion, and
as discussed earlier, the government does not own or control PNRC. The Constitution authorizes Congress to create government-owned or controlled corporations through
special charters. Since private corporations cannot have special charters, it follows that Congress can
create corporations with special charters only if such corporations are government-owned or
The PNRC Charter is Violative of the Constitutional Proscription against the Creation of Private
controlled.24 (Emphasis supplied)
Corporations by Special Law

In Feliciano, the Court held that the Local Water Districts are government-owned or controlled
The 1935 Constitution, as amended, was in force when the PNRC was created by special charter on 22
corporations since they exist by virtue of Presidential Decree No. 198, which constitutes their special
March 1947. Section 7, Article XIV of the 1935 Constitution, as amended, reads:
charter. The seed capital assets of the Local Water Districts, such as waterworks and sewerage facilities,
were public property which were managed, operated by or under the control of the city, municipality or
province before the assets were transferred to the Local Water Districts. The Local Water Districts also

receive subsidies and loans from the Local Water Utilities Administration (LWUA). In fact, under the 2009
General Appropriations Act,25 the LWUA has a budget amounting to ₱400,000,000 for its subsidy
requirements.26 There is no private capital invested in the Local Water Districts.The capital assets and
operating funds of the Local Water Districts all come from the government, either through transfer of
assets, loans, subsidies or the income from such assets or funds.
The government also controls the Local Water Districts because the municipal or city mayor, or the
provincial governor, appoints all the board directors of the Local Water Districts. Furthermore, the board
directors and other personnel of the Local Water Districts are government employees subject to civil
service laws and anti-graft laws. Clearly, the Local Water Districts are considered government-owned or
controlled corporations not only because of their creation by special charter but also because the
government in fact owns and controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the
Local Water Districts, the elements of government ownership and control are clearly lacking in the PNRC.
Thus, although the PNRC is created by a special charter, it cannot be considered a government-owned or
controlled corporation in the absence of the essential elements of ownership and control by the
government. In creating the PNRC as a corporate entity, Congress was in fact creating a private
corporation. However, the constitutional prohibition against the creation of private corporations by
special charters provides no exception even for non-profit or charitable corporations. Consequently, the
PNRC Charter, insofar as it creates the PNRC as a private corporation and grants it corporate powers,27 is
void for being unconstitutional. Thus, Sections 1,28 2,29 3,30 4(a),31 5,32 6,33 7,34 8,35 9,3610,37 11,38 12,39 and
1340 of the PNRC Charter, as amended, are void.
The other provisions41 of the PNRC Charter remain valid as they can be considered as a recognition by
the State that the unincorporated PNRC is the local National Society of the International Red Cross and
Red Crescent Movement, and thus entitled to the benefits, exemptions and privileges set forth in the
PNRC Charter. The other provisions of the PNRC Charter implement the Philippine Government’s treaty
obligations under Article 4(5) of the Statutes of the International Red Cross and Red Crescent Movement,
which provides that to be recognized as a National Society, the Society must be "duly recognized by the
legal government of its country on the basis of the Geneva Conventions and of the national legislation as
a voluntary aid society, auxiliary to the public authorities in the humanitarian field."
In sum, we hold that the office of the PNRC Chairman is not a government office or an office in a
government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of
the 1987 Constitution. However, since the PNRC Charter is void insofar as it creates the PNRC as a private
corporation, the PNRC should incorporate under the Corporation Code and register with the Securities
and Exchange Commission if it wants to be a private corporation.
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5,
6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95,
as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a
private corporation or grant it corporate powers.
SO ORDERED.
38
THE FACTS:
Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City Red Cross
Chapter, filed with the Supreme Court what they styled as “Petition to Declare Richard J. Gordon as
Having Forfeited His Seat in the Senate” against respondent Gordon, who was elected Chairman of the
Philippine National Red Cross (PNRC) Board of Governors during his incumbency as Senator.
Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors, respondent
Gordon ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the Constitution, which
provides that “[n]o Senator . . . may hold any other office or employment in the Government, or any
subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations
or their subsidiaries, during his term without forfeiting his seat.” Petitioners cited the case of
Camporedondo vs. NLRC, G.R. No. 129049, decided August 6, 1999, which held that the PNRC is a GOCC,
in supporting their argument that respondent Gordon automatically forfeited his seat in the Senate
when he accepted and held the position of Chairman of the PNRC Board of Governors.
Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,[1] held that the office of the PNRC
Chairman is NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13,
Article VI of the 1987 Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is
not appointed by the President or by any subordinate government official. Moreover, the PNRC is NOT a
GOCC because it is a privately-owned, privately-funded, and privately-run charitable organization and
because it is controlled by a Board of Governors four-fifths of which are private sector individuals.
Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman
during his incumbency as Senator.
The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is
void insofar as it creates the PNRC as a private corporation since Section 7, Article XIV of the 1935
Constitution states that “[t]he Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or controlled by
the Government or any subdivision or instrumentality thereof.” The Court thus directed the PNRC to
incorporate under the Corporation Code and register with the Securities and Exchange Commission if it
wants to be a private corporation. The fallo of the Decision read:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5,
6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95,
as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a
private corporation or grant it corporate powers.
Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC
likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically
questioned the second part of the Decision with regard to the pronouncement on the nature of the
PNRC and the constitutionality of some provisions of the PNRC Charter.

