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Entitlement to Constitutional Guarantee

Stonehill v. Diokno
20 SCRA 283 (1967)
Concepcion, CJ
Facts:
1. Respondent (porsecution) made possible the issuance of 42 search warrants against the petitioner and the corporation to search
persons and premises of several personal properties due to an alleged violation of Central Bank Laws, Tariff and Custom Laws, Internal
Revenue Code and the Revised Penal Code of the Philippines. As a results, search and seizures were conducted in the both the
residence of the petitioner and in the corporation's premises.
2.The petitioner contended that the search warrants are null and void as their issuance violated the Constitution and the Rules of
Court for being general warrants. Thus, he filed a petition with the Supreme Court for certiorari, prohibition, mandamus and injunction
to prevent the seized effects from being introduced as evidence in the deportation cases against the petitioner. The court issued the
writ only for those effects found in the petitioner's residence.
Issue: Whether or not the petitioner can validly assail the legality of the search and seizure in both premises
RULING: No, he can only assail the search conducted in the residences but not those done in the corporation's premises. The petitioner
has no cause of action in the second situation since a corporation has a personality separate and distinct from the personality of its
officers or herein petitioner regardless of the amount of shares of stock or interest of each in the said corporation, and whatever office
they hold therein. Only the party whose rights has been impaired can validly object the legality of a seizure--a purely personal right
which cannot be exercised by a third party. The right to object belongs to the corporation ( for the 1st group of documents, papers,
and things seized from the offices and the premises).
BASECO vs PCGG
150 SCRA 181 Business Organization Corporation Law A Corporation Cannot Invoke the Right Against Self-Incrimination
When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to
recover ill gotten wealth allegedly acquired by former President Marcos and his cronies. Aquino then issued two executive orders in
1986 and pursuant thereto, a sequestration and a takeover order were issued against Bataan Shipyard & engineering Co., Inc.
(BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the Romualdez family, and in
turn, through dummy stockholders.
The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under
pain of contempt of the PCGG if it fails to do so. BASECO assails this order as it avers, among others, that it is against BASECOs right
against self incrimination and unreasonable searches and seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power granted to it. Second,
and more importantly, right against self-incrimination has no application to juridical persons. There is a reserve right in the
legislature to investigate the contracts of a corporation and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the
production of the corporate books and papers for that purpose.
Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and no seizure
pursuant to any search was ever made. BASECO was merely ordered to produce the corporate records.

Liability of a corporation for torts


PNB vs CA (83 SCRA 237)
83 SCRA 237 Business Organization Corporation Law Corporations Liability for Negligence
Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her sugar crops about to be harvested including her export
quota allocation worth 1,000 piculs. The said export quota was later dealt by Tapnio to a certain Jacobo Tuazon at P2.50 per picul or
a total of P2,500. Since the subject of the deal is mortgaged with PNB, the latter has to approve it. The branch manager of PNB
recommended that the price should be at P2.80 per picul which was the prevailing minimum amount allowable. Tapnio and Tuazon
agreed to the said amount. And so the bank manager recommended the agreement to the vice president of PNB. The vice president
in turn recommended it to the board of directors of PNB.
However, the Board of Directors wanted to raise the price to P3.00 per picul. This Tuazon does not want hence he backed out from
the agreement. This resulted to Tapnio not being able to realize profit and at the same time rendered her unable to pay her
P2,000.00 crop loan which would have been covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third party complaint against PNB where she alleged that her
failure to pay her debts was because of PNBs negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the essence considering that Tapnios sugar quota for said year needs to be utilized
ASAP otherwise her allotment may be assigned to someone else, and if she cant use it, she wont be able to export her crops. It is
unreasonable for PNBs board of directors to disallow the agreement between Tapnio and Tuazon because of the mere difference of
0.20 in the agreed price rate. What makes it more unreasonable is the fact that the P2.80 was recommended both by the bank
manager and PNBs VP yet it was disapproved by the board. Further, the P2.80 per picul rate is the minimum allowable rate
pursuant to prevailing market trends that time. This unreasonable stand reflects PNBs lack of the reasonable degree of care and
vigilance in attending to the matter. PNB is therefore negligent.
A corporation is civilly liable in the same manner as natural persons for torts, because generally speaking, the rules governing the
liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a
natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities agree that a
principal or master is liable for every tort which it expressly directs or authorizes, and this is just as true of a corporation as of a
natural person, a corporation is liable, therefore, whenever a tortious act is committed by an officer or agent under express
direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body.
Criminal Liability of corporation
THE PEOPLE OF THE PHILIPPINE ISLANDS, vs. TAN BOON KONG, defendant-appellee.
-Full TextThis is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an information charging
the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as amended. The information reads as follows:
That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo, Philippine Islands, the
said accused, as corporation organized under the laws of the Philippine Islands and engaged in the purchase and the sale of
sugar, "bayon," coprax, and other native products and as such object to the payment of internal-revenue taxes upon its
sales, did then and there voluntarily, illegally, and criminally declare in 1924 for the purpose of taxation only the sum of
P2,352,761.94, when in truth and in fact, and the accused well knew that the total gross sales of said corporation during
that year amounted to P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of P2,960.12,
corresponding to 1 per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the corporation liable
criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for the benefit of said corporation.
Section 1458 and 2723 read as follows:
SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The percentage taxes on business shall be
payable at the end of each calendar quarter in the amount lawfully due on the business transacted during each quarter;
and it shall be on the duty of every person conducting a business subject to such tax, within the same period as is allowed
for the payment of the quarterly installments of the fixed taxes without penalty, to make a true and complete return of the
amount of the receipts or earnings of his business during the preceeding quarter and pay the tax due thereon. . . . (Act No.
2711.)
SEC. 2723. Failure to make true return of receipts and sales. Any person who, being required by law to make a return of
the amount of his receipts, sales, or business, shall fail or neglect to make such return within the time required, shall be
punished by a fine not exceeding two thousand pesos or by imprisonment for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding ten thousand
pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded as committed by
the corporation and not by its officials or agents. This view is in direct conflict with the great weight of authority. a corporation can
act only through its officers and agent s, and where the business itself involves a violation of the law, the correct rule is that all who
participate in it are liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary corporation was criminally
liable for the violation of a statute by the corporation through he was not present when the offense was committed.
In the present case the information or complaint alleges that he defendant was the manager of a corporation which was engaged in
business as a merchant, and as such manager, he made a false return, for purposes of taxation, of the total amount of sale made by
said false return constitutes a violation of law, the defendant, as the author of the illegal act, must necessarily answer for its
consequences, provided that the allegation are proven.
The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be returned to said
court for further proceedings not inconsistent with our view as hereinafter stated. Without costs. So ordered.
Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.
Entitlement to Moral Damages
1. MAMBULAO LUMBER CO. VS. PNB
22 SCRA 359
An artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety,
wounded feelings, moral shock or social humiliation which are basis or moral damages.
A Corporation may have a good reputation if besmirched, may also be a ground for the award of moral damages.
NB: Regarded only as an obiter dicta *
2. Asset Privatization Trust vs CA
300 SCRA 579 Business Organization Corporation Law Corporation Generally Not Entitled To Moral Damages Power To Enter
Into Contracts
In 1968, the government undertook to support the financing of Marinduque Mining and Industrial Corporation (MMIC). The
government then issued debenture bonds in favor of MMIC which enable the latter to take out loans from the Development Bank of
the Philippines (DBP) and the Philippine National Bank (PNB). The loans were mortgaged by MMICs assets. In 1984 however, MMICs