II. THE ISSUE: Was it correct for the Court to have passed upon and decided on the issue of the
constitutionality of the PNRC charter? Corollarily: What is the nature of the PNRC?
III. THE RULING
[The Court GRANTED reconsideration and MODIFIED the dispositive portion of the Decision by deleting
the second sentence thereof.]
NO, it was not correct for the Court to have decided on the constitutional issue because it was not the
very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a GOCC nor a private
corporation.
The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues
defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated
the rule as to when the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources,
Inc., thus:
This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-
established rule that a court should not pass upon a constitutional question and decide a law to be
unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the
record also presents some other ground upon which the court may [rest] its judgment, that course will
be adopted and the constitutional question will be left for consideration until such question will be
unavoidable.
[T]his Court should not have declared void certain sections of . . . the PNRC Charter. Instead, the Court
should have exercised judicial restraint on this matter, especially since there was some other ground
upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most adversely
affected by this declaration of unconstitutionality, which was not even originally a party to this case, was
being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the
Corporation Code, after more than sixty (60) years of existence in this country.
Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August
16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No.
1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRC’s 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 PNRC’s contention that its structure is sui generis. It is in
recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective
from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity
of the 1973 Constitution and the 1987 Constitution. The PNRC Charter and its amendatory laws have not
been questioned or challenged on constitutional grounds, not even in this case before the Court now.
39
[T]his Court [must] recognize the country’s adherence to the Geneva Convention and respect the unique
status of the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and
effect of law. Under the Constitution, the Philippines adopts the generally accepted principles of
international law as part of the law of the land. This constitutional provision must be reconciled and
harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the
former. By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRC’s special status under international
humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations
under the Geneva Conventions.
The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither
“be classified as an instrumentality of the State, so as not to lose its character of neutrality” as well as its
independence, nor strictly as a private corporation since it is regulated by international humanitarian law
and is treated as an auxiliary of the State.
Although [the PNRC] is neither a subdivision, agency, or instrumentality of the government, nor a GOCC
or a subsidiary thereof . . . so much so that respondent, under the Decision, was correctly allowed to
hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does
not ipso facto imply that the PNRC is a “private corporation” within the contemplation of the provision of
the Constitution, that must be organized under the Corporation Code. [T]he sui generis character of
PNRC requires us to approach controversies involving the PNRC on a 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 country’s blood
requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the
core in an untimely and drastic manner that would not only have negative consequences to those who
depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the
Philippines in the international community. The sections of the PNRC Charter that were declared void
must therefore stay.
[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive
portion of the Decision by deleting the second sentence, to now read as follows:
WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution.]