indebtedness reached P13.7 billion and P8.7 billion to DPB and PNB respectively. MMIC had trouble paying and this exposed the
government, because of the debenture bonds, to a P22 billion obligation.
In order to mitigate MMICs loan liability, a financial restructuring plan (FRP) was drafted in the presence of MMICs representatives
as well as representatives from DBP and PNB. The two banks however never formally approved the said FRP. Eventually, the staggering
loans became overdue and PNB and DBP chose to foreclose MMICs assets, FRP no longer feasible at that point. So the assets were
foreclosed and were eventually assigned to the Asset Privatization Trust (APT).
Later, Jesus Cabarrus, Sr., a stockholder of MMIC initiated a derivative suit against PNB and DBP with APT being impleaded as the
successor in interest of the two banks. The suit basically questioned the foreclosure as Cabarrus asserted that the foreclosure was
invalid because he insisted that the FRP was adopted by PNB and DBP as a consequence of the presence of the banks representatives
when the said FRP was drafted. Cabarrus asserts that APT should restore the assets to MMIC and that PNB and DBP should honor the
FRP. The suit was filed in the RTC of Makati but while the case was pending, the parties agreed to submit the case for arbitration.
Hence, Makati RTC dismissed the case upon motion of the parties.
The Arbitration Committee (AC) which heard the case ruled in favor of Cabarrus. The AC granted Cabarrus prayer and at the same time
awarded him P10 million in moral damages. Not only that, the AC also awarded P2.5 billion in moral damages in favor of MMIC to be
paid by the government. APTs MFR was denied. Cabarrus then filed before the Makati RTC a motion to confirm the arbitration award.
APT opposed the same as it alleged that the motion is improper. Makati RTC denied APTs opposition and confirmed the arbitration
award. The Court of Appeals affirmed the ruling of the RTC.
ISSUE: Whether or not the ruling of the Arbitration Committee as affirmed by the Regional Trial Court of Makati (Branch 62) and the
Court of Appeals is correct.
HELD: No.
The award of damages in favor of MMIC is improper. First, it was not made a party to the case. The derivative suit filed by Cabarrus
failed to implead MMIC. So how can an award for damages be awarded to a non-party? Second, even if MMIC, which is actually a real
party in interest, was impleaded, it is not entitled to moral damages. It is not yet a well settled jurisprudence that corporations are
entitled to moral damages. While the Supreme Court in some cases did award certain corporations moral damages for besmirched
reputations, such is not applicable in this case because when the alleged wrongful foreclosure was done, MMIC was already in bad
standing hence it has no good wholesome reputation to protect. So it could not be said that there was a reputation besmirched by
the act of foreclosure. Likewise, the award of moral damages in favor of Cabarrus is invalid. He cannot have possibly suffered any
moral damages because the alleged wrongful act was committed against MMIC. It is a basic postulate that a corporation has a
personality separate and distinct from its stockholders. The properties foreclosed belonged to MMIC, not to its stockholders. Hence,
if wrong was committed in the foreclosure, it was done against the corporation.
The FRP is not valid hence the foreclosure is valid. The mere presence of DBPs and PNBs representatives during the drafting of FRP
is not constitutive of the banks formal approval of the FRP. The representatives are personalities distinct from PNB and DBP. PNB and
DBP have their own boards and officers who may have different decisions. The representatives were not shown to have been
authorized by the respective boards of the two banks to enter into any agreement with MMIC.
Further, the proceeding is procedurally infirm. RTC Makati had already dismissed the civil case when the parties opted for
arbitration. Hence, it should have never took cognizance of the Cabarrus motion to confirm the AC award. The same should have
been brought through a separate action not through a motion because RTC Makati already lost jurisdiction over the case when it
dismissed it to give way for the arbitration. The arbitration was a not a continuation of the civil case filed in Makati RTC.
3. ABS-CBN BROADCASTING CORPORATION VS. COURT OF APPEALS
301 SCRA 572

FACTS:
1. Petitioner ABS-CBN and respondent VIVA executed a Film Exhibition Agreement whereby VIVA gave ABS-CBN an exclusive right to
exhibit some Viva Films.
2. Viva, through defendant Vicente del Rosario offered ABS-CBN, through its vice-president Charo Santos-Concio a list of film
packages from which ABS-CBN may exercise its right of first refusal.