EN BANC
G.R. No. 177131 June 7, 2011
BOY SCOUTS OF THE PHILIPPINES, Petitioner,
vs.
COMMISSION ON AUDIT, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the
subject matter of this controversy that reached us via petition for prohibition1 filed by the BSP under
Rule 65 of the 1997 Rules of Court. In this petition, the BSP seeks that the COA be prohibited from
implementing its June 18, 2002 Decision,2 its February 21, 2007 Resolution,3 as well as all other issuances
arising therefrom, and that all of the foregoing be rendered null and void. 4
Antecedent Facts and Background of the Case
This case arose when the COA issued Resolution No. 99-0115 on August 19, 1999 ("the COA Resolution"),
with the subject "Defining the Commission’s policy with respect to the audit of the Boy Scouts of the
Philippines." In its whereas clauses, the COA Resolution stated that the BSP was created as a public
corporation under Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and
Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission,6 the
Supreme Court ruled that the BSP, as constituted under its charter, was a "government-controlled
corporation within the meaning of Article IX(B)(2)(1) of the Constitution"; and that "the BSP is
appropriately regarded as a government instrumentality under the 1987 Administrative Code."7 The COA
Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA
Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED,
AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in
accordance with generally accepted auditing standards, and express an opinion on whether the financial
statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows
present fairly its financial position and results of operations.
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 letter9 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:
40
It is the position of the BSP, with all due respect, that it is not subject to the Commission’s jurisdiction on
the following grounds:
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor
Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled
corporation is anchored on the "substantial Government participation" in the National
Executive Board of the BSP. It is to be noted that the case was decided when the BSP Charter
is defined by Commonwealth Act No. 111 as amended by Presidential Decree 460.
However, may we humbly refer you to Republic Act No. 7278 which amended the BSP’s charter after the
cited case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the
composition of the National Executive Board of the BSP.
The said RA virtually eliminated the "substantial government participation" in the National Executive
Board by removing: (i) the President of the Philippines and executive secretaries, with the exception of
the Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the
President of the Philippines, as Chief Scout, over the members of the said Board.
The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the case’s
conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code
itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and controlled
corporations as agencies organized as stock or non-stock corporations which the BSP, under its present
charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only
provides is that the Government or any of its subdivisions, branches, offices, agencies and
instrumentalities can from time to time donate and contribute funds to the BSP.
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.
It may be argued also that the BSP is not an "agency" of the Government. The 1987 Administrative Code,
merely referred the BSP as an "attached agency" of the DECS as distinguished from an actual line agency
of departments that are included in the National Budget. The BSP believes that an "attached agency" is
different from an "agency." Agency, as defined in Section 2(4) of the Administrative Code, is defined as
any of the various units of the Government including a department, bureau, office, instrumentality,
government-owned or controlled corporation or local government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government; a department which refers to
an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which
refers to any principal subdivision or unit of any department (Section 2[8], Administrative Code).10

Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert
P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council
Scout Executive of Calbayog City.11
In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA,
furnished the BSP with a copy of the Memorandum13 dated June 20, 2000 of Atty. Santos M. Alquizalas,
the COA General Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No.
7278 did not supersede the Court’s 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 BSP’s purposes and functions which has a public aspect and the statutory designation of
the BSP as a "public corporation". These grounds have not been deleted by R.A. No. 7278. On the
contrary, these were strengthened as evidenced by the amendment made relative to BSP’s purposes
stated in Section 3 of R.A. No. 7278.
On the argument that BSP is not appropriately regarded as "a government instrumentality" and "agency"
of the government, such has already been answered and clarified. The Supreme Court has elucidated this
matter in the BSP case when it declared that BSP is regarded as, both a "government-controlled
corporation with an original charter" and as an "instrumentality" of the Government. Likewise, it is not
disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of
DECS. Being an attached agency, however, it does not change its nature as a government-controlled
corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1),
Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine,
audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds
and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies or instrumentalities, including government-owned or controlled corporations with original
charters.14
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to
comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy
Scouts of the Philippines.15
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed
the BSP that a preliminary survey of its organizational structure, operations and accounting
system/records shall be conducted on November 21 to 22, 2000.16
Upon the BSP’s request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for
Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This
was denied by the COA in its questioned Decision, which held that the BSP is under its audit jurisdiction.
The BSP moved for reconsideration but this was likewise denied under its questioned Resolution.17
This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary
restraining order against the COA.
41
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COA’s audit
jurisdiction.
The Parties’ Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is
inapplicable for purposes of determining the audit jurisdiction of the COA as the issue therein was the
jurisdiction of the National Labor Relations Commission over a case for illegal dismissal and unfair labor
practice filed by certain BSP employees.18
While the BSP concedes that its functions do relate to those that the government might otherwise
completely assume on its own, it avers that this alone was not determinative of the COA’s audit
jurisdiction over it. The BSP further avers that the Court in Boy Scouts of the Philippines v. National Labor
Relations Commission "simply stated x x x that in respect of functions, the BSP is akin to a public
corporation" but this was not synonymous to holding that the BSP is a government corporation or entity
subject to audit by the COA. 19
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the
findings of the Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no
longer valid as the government has ceased to play a controlling influence in it. The BSP claims that the
pronouncements of the Court therein must be taken only within the context of that case; that the Court
had categorically found that its assets were acquired from the Boy Scouts of America and not from the
Philippine government, and that its operations are financed chiefly from membership dues of the Boy
Scouts themselves as well as from property rentals; and that "the BSP may correctly be characterized as
non-governmental, and hence, beyond the audit jurisdiction of the COA." It further claims that the
designation by the Court of the BSP as a government agency or instrumentality is mere obiter dictum.20
The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of BSP has
come to be overwhelmingly a private affair or nature, with government participation restricted to the
seat of the Secretary of Education, Culture and Sports."21 It cites Philippine Airlines Inc. v. Commission on
Audit22 wherein the Court declared that, "PAL, having ceased to be a government-owned or controlled
corporation is no longer under the audit jurisdiction of the COA."23 Claiming that the amendments
introduced by Republic Act No. 7278 constituted a supervening event that changed the BSP’s corporate
identity in the same way that the government’s privatization program changed PAL’s, the BSP makes the
case that the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the
Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction and the
issuance of COA Resolution No. 99-011.24 The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSP’s funds and assets are private in character. Unlike
ordinary public corporations, such as provinces, cities, and municipalities, or government-owned and
controlled corporations, such as Land Bank of the Philippines and the Development Bank of the
Philippines, the assets and funds of BSP are not derived from any government grant. For its operations,
BSP is not dependent in any way on any government appropriation; as a matter of fact, it has not even
been included in any appropriations for the government. To be sure, COA has not alleged, in its
Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or
continues to receive assets and funds from any agency of the government. The foregoing simply point to
the private nature of the funds and assets of petitioner BSP.
 42

As stated in petitioner’s third argument, BSP’s assets and funds were never acquired from the
government. Its operations are not in any way financed by the government, as BSP has never been
included in any appropriations act for the government. Neither has the government invested funds with
BSP. BSP, has not been, at any time, a user of government property or funds; nor have properties of the
government been held in trust by BSP. This is precisely the reason why, until this time, the COA has not
attempted to subject BSP to its audit jurisdiction. x x x.25
To summarize its other arguments, the BSP contends that it is not a government-owned or controlled
corporation; neither is it an instrumentality, agency, or subdivision of the government.
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.
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.

In its Comment,26 the COA argues as follows: 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
1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October
conclusion regarding the nature of VFP's incorporation, its previous assertions will not prevent future
31, 1936, and whose functions relate to the fostering of public virtues of citizenship and
budgetary appropriations to the VFP. The erroneous application of the law by public officers does not
patriotism and the general improvement of the moral spirit and fiber of the youth. The
bar a subsequent correct application of the law.31(Citations omitted.)
manner of creation and the purpose for which the BSP was created indubitably prove that it is
a government agency.
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
2. Being a government agency, the funds and property owned or held in trust by the BSP are
vital function imbued with public interest and reflective of the government’s policy to stimulate patriotic
subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1),
sentiments and love of country, the BSP’s funds from whatever source are public funds, and can be used
Article IX-D of the 1987 Constitution.
solely for public purpose in pursuance of the provisions of Republic Act No. [7278]."32

3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or
The COA claims that the fact that it has not yet audited the BSP’s funds may not bar the subsequent
controlled corporation and government instrumentality.27
exercise of its audit jurisdiction.

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of
The BSP filed its Reply33 on August 29, 2007 maintaining that its statutory designation as a "public
patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined
corporation" and the public character of its purpose and functions are not determinative of the COA’s
under the Constitution and discussed by the Court in Boy Scouts of the Philippines v. National Labor
audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines v. National Labor Relations
Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation
Commission is not applicable anymore because the aspect of government ownership and control has
would be incomprehensible since no less than the law which created it had designated it as a public
been removed by Republic Act No. 7278; and concluding that the funds and property that it either
corporation and its statutory mandate embraces performance of sovereign functions.28
owned or held in trust are not public funds and are not subject to the COA’s audit jurisdiction.