3. ABS-CBN did not accept the list of film packages.


4. Del Rosario and Senior Vice President for Finance, Mr. Graciano Gozon, of Republic Broadcasting Corporation discussed the terms
and conditions of Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
5. After the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Vivas President
Teresita Cruz, in consideration of P 60 Million, signed a letter or agreement granting RBS (GMA 7) the exclusive right to air 104 Viaproduced and/or acquired films including the 14 films subject of the present case.
6. ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents RBS, VIVA and Vicente del Rosario.
7. The RTC issued the TRO enjoining private respondent from proceeding with the airing, broadcasting, and televising of the 14 VIVA
films subject of the controversy.
8. A civil case was filed by ABS-CBN against VIVA et al.
9. The RTC rendered a decision in favor of RBS and VIVA and against ABS-CBN and ordered it to pay:
a) 1 Million attorneys fees
b) 5 Million moral damages
c) 5 million exemplary damages
10. According to the RTC, there was no meeting of minds on the price and terms of the offers because the alleged agreement
between Lopez III and del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved
during a Board Meeting.
11. On appeal to the CA, the Appellate Court agreed with the RTC that the contract between ABS-CBN and VIVA was not perfected,
absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez.
12. The appellate court did not also believe ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a" napkin",
as the same was never produced in court.
13. Respondent Court sustained the award of actual damages there being adequate proof of the pecuniary loss which RBS had
suffered as a result of the filing of the complaint by ABS-CBN.
14. As to the award from moral damages, the Ca found reasonable basis therefore, holding that RBS reputation was debased by the
filing of the complaint and by the non-showing of the film Maging Sino Ka Man.
15. Respondent Court also held that exemplary damages were correctly imposed by way of example or correction for the public
good in view of the filing of the complaint despite petitioners knowledge the contract with VIVA had not been perfected.
16. The appellate court, however, reduced the awards for moral damages to P 2 Million, exemplary damages to P 2 Million, and
attorneys fees to P 500,000.00
17. Motion for reconsideration was denied.
18. Hence this petition.

ISSUE:
Was the award of actual and compensatory damages proper?
Whether or not the award of moral and exemplary damages proper?
Was the award of attorneys fees in favor of RBS proper?
HELD:
Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or
by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly
proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee
failed to obtain. In contracts and quasi contracts the damages which may be awarded are dependent on whether the obligor acted
with good faith or otherwise. In case of good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of
the constitution of the obligation. If the obligor acted with fraud, bad, faith, malice, or wanton attitude, he shall be responsible for
all damages which may be reasonably attributed to the non-performance of the obligation.
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal
injury, of for injury to the plaintiff, business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi delict. It arose from the fact of filing
of the complaint despite ABS-CBNs alleged knowledge of lack of cause of action.
Needless to state the ward of actual damages cannot be comprehended under the above law on actual damages. RBS could only

probably take refuge under Articles 19, 20, and 21 of the Civil Code.

As regards attorneys fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or
compensatory damages under any of the circumstance provided for in Article 2208 of the Civil Code.
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be
placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorneys
fees under Article 2208 demands, factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expense to protect his right, still attorneys fees may not be awarded where no sufficient showing of bad faith
could be reflected in a partys; persistence is a case other than an erroneous conviction of the righteousness of his cause.

As to moral damages the law is Section 1, chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are
included in moral damages, while Article 2210 enumerated the cases where they me be recovered. Article 2220 provides that moral
damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBSs claim for moral
damages could possibly fall only under item (10) of Article 2219.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed
at the restoration, within the limits of the possible of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balance restrained and
measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court.
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feeling, no emotions, no sense. It cannot, therefore experience physical suffering and mental
anguish, which can be experienced only by one having a nervous system.

The basic law on exemplary damages is Section 5, Chapter 3, Tile XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are
recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances;
in quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi delict. Hence the
claims for moral and exemplary damages can only be based on Article 19, 20 and 21 of the Civil Code.

4. Jardine Davies vs CA
Moral damages may be awarded to a corporation whose reputation has been besmirched. In the instant case, FEMSCO
has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the
urgency of the project, only to be canceled later by the counterparty in the contract. (Jardine Davies, Inc Vs. Court of Appeals
and Far East Mills Supply Corporation, G.R. No. 128066, June 19, 2000)
-Full textBELLOSILLO, J.:
This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to
resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more
arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install
two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were
invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the
needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders,
namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid
proposals and gave bid bonds equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of
the contract to FEMSCO
Gentlemen:
This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500
KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the
labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained
amount shall be released thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond in
an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year
from completion and acceptance of project. The contract price includes future increase/s in costs of materials and labor;
2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item required to
complete the project, and those not included in the list of items shall be deemed included and covered and shall be
performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of
Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk
Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be
endorsed in favor of and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or workmanship.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk insurance
policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter
dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the
necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as
requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation and
warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a
meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the
project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was
not one of the bidders.1wphi1.nt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO
presented its evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court concluded that
"[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a
matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court
of law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS
to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction
had already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the
costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court
which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS
appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27 June
1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latter's
contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS
was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the
total amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of
facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the
project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or
counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in
bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO. Moreover,
JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the award of moral
damages is proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS
and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or
connived with PUREFOODS to violate the latter's contract with FEMSCO.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; and, (c) cause of the obligation which is established. 5 A contract binds both contracting parties and has the force of law
between them.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment,
the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not
qualify the terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance must be
made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy
lies in the consent whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the
contract.
To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS
started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
"[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective offers.
Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions,"
these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first
"condition" was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the
bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all
items and materials including those excluded in the list but necessary to complete the project shall be deemed included and should
be brand new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the
delivery of the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a
performance bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth
"condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were
prescriptions on how the obligation was to be performed and implemented. They were far from being conditions imposed on the
perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court
As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is already
an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein,
the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and Conditions
of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a
clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the
contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either
be express or implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would
only be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be
deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even
after the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for
a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it
eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that
purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS,
i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the contract has been
perfected. For, there can be no cancellation if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that no such
contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were
affirmed by the appellate court
Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and
this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile codefendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the
Court's mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to which
every man is due. 11
This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its
suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of
moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to
enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be
reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to support
such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in
the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower
quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate
its contract with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PUREFOODS
CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing
the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the
contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount
due, is AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount of
P1,000,000.00. Costs against petitioner.
5. Meralco vs Team Electronics
As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering
or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the
corporation has a reputation that is debased, resulting in its humiliation in the business realm. But in such a case, it is essential to
prove the existence of the factual basis of the damage and its causal relation to petitioner's acts.
Thus, where the records are bereft of evidence that the name or reputation of the corporation has been debased as a result of
Meralcos act (which in this case is the disconnection without written notice of the disconnection of the electricity supply to the
building of the corporation due to alleged meter tampering ), the corporation is not entitled to moral damages. (Manila Electric
Company vs. T.E.A.M. Electronics Corporation, Technology Electronics Assembly and Management Pacific Corporation; and Ultra
Electronics Instruments, Inc., G.R. No. 131723, December 13, 2007)
MERALCO V. TEAM ELECTRONIC CORP (PD 401/RA 7832, CORP'S CLAIM OF MORAL DAMAGES)

The law in force at the time material to this controversy was PD 401. It penalized unauthorized installation of water, electrical,
telephone connections and such acts as the use of tampered electrical meters. PD 401 granted the electrical companies the right to

conduct inspections of electric meters and the criminal prosecution or erring customers who were found to have tampered with
their electrical meters. It did not provide for more expedient remedies as the charging of differential billing and immediate
disconnection against erring customers. Thus, electric companies found a creative way of availing themselves of such remedies by
inserting into the service contracts a provision for differential billing with the option of disconnection upon non-payment by the
erring customers. The Court has recognized the validity of such stipulations. However, recourse to differential billing with
disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.
MERALCO, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that MERALCO sent a
demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be
disconnected. In fine, it abused the remedies granted to it under PD 401 by outright depriving TEC of electric services without first
notifying it of the impending disconnection.
SC deems it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill and
reputation. As a rule, A CORPORATION IS NOT ENTITLED TO MORAL DAMAGES BECAUSE, NOT BEING A NATURAL PERSON, IT
CANNOT EXPERIENCE PHYSICAL SUFFERING OR SENTIMENTS like wounded feelings, serious anxiety, mental anguish, and moral
shock. The only EXCEPTION to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the
business realm. but in such a case, it is imperative for the claimant to present proof to justify the award. It is essential to prove the
existence of the factual basis of the damage and its causal relation to petitioner's acts. In the present case, the records are bereft of
any evidence that the name or reputation of TEC/TPC has been debased as a result of petitioner's act. Besides, the trial court simply
awarded moral damages in the dispositive portion of its decision without stating the basis thereof.
Nationality of a corporation
1.

Registry of Deeds of Rizal vs Ung Sui Si Temple

The fact that the religious organization has no capital stock does not suffice to escape the Constitutional inhibition, since it is
admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure
that corporations or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by
Filipinos; and the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should
be composed of Filipino citizens. (Register of Deeds vs. Ung Sui Si Temple, G.R. No. L-6776, May 21, 1955)
-Full TextG.R. No. L-6776

May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, vs. UNG SIU SI TEMPLE, respondent-appellant.


REYES, J.B.L., J.:
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form on January 22,
1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, known as lot No. 2, block 48-D, PSD4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious organization "Ung Siu Si Temple", operating through three
trustees all of Chinese nationality. The donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the
Temple, acting in representation and in behalf of the latter and its trustees.
The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila. On March 14, 1953,
the Court upheld the action of the Rizal Register of Deeds, saying:
The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of donation of a parcel of
land executed in favor of a religious organization whose founder, trustees and administrator are Chinese citizens should be
registered or not.
It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of the opinion and so hold that in view of the provisions of
the sections 1 and 5 of Article XIII of the Constitution of the Philippines limiting the acquisition of land in the Philippines to
its citizens, or to corporations or associations at least sixty per centum of the capital stock of which is owned by such
citizens adopted after the enactment of said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs.

the Register of Deeds of Manila, the deed of donation in question should not be admitted for admitted for registration.
(Printed Rec. App. pp 17-18).
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to this Court,
claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and permitted by Act No. 271 of the old
Philippine Commission, providing as follows:
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether incorporated in the
Philippine Islands or in the name of other country, or not incorporated at all, to hold land in the Philippine Islands upon
which to build churches, parsonages, or educational or charitable institutions.
SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees for the use of such
associations; . . .. (Printed Rec. App. p. 5.)
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III, Sec. 1(7)].
We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title XIII, of the
Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed repealed since the Constitution was
enacted, in so far as incompatible therewith. In providing that,
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations or associations qualified to acquire or hold lands of the public domain in the Philippines,
the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in sections 1 and 2 of
Article XIII, restricting the acquisition of public agricultural lands and other natural resources to "corporations or associations at least
sixty per centum of the capital of which is owned by such citizens" (of the Philippines).
The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional inhibition, since it
is admitted that its members are of foreign nationality. The purpose of the sixty per centum requirement is obviously to ensure that
corporations or associations allowed to acquire agricultural land or to exploit natural resources shall be controlled by Filipinos; and
the spirit of the Constitution demands that in the absence of capital stock, the controlling membership should be composed of
Filipino citizens.
To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the opening wedge to
revive alien religious land holdings in this country. We can not ignore the historical fact that complaints against land holdings of that
kind were among the factors that sparked the revolution of 1896.
As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed by Article III of the
Constitution, we are by no means convinced (nor has it been shown) that land tenure is indispensable to the free exercise and
enjoyment of religious profession or worship; or that one may not worship the Deity according to the dictates of his own conscience
unless upon land held in fee simple.
The resolution appealed from is affirmed, with costs against appellant.
2.