The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service
Thereafter, considering the BSP’s claim that it is a private corporation, this Court, in a Resolution34 dated
Commission even before the 1987 Constitution was the fact that it was a government-owned or
July 20, 2010, required the parties to file, within a period of twenty (20) days from receipt of said
controlled corporation; that as an attached agency of the Department of Education, Culture and Sports
Resolution, their respective comments on the issue of whether Commonwealth Act No. 111, as amended
(DECS), the BSP is an agency of the government; and that the BSP is a chartered institution under Section
by Republic Act No. 7278, is constitutional.
1(12) of the Revised Administrative Code of 1987, embraced under the term government
instrumentality.29
In compliance with the Court’s resolution, the parties filed their respective Comments.
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 In its Comment35 dated October 22, 2010, the COA argues that the constitutionality of Commonwealth
Constitution. Act No. 111, as amended, is not determinative of the resolution of the present controversy on the COA’s
audit jurisdiction over petitioner, and in fact, the controversy may be resolved on other grounds; thus,
the requisites before a judicial inquiry may be made, as set forth in Commissioner of Internal Revenue v.
In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v.
Court of Tax Appeals,36 have not been fully met.37 Moreover, the COA maintains that behind every law
Reyes,30 wherein the Court held that among the reasons why the VFP is a public corporation is that its
lies the presumption of constitutionality.38 The COA likewise argues that contrary to the BSP’s position,
charter, Republic Act No. 2640, designates it as one. Furthermore, the COA quotes the Court as saying in
repeal of a law by implication is not favored.39 Lastly, the COA claims that there was no violation of
that case:
Section 16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a

government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission
on Audit,40 the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State. If the corporation is created by the State as the
latter’s own agency or instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. x x x.41
For its part, in its Comment42 filed on December 3, 2010, the BSP submits that its charter,
Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional as it does not
violate Section 16, Article XII of the Constitution. The BSP alleges that "while [it] is not a public
corporation within the purview of COA’s audit jurisdiction, neither is it a private corporation created by
special law falling within the ambit of the constitutional prohibition x x x."43 The BSP further alleges:
Petitioner’s purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278,
thus:
A reading of the foregoing provision shows that petitioner was created to advance the interest of the
youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation
of petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it
can be said that petitioner’s purpose and functions are more of a public rather than a private character.
Petitioner caters to all boys who wish to join the organization without any distinction. It does not limit its
membership to a particular class of boys. Petitioner’s members are trained in scoutcraft and taught
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, preparing them to become model citizens and outstanding leaders of the country.44
The BSP reiterates its stand that the public character of its purpose and functions do not place it within
the ambit of the audit jurisdiction of the COA as it lacks the government ownership or control that the
Constitution requires before an entity may be subject of said jurisdiction.45 It avers that it merely stated
in its Reply that the withdrawal of government control is akin to privatization, but it does not necessarily
mean that petitioner is a private corporation.46The BSP claims that it has a unique characteristic which
"neither classifies it as a purely public nor a purely private corporation";47 that it is not a quasi-public
corporation; and that it may belong to a different class altogether.48
The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the
purpose of Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said
provision is inexistent in the enactment of the BSP’s charter,49 as, (i) it was not created for any pecuniary
purpose; (ii) those who will primarily benefit from its creation are not its officers but its entire
membership consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all boys
who wish to join the organization without any distinction; and (iv) it does not limit its membership to a
particular class or group of boys. Thus, the enactment of its charter confers no special privilege to
particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to
certain groups to the prejudice of others or of the interest of the country, which are the evils sought to
be prevented by the constitutional provision involved.50
Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent
any clear showing of its repugnancy to the Constitution.51
The Ruling of the Court
43
After looking at the legislative history of its amended charter and carefully studying the applicable laws
and the arguments of both parties, we find that the BSP is a public corporation and its funds are subject
to the COA’s audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create
a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and
Purposes" created the BSP as a "public corporation" to serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with
other agencies, the ability of boys to do useful things for themselves and others, to train them in
scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-
reliance, discipline and kindred virtues, and moral values, using the method which are in common use by
boy scouts.
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and
provided substantial changes in the BSP organizational structure. Pertinent provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National Executive Board composed of (a)
the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts
of the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d)
the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and
Culture, the Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the
Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local Government and
Community Development; (f) an equal number of individuals from the private sector; (g) the National
President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to
represent the boy membership; and (i) three representatives of the cultural minorities. Except for the
Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings,
and the Scouts of their respective regions, all members of the National Executive Board shall be either by
appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the
Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining
members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the
number of members of the National Executive Board necessary to constitute a quorum of the board,
which number may be less than a majority of the whole number of the board. The National Executive
Board shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board
at a meeting called for this purpose, may authorize and cause to be executed mortgages and liens upon
the property of the corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111
"by strengthening the volunteer and democratic character" of the BSP and reducing government
representation in its governing body, as follows:
Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as
follows:
"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter
into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants,
rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds,

real and personal property by gift, devise, bequest or other means, to conduct fund-raising activities; to
adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and
affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the
Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws
of the Philippines, and generally to do all such acts and things, including the establishment of regulations
for the election of associates and successors, as may be necessary to carry into effect the provisions of
this Act and promote the purposes of said corporation: Provided, That said corporation shall have no
power to issue certificates of stock or to declare or pay dividends, its objectives and purposes being
solely of benevolent character and not for pecuniary profit of 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;
44
"(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.
"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the
Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities
or by a foreign government or by private, entities and individuals shall be expended by the National
Executive Board in pursuance of this Act.
The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently
constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created by
law; their personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner
or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it
under Article 45 of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws
creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of this Code
concerning partnerships. (Emphasis and underscoring supplied.)
The purpose of the BSP as stated in its amended charter shows that it was created in order to implement
a State policy declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and
protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth
patriotism and nationalism, and encourage their involvement in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a
constitutional mandate, comes within the class of "public corporations" defined by paragraph 2, Article
44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code.
The BSP’s Classification Under the Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl
Scouts of the Philippines, it is classified as an attached agency of the DECS under Executive Order No.
292, or the Administrative Code of 1987, which states:
TITLE VI – EDUCATION, CULTURE AND SPORTS
Chapter 8 – Attached Agencies
SEC. 20. Attached Agencies. – The following agencies are hereby attached to the Department:
(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:
(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.)
45
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:
46
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:
(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.

(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.
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.
47
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.
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.
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 bill’s sponsors, Senator Joey Lina, described the BSP as follows:
Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President,
that should be given this kind of a privilege – the Boy Scouts of the Philippines and the Girl Scouts of the
Philippines. Outside of these two groups, I do not think there are other groups similarly situated.
The Boy Scouts of the Philippines has a long history of providing value formation to our young, and
considering how huge the population of the young people is, at this point in time, and also considering
the importance of having an organization such as this that will inculcate moral uprightness among the
young people, and further considering that the development of these young people at that tender age of
seven to sixteen is vital in the development of the country producing good citizens, I believe that we can
make an exception of the Boy Scouting movement of the Philippines from this general prohibition
against providing tax exemption and privileges.57
Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced
by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress "to return
the BSP to the private sector." It was not the intent of Congress in enacting Republic Act No. 7278 to give
up all interests in this basic youth organization, which has been its partner in forming responsible citizens
for decades.
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No.
7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former
glory reached under its original charter, Commonwealth Act No. 111, and to correct the perceived ills
introduced by the amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different departments in government
who were too busy to attend the meetings of the BSP’s National Executive Board ("the Board") sent
representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils
48
established in the provinces and cities were not in touch with what was happening on the national level,
but they were left to implement what was decided by the Board.58
A portion of the legislators’ discussion is quoted below to clearly show their intent:
HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout
Movement has done not only for the youth in particular but for the country in general. And that is why, if
we look around, our past and present national leaders, prominent men in the various fields of endeavor,
public servants in government offices, and civic leaders in the communities all over the land, and not
only in our country but all over the world many if not most of them have at one time or another been
beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to
have the early approval of this measure if only to pay back what we owe much to the Scouting
Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just – the Scouting Movement
was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were
acknowledged as the third biggest scouting organization in the world x x x. And to our mind, Mr.
Chairman, this erratic growth and this decrease in membership [number] is because of the bad policy
measures that were enunciated with the enactment or promulgation by the President before of
Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout
Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the
disenfranchisement of the National Council in the election of the national board. x x x. And so, this is
what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are
also confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr.
Chairman, that we see no impediment towards working together, the Boy Scout of the Philippines
officers working together with the House of Representatives in coming out with a measure that will put
back the vigor and enthusiasm of the Boy Scout Movement. x x x.59 (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill, in the Committee
on Government Enterprises:
HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy
Scouts of the Philippines did not provide for any direct government support by way of appropriation
from the national budget to support the activities of this organization. The point here is, and at the same
time they have been subjected to a governmental intervention, which to their mind has been inimical to
the objectives and to the institution per se, that is why they are seeking legislative fiat to restore back
the original mandate that they had under Commonwealth Act 111. Such having been the experience in
the hands of government, meaning, there has been negative interference on their part and inasmuch as
their mandate is coming from a legislative fiat, then shouldn’t it be, this rhetorical question, shouldn’t it
be better for this organization to seek a mandate from, let’s say, the government the Corporation Code
of the Philippines and register with the SEC as non-profit non-stock corporation so that government
intervention could be very very minimal. Maybe that’s a rhetorical question, they may or they may not
answer, ano. I don’t know what would be the benefit of a charter or a mandate being provided for by
way of legislation versus a registration with the SEC under the Corporation Code of the Philippines
inasmuch as they don’t get anything from the government anyway insofar as direct funding. In fact, the
only thing that they got from government was intervention in their affairs. Maybe we can solicit some
commentary comments from the resource persons. Incidentally, don’t take that as an objection, I’m not
objecting. I’m all for the objectives of these two bills. It just occurred to me that since you have had very
bad experience in the hands of government and you will always be open to such possible intervention
even in the future as long as you have a legislative mandate or your mandate or your charter coming
from legislative action.

MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be
required to register with the SEC. If we are registered with the SEC, there could be a danger of
proliferation of scout organization. Anybody can organize and then register with the SEC. If there will be
a proliferation of this, then the organization will lose control of the entire organization. Another
disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the
Philippines and the SEC may suspend the operation or freeze the assets of the organization and hamper
the operation of the organization. I don’t know, Mr. Chairman, how you look at it but there could be a
danger for anybody filing a complaint against the organization in the SEC and the SEC might suspend the
registration permit of the organization and we will not be able to operate.
HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered
with the SEC because even if you are government corporation, court action may be taken against you in
other judicial bodies because the SEC is simply another quasi-judicial body. But, I think, the first point
would be very interesting, the first point that you raised. In effect, what you are saying is that with the
legislative mandate creating your charter, in effect, you have been given some sort of a franchise with
this movement.
MR. ESCUDERO: Yes.
HON. AQUINO: Exclusive franchise of that movement?
MR. ESCUDERO: Yes.
HON. AQUINO: Well, that’s very well taken so I will proceed with other issues, Mr. Chairman. x x
x.60 (Emphases added.)
Therefore, even though the amended BSP charter did away with most of the governmental presence in
the BSP Board, this was done to more strongly promote the BSP’s objectives, which were not supported
under Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the
public purpose of the promotion of the well-being of the youth, the future leaders of the country. The
amendments were not done with the view of changing the character of the BSP into a privatized
corporation. The BSP remains an agency attached to a department of the government, the DECS, and it
was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate,
the relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the
Revised Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached
government agency as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and
program coordination between the BSP and the DECS.
Requisites for Declaration of Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain
provisions of the BSP Charter. Even if the parties were asked to Comment on the validity of the BSP
charter by the Court, this alone does not comply with the requisites for judicial review, which were
clearly set forth in a recent case:
49
When questions of constitutional significance are raised, the Court can exercise its power of judicial
review only if the following requisites are present: (1) the existence of an actual and appropriate case;
(2) the existence of personal and substantial interest on the part of the party raising the constitutional
question; (3) recourse to judicial review is made at the earliest opportunity; and (4) the constitutional
question is the lis mota of the case.61(Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be
the very lis mota, or threshold issue, of the case, and that it should be raised by either of the parties.
These requirements would be ignored under the dissent’s rather overreaching view of how this case
should have been decided. True, it was the Court that asked the parties to comment, but the Court
cannot be the one to raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint
in the exercise of its power to pass upon the validity of a law.
Re: the COA’s Jurisdiction
Regarding the COA’s jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive
contributions or donations from the government. Section 8 reads:
Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the
Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities
shall be expended by the Executive Board in pursuance of this Act.lawph!1
The sources of funds to maintain the BSP were identified before the House Committee on Government
Enterprises while the bill was being deliberated, and the pertinent portion of the discussion is quoted
below:
MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr.
Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The
organization has to raise its own funds through fund drives and fund campaigns or fund raising activities.
Aside from this, we have some revenue producing projects in the organization that gives us funds to
support the operation. x x x From time to time, Mr. Chairman, when we have special activities we
request for assistance or financial assistance from government agencies, from private business and
corporations, but this is only during special activities that the Boy Scouts of the Philippines would
conduct during the year. Otherwise, we have to raise our own funds to support the organization.62
The nature of the funds of the BSP and the COA’s audit jurisdiction were likewise brought up in said
congressional deliberations, to wit:
HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a
government corporation classified as such, are your funds or your finances subjected to the COA audit?
MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We don’t fall under the
jurisdiction of the COA.
HON. AQUINO: All right, but before were you?
MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary
Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy
in the form of an annual… a one draw from the Sweepstakes. And, this was the case also with the Girl
Scouts at the Anti-TB, but then this was… and the Boy Scouts then because of this funding partly from
government was being subjected to audit in the contributions being made in the part of the
Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human
Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding
from government, but then in the case of the local councils and this legislative charter, so to speak,
enables the local councils even the national headquarters in view of the provisions in the existing law to
receive donations from the government or any of its instrumentalities, which would be difficult if the Boy
Scouts is registered as a private corporation with the Securities and Exchange Commission. Government
bodies would be estopped from making donations to the Boy Scouts, which at present is not the case
because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.
HON. AMATONG: Mr. Chairman, in connection with that.
THE CHAIRMAN: Yeah, Gentleman from Zamboanga.
HON. AMATONG: There is no auditing being made because there’s no money put in the organization, but
how about donated funds to this organization? What are the remedies of the donors of how will they
know how their money are being spent?
MR. ESCUDERO: May I answer, Mr. Chairman?
THE CHAIRMAN: Yes, gentleman.
MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are
required to submit a financial report at the end of each year to the National Executive Board. So all the
funds donated or otherwise is accounted for at the end of the year by our external auditor. In this case
the SGV.63
Historically, therefore, the BSP had been subjected to government audit in so far as public funds had
been infused thereto. However, this practice should not preclude the exercise of the audit jurisdiction of
COA, clearly set forth under the Constitution, which pertinently provides:
Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been
granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c)
other government-owned or controlled corporations with original charters and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the
Government, which are required by law of the granting institution to submit to such audit as a condition
of subsidy or equity. x x x. 64
50
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.
FACTS:
The Commission on Audit issued COA Resolution No. 99-011 in which the said resolution state that the
BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential
Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines vs. National Labor
Relations Commission, the Supreme Court ruled that the BSP, as constituted under its charter, was a
“government-controlled corporation within the meaning of Article IX (B)(2)(1) of the Constitution; and
that “the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative
Code.”
The BSP sought reconsideration of the COA Resolution in a letter signed by the BSP National President
Jejomar Binay. He claimed that RA 7278 eliminated the “substantial government participation” in the
National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with
the exception of the Secretary of Education, as members thereof; and (ii) the appointment and
confirmation power of the President of the Philippines, as Chief Scout, over the members of the said
Board.
The BSP further claimed that the 1987 Administrative Code itself, of which the BSP s. NLRC relied on for
some terms, defines government-owned and controlled corporations as agencies organized as stock or
non-stock corporations which the BSP, under its present charter, is not.
And finally, they claim that the Government, like in other GOCCs, does not have funds invested in the
BSP. The BSP is not an entity administering special funds. The BSP is neither a unit of the Government; a
department which refers to an executive department as created by law; nor a bureau which refers to any
principal subdivision or unit of any department.
ISSUE: Whether the BSP falls under the COA’s audit jurisdiction.
RULING:
After considering the legislative history of the amended charter and the applicable laws and the
arguments of both parties, the Court found that the BSP is a public corporation and its funds are subject
to the COA’s audit jurisdiction.
The BSP Charter created the BSP as a “public corporation” to serve the following public interest or
purpose: xxx to promote through organization and cooperation with other agencies, the ability of boys
to do useful things for themselves and others, to train them in scout craft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues,
and moral values, using the method which are in common use by boy scouts.
 51

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement
a State policy declared in Article II, Section 13 of the Constitution. Evidently, the BSP, which was created
by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class
of “public corporations” defined by paragraph 2, Article 44 of the Civil Code and governed by the law
which creates it, pursuant to Article 45 of the same Code.

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

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

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