Roman Catholic Admin of Davao vs Register of Deeds of Davao

G.R. No. L-8451


December 20, 1957
Lesson Applicable: Exploitation of Natural Resources (Corporate Law)
FACTS:

October 4, 1954: Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale of a parcel of
land in favor of the Roman Catholic Apostolic Administrator of Davao Inc.(Roman), a corporation sole organized and existing
in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent.
The Register of Deeds of Davao for registration, having in mind a previous resolution of the CFI in Carmelite Nuns of Davao
were made to prepare an affidavit to the effect that 60% of the members of their corp. were Filipino citizens when they

sought to register in favor of their congregation of deed of donation of a parcel of land, required it to submit a similar
affidavit declaring the same.
June 28, 1954: Roman in the letter expressed willingness to submit an affidavit but not in the same tenor as the Carmelite
Nuns because it had five incorporators while as a corporation sole it has only one and it was ownership through donation
and this was purchased
As the Register of the Land Registration Commissioner (LRC) : Deeds has some doubts as to the registerability, the matter
was referred to the Land Registration Commissioner en consulta for resolution (section 4 of Republic Act No. 1151)
LRC:
o In view of the provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not
qualified to acquire private lands in the Philippines in the absence of proof that at least 60 per centum of the
capital, property, or assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or
controlled by Filipino citizens, there being no question that the present incumbent of the corporation sole was a
Canadian citizen
o ordered the Registered Deeds of Davao to deny registration of the deed of sale in the absence of proof of
compliance with such condition
action for mandamus was instituted by Roman alleging the land is held in true for the benefit of the Catholic population of a
place

ISSUE: W/N Roman is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII of the
Constitution
HELD: YES. Register of Deeds of the City of Davao is ordered to register the deed of sale

1.
2.

3.

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some particular
station, who are incorporated by law in order to give them some legal capacities and advantages, particularly that of
perpetuity, which in their natural persons they could not have had.
o In this sense, the king is a sole corporation; so is a bishop, or dens, distinct from their several chapters
corporation sole
composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion for the
purpose of determining any percentage whatsoever
only the administrator and not the owner of the temporalities located in the territory comprised by said corporation sole
and such temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole
has no nationality and the citizenship of the incumbent and ordinary has nothing to do with the operation, management or
administration of the corporation sole, nor effects the citizenship of the faithful connected with their respective dioceses or
corporation sole.
Constitution demands that in the absence of capital stock, the controlling membership should be composed of Filipino
citizens. (Register of Deeds of Rizal vs. Ung Sui Si Temple)
undeniable proof that the members of the Roman Catholic Apostolic faith within the territory of Davao are predominantly
Filipino citizens
o presented evidence to establish that the clergy and lay members of this religion fully covers the percentage of
Filipino citizens required by the Constitution
fact that the law thus expressly authorizes the corporations sole to receive bequests or gifts of real properties (which were
the main source that the friars had to acquire their big haciendas during the Spanish regime), is a clear indication that the
requisite that bequests or gifts of real estate be for charitable, benevolent, or educational purposes, was, in the opinion of
the legislators, considered sufficient and adequate protection against the revitalization of religious landholdings.
as in respect to the property which they hold for the corporation, they stand in position of TRUSTEES and the courts may
exercise the same supervision as in other cases of trust

4.

People vs Quasha

G.R. No. L-6055


June 12, 1953
Lessons Applicable: Public Utilities (Corporate Law)
FACTS:

William H. Quasha
o a member of the Philippine bar, committed a crime of falsification of a public and commercial document for
causing it to appear that Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 % of the
subscribed capital stock of Pacific Airways Corp. (Pacific) when in reality the money paid belongs to an American
citizen whose name did not appear in the article of incorporation,
to circumvent the constitutional mandate that no corp. shall be authorize to operate as a public utility in
the Philippines unless 60% of its capital stock is owned by Filipinos.
o Found guilty after trial and sentenced to a term of imprisonment and a fine
Quasha appealed to this Court
Primary purpose: to carry on the business of a common carrier by air, land or water
Baylon did not have the controlling vote because of the difference in voting power between the preferred shares and the
common shares
ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty of prision mayor and a
fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee, or notary who, taking advantage of his
official position, shall falsify a document by committing any of the following acts:

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision correccional in its
medium and maximum period and a fine of not more than 5,000 pesos shall be imposed upon:
1. Any private individual who shall commit any of the falsifications enumerated in the next preceding
article in any public or official document or letter of exchange or any other kind of commercial
document.

ISSUE: W/N Quasha should be criminally liable


HELD: NO. Acquitted.

5.

falsification consists in not disclosing in the articles of incorporation that Baylon was a mere trustee ( or dummy as the
prosecution chooses to call him) of his American co-incorporators, thus giving the impression that Baylon was the owner of
the shares subscribed to by him
For the mere formation of the corporation such revelation was not essential, and the Corporation Law does not require it
The moment for determining whether a corporation is entitled to operate as a public utility is when it applies for a
franchise, certificate, or any other form of authorization for that purpose.
o that can be done after the corporation has already come into being and not while it is still being formed
so far as American citizens are concerned, the said act has ceased to be an offense within the meaning of the law, so that
defendant can no longer be held criminally liable therefor.
Filipinas Compania de Seguros cs Christern

G.R. No. L-2294 May 25, 1951, EN BANC (PARAS, C.J.)


FACTS:
Christern, Huenefeld and Company, a German company, obtained a fire insurance policy from Filipinas Compaia for the
merchandise contained in a building located in Binondo, Manila in the sum of P100,000. Filipinas Compaia is an American
controlled company. The building and the insured merchandise were burned during the Japanese occupation. Christern filed its
claim amounting to P92,650.00 but Filipinas Compaia refused to pay alleging that Christern is a corporation whose majority
stockholders are Germans and that during the Japanese occupation, America declared war against Germany hence the insurance

policy ceased to be effective because the insured has become an enemy. Filipinas Compaia was eventually ordered to pay Christern
as ordered by the Japanese government.

ISSUE:
Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the insurance claim.
HELD:
NO. There is no question that majority of the stockholders of Christern were German subjects. This being so, Christern became an
enemy corporation upon the outbreak of the war between the United States and Germany. The Philippine Insurance Law (Act No.
2427, as amended,) in Section 8, provides that anyone except a public enemy may be insured. It stands to reason that an
insurance policy ceases to be allowable as soon as an insured becomes a public enemy.
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1,
1941, by the petitioner had ceased to be valid and enforceable, and since the insured goods were burned after December 10, 1941,
and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary
rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the
period covered by its policy from December 11, 1941, should be returned by the petitioner.
6.

Palting vs San Jose Petroleum


18 SCRA 924 Business Organization Corporation Law Parity Rights Nationality Nationalized Areas of Activity

In 1956, San Jose Petroleum, Inc. (SJP), a mining corporation organized under the laws of Panama, was allowed by the Securities and
Exchange Commission (SEC) to sell its shares of stocks in the Philippines. Apparently, the proceeds of such sale shall be invested in
San Jose Oil Company, Inc. (SJO), a domestic mining corporation. Pedro Palting opposed the authorization granted to SJP because
said tie up between SJP and SJO is violative of the constitution; that SJO is 90% owned by SJP; that the other 10% is owned by
another foreign corporation; that a mining corporation cannot be interested in another mining corporation. SJP on the other hand
invoked that under the parity rights agreement (Laurel-Langley Agreement), SJP, a foreign corporation, is allowed to invest in a
domestic corporation.
ISSUE: Whether or not SJP is correct.
HELD: No. The parity rights agreement is not applicable to SJP. The parity rights are only granted to American business enterprises or
enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian corporate citizen. The other owners of SJO are
Venezuelan corporations, not Americans. SJP was not able to show contrary evidence. Further, the Supreme Court emphasized that
the stocks of these corporations are being traded in stocks exchanges abroad which renders their foreign ownership subject to
change from time to time. This fact renders a practical impossibility to meet the requirements under the parity rights. Hence, the tie
up between SJP and SJO is illegal, SJP not being a domestic corporation or an American business enterprise contemplated under the
Laurel-Langley Agreement.
7.

Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated Mines,G.R. No. 195580, April 21, 2014.

Corporations; nationality. The control test is still the prevailing mode of determining whether or not a corporation is a
Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then
it may apply the grandfather rule. Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated Mines,G.R.
No. 195580, April 21, 2014.

Narra Nickel and Mining Development vs. Redmond Development


April 21, 2014
FACTS:
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and
existing under Philippine laws, took interest in mining and exploring
certain areas of the province of Palawan. After inquiring with the
Department of Environment and Natural Resources (DENR), it
learned that the areas where it wanted to undertake exploration and
mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro
and McArthur. Petitioner McArthur Narra and Tesoro, filed an
application for an MPSA and Exploration Permit (EP) which was
subsequently issued.
On January 2, 2007, Redmont filed before the Panel of Arbitrators
(POA) of the DENR three (3) separate petitions for the denial of
petitioners applications for MPSA. Redmont alleged that at least 60%
of the capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners
filing of the MPSAs over the areas covered by applications since it
knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that
given that petitioners capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Petitioners averred that they were qualified persons under Section 39
(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of
1995. They stated that their nationality as applicants is immaterial
because they also applied for Financial or Technical Assistance
Agreements (FTAA) denominated as AFTAIVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for
Narra, which are granted to foreign-owned corporations.
Nevertheless, they claimed that the issue on nationality should not be
raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the
Philippines.
On December 14, 2007, the POA issued a Resolution disqualifying
petitioners from gaining MPSAs. The POA considered petitioners as
foreign corporations being "effectively controlled" by MBMI, a 100%
Canadian company and declared their MPSAs null and void.
Pending the resolution of the appeal filed by petitioners with the MAB,
Redmont filed a Complaint with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for
registration of petitioners on the ground that they are foreign-owned or
controlled corporations engaged in mining in violation of Philippine
laws.
CA found that there was doubt as to the nationality of petitioners when
it realized that petitioners had a common major investor, MBMI, a
corporation composed of 100% Canadians. Pursuant to the first
sentence of paragraph 7 of Department of Justice (DOJ) Opinion No.
020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners. In
determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders.

Using the grandfather rule, the CA discovered that MBMI in effect owned majority of the common stocks of the petitioners as well
as at least 60% equity interest of other majority shareholders of petitioners through joint venture agreements. The CA found that
through a "web of corporate layering, it is clear that one common controlling investorin all mining corporations involved x x x is
MBMI." Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in partnership with, or privies-in-interest of, MBMI.
ISSUE:
Whether or not the Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather
Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.
HELD:
No. There are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule.
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the
Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources
owned by Filipino citizens, provides Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens shall be considered as of Philippine nationality (CONTROL TEST), but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of
Philippine nationality (GRANDFATHER RULE). Thus, if 100,000 shares are registered in the name of a corporation or partnership at
least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned
by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to
Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since the definition of a "Philippine National"
under Sec. 3 of the FIA does not provide for it. They further claim that the grandfather rule "has been abandoned and is no longer
the applicable rule." They also opined that the last portion of Sec. 3 of the FIA admits the application of a "corporate layering"
scheme of corporations.
Petitioners claim that the clear and unambiguous wordings of the statute preclude the court from construing it and prevent the
courts use of discretion in applying the law. They said that the plain, literal meaning of the statute meant the application of the
control test is obligatory.
SC disagreed. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent
laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must
be discredited for lack of basis.
Petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their
equity interests. Such conclusion is derived from grandfathering petitioners corporate owners, namely: MMI, SMMI and PLMDC.
The "control test" is still the prevailing mode of determining whether or not a corporation is a Filipino corporation, within the ambit
of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources
of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the
60-40 Filipino-equity ownership
8.

Gamboa vs Teves

Gamboa vs. Teves


GR No. 176579, October 9, 2012
Facts:
The issue started when petitioner Gamboa questioned the indirect sale of shares involving almost 12 million shares of the Philippine
Long Distance Telephone Company (PLDT) owned by PTIC to First Pacific. Thus, First Pacifics common shareholdings in PLDT
increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about
81.47%. The petitioner contends that it violates the Constitutional provision on filipinazation of public utility, stated in 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%.
Then, in 2011, the court ruled the case in favor of the petitioner, hence this new case, resolving the motion for reconsideration for
the 2011 decision filed by the respondents.
Issue: Whether or not the Court made an erroneous interpretation of the term capital in its 2011 decision?
Held/Reason: The Court said that the Constitution is clear in expressing its State policy of developing an economy effectively
controlled by Filipinos. Asserting the ideals that our Constitutions Preamble want to achieve, that is to conserve and develop our
patrimony, hence, the State should fortify a Filipino-controlled economy. In the 2011 decision, the Court finds no wrong in the
construction of the term capital which refers to the shares with voting rights, as well as with full beneficial ownership (Art. 12, sec.

10) which implies that the right to vote in the election of directors, coupled with benefits, is tantamount to an effective control.
Therefore, the Courts interpretation of the term capital was not erroneous. Thus, the motion for reconsideration is denied.
Classification of corporation

1. Philippine Society for the Prevention of Cruelty to Animals vs Commission on Audit


G.R. No. 169752
September 25, 2007
Facts:
PSPCA was incorporated as a juridical entity by virtue of Act No. 1285 by the Philippine Commission in order to enforce laws relating
to the cruelty inflicted upon animals and for the protection of and to perform all things which may tend to alleviate the suffering of
animals and promote their welfare.
In order to enhance its powers, PSPCA was initially imbued with (1) power to apprehend violators of animal welfare laws and (2)
share 50% of the fines imposed and collected through its efforts pursuant to the violations of related laws.
However, Commonwealth Act No. 148 recalled the said powers. President Quezon then issued Executive Order No. 63 directing the
Commission of Public Safety, Provost Marshal General as head of the Constabulary Division of the Philippine Army, Mayors of
chartered cities and every municipal president to detail and organize special officers to watch, capture, and prosecute offenders of
criminal-cruelty laws.
On December 1, 2003, an audit team from the Commission on Audit visited petitioners office to conduct a survey. PSPCA demurred
on the ground that it was a private entity and not under the CoAs jurisdiction, citing Sec .2(1), Art. IX of the Constitution.

Issues:
WON the PSPCA is subject to CoAs Audit Authority.
Held:
No.
The charter test cannot be applied. It is predicated on the legal regime established by the 1935 Constitution, Sec.7, Art. XIII. Since
the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, the test cannot be applied to
PSPCA which was incorporated on January 19, 1905. Laws, generally, have no retroactive effect unless the contrary is provided. There
are a few exceptions: (1) when expressly provided; (2) remedial statutes; (3) curative statutes; and (4) laws interpreting others.
None of the exceptions apply in the instant case.
The mere fact that a corporation has been created by a special law doesnt necessarily qualify it as a public corporation. At the time
PSPCA was formed, the Philippine Bill of 1902 was the applicable law and no proscription similar to the charter test can be found
therein. There was no restriction on the legislature to create private corporations in 1903. The amendments introduced by CA 148
made it clear that PSPCA was a private corporation, not a government agency.
PSPCAs charter shows that it is not subject to control or supervision by any agency of the State. Like all private corporations, the
successors of its members are determined voluntarily and solely by the petitioner, and may exercise powers generally accorded to
private corporations.
PSPCAs employees are registered and covered by the SSS at the latters initiative and not through the GSIS.

The fact that a private corporation is impressed with public interest does not make the entity a public corporation. They may be
considered quasi-public corporations which are private corporations that render public service, supply public wants and pursue
other exemplary objectives. The true criterion to determine whether a corporation is public or private is found in the totality of the
relation of the corporate to the State. It is public if it is created by the latters own agency or instrumentality, otherwise, it is private.
3.

Funa vs MECO

-Full TextDENNIS A.B. FUNA, Petitioner,


vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the COMMISSION ON AUDIT, Respondents.
DECISION
PEREZ, J.:
This is a petition for mandamus1 to compel:
1.) the Commission on Audit (COA) to audit and examine the funds of the Manila Economic and Cultural Office (MECO), and
2.) the MECO to submit to such audit and examination.
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China with two (2) governments in a stalemate espousing competing
assertions of sovereignty.3 On one hand is the communist Peoples Republic of China (PROC) which controls the mainland territories,
and on the other hand is the nationalist Republic of China (ROC) which controls the island of Taiwan. For a better part of the past
century, both the PROC and ROC adhered to a policy of "One China" i.e., the view that there is only one legitimate government in
China, but differed in their respective interpretation as to which that government is.4
With the existence of two governments having conflicting claims of sovereignty over one country, came the question as to which of
the two is deserving of recognition as that countrys legitimate government. Even after its relocation to Taiwan, the ROC used to
enjoy diplomatic recognition from a majority of the worlds states, partly due to being a founding member of the United Nations
(UN).5 The number of states partial to the PROCs version of the One China policy, however, gradually increased in the 1960s and
70s, most notably after the UN General Assembly adopted the monumental Resolution 2758 in 1971.6 Since then, almost all of the
states that had erstwhile recognized the ROC as the legitimate government of China, terminated their official relations with the said
government, in favor of establishing diplomatic relations with the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations with the government in Taiwan on 9 June 1975, when the country and
the PROC expressed mutual recognition thru the Joint Communiqu of the Government of the Republic of the Philippines and the
Government of the Peoples Republic of China (Joint Communiqu).8
Under the Joint Communiqu, the Philippines categorically stated its adherence to the One China policy of the PROC. The pertinent
portion of the Joint Communiqu reads:9
The Philippine Government recognizes the Government of the Peoples Republic of China as the sole legal government of China, fully
understands and respects the position of the Chinese Government that there is but one China and that Taiwan is an integral part of
Chinese territory, and decides to remove all its official representations from Taiwan within one month from the date of signature of
this communiqu. (Emphasis supplied)
The Philippines commitment to the One China policy of the PROC, however, did not preclude the country from keeping unofficial
relations with Taiwan on a "people-to-people" basis.10 Maintaining ties with Taiwan that is permissible by the terms of the Joint

Communiqu, however, necessarily required the Philippines, and Taiwan, to course any such relations thru offices outside of the
official or governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan and of the Philippines maintained an unofficial relationship
facilitated by the offices of the Taipei Economic and Cultural Office, for the former, and the MECO, for the latter.11
The MECO12 was organized on 16 December 1997 as a non-stock, non-profit corporation under Batas Pambansa Blg. 68 or the
Corporation Code.13 The purposes underlying the incorporation of MECO, as stated in its articles of incorporation,14 are as follows:
1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad, and assist on all
measures designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;
2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided
they are not subject to conditions defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and
need of the corporation, and to dispose of the same in like manner when they are no longer needed or useful; and
4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis
supplied)
From the moment it was incorporated, the MECO became the corporate entity "entrusted" by the Philippine government with the
responsibility of fostering "friendly" and "unofficial" relations with the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational exchanges.15 To enable it to carry out such responsibility, the MECO
was "authorized" by the government to perform certain "consular and other functions" that relates to the promotion, protection
and facilitation of Philippine interests in Taiwan.16
At present, it is the MECO that oversees the rights and interests of Overseas Filipino Workers (OFWs) in Taiwan; promotes the
Philippines as a tourist and investment destination for the Taiwanese; and facilitates the travel of Filipinos and Taiwanese from
Taiwan to the Philippines, and vice versa.17
Facts Leading to the Mandamus Petition
On 23 August 2010, petitioner sent a letter18 to the COA requesting for a "copy of the latest financial and audit report" of the MECO
invoking, for that purpose, his "constitutional right to information on matters of public concern." The petitioner made the request
on the belief that the MECO, being under the "operational supervision" of the Department of Trade and Industry (DTI), is a
government owned and controlled corporation (GOCC) and thus subject to the audit jurisdiction of the COA.19
Petitioners letter was received by COA Assistant Commissioner Jaime P. Naranjo, the following day.
On 25 August 2010, Assistant Commissioner Naranjo issued a memorandum20 referring the petitioners request to COA Assistant
Commissioner Emma M. Espina for "further disposition." In this memorandum, however, Assistant Commissioner Naranjo revealed
that the MECO was "not among the agencies audited by any of the three Clusters of the Corporate Government Sector."21
On 7 September 2010, petitioner learned about the 25 August 2010 memorandum and its contents.
Mandamus Petition
Taking the 25 August 2010 memorandum as an admission that the COA had never audited and examined the accounts of the MECO,
the petitioner filed the instant petition for mandamus on 8 September 2010. Petitioner filed the suit in his capacities as "taxpayer,
concerned citizen, a member of the Philippine Bar and law book author."22 He impleaded both the COA and the MECO.
Petitioner posits that by failing to audit the accounts of the MECO, the COA is neglecting its duty under Section 2(1), Article IX-D of
the Constitution to audit the accounts of an otherwise bona fide GOCC or government instrumentality. It is the adamant claim of the
petitioner that the MECO is a GOCC without an original charter or, at least, a government instrumentality, the funds of which
partake the nature of public funds.23

According to petitioner, the MECO possesses all the essential characteristics of a GOCC and an instrumentality under the Executive
Order No. (EO) 292, s. 1987 or the Administrative Code: it is a non-stock corporation vested with governmental functions relating to
public needs; it is controlled by the government thru a board of directors appointed by the President of the Philippines; and while
not integrated within the executive departmental framework, it is nonetheless under the operational and policy supervision of the
DTI.24 As petitioner substantiates:
1. The MECO is vested with government functions. It performs functions that are equivalent to those of an embassy or a
consulate of the Philippine government.25 A reading of the authorized functions of the MECO as found in EO No. 15, s.
2001, reveals that they are substantially the same functions performed by the Department of Foreign Affairs (DFA), through
its diplomatic and consular missions, per the Administrative Code.26
2. The MECO is controlled by the government. It is the President of the Philippines that actually appoints the directors of
the MECO, albeit indirectly, by way of "desire letters" addressed to the MECOs board of directors.27 An illustration of this
exercise is the assumption by Mr. Antonio Basilio as chairman of the board of directors of the MECO in 2001, which was
accomplished when former President Gloria Macapagal-Arroyo, through a memorandum28 dated 20 February 2001,
expressed her "desire" to the board of directors of the MECO for the election of Mr. Basilio as chairman.29
3. The MECO is under the operational and policy supervision of the DTI. The MECO was placed under the operational
supervision of the DTI by EO No. 328, s. of 2004, and again under the policy supervision of the same department by EO No.
426, s. 2005.30
To further bolster his position that the accounts of the MECO ought to be audited by the COA, the petitioner calls attention to the
practice, allegedly prevailing in the United States of America, wherein the American Institute in Taiwan (AIT)the counterpart entity
of the MECO in the United Statesis supposedly audited by that countrys Comptroller General.31 Petitioner claims that this
practice had been confirmed in a decision of the United States Court of Appeals for the District of Columbia Circuit, in the case of
Wood, Jr., ex rel. United States of America v. The American Institute in Taiwan, et al.32
The Position of the MECO
The MECO prays for the dismissal of the mandamus petition on procedural and substantial grounds.
On procedure, the MECO argues that the mandamus petition was prematurely filed.33
The MECO posits that a cause of action for mandamus to compel the performance of a ministerial duty required by law only ripens
once there has been a refusal by the tribunal, board or officer concerned to perform such a duty.34 The MECO claims that there
was, in this case, no such refusal either on its part or on the COAs because the petitioner never made any demand for it to submit to
an audit by the COA or for the COA to perform such an audit, prior to filing the instant mandamus petition.35 The MECO further
points out that the only "demand" that the petitioner made was his request to the COA for a copy of the MECOs latest financial and
audit report which request was not even finally disposed of by the time the instant petition was filed.36
On the petitions merits, the MECO denies the petitioners claim that it is a GOCC or a government instrumentality.37 While
performing public functions, the MECO maintains that it is not owned or controlled by the government, and its funds are private
funds.38 The MECO explains:
1. It is not owned or controlled by the government. Contrary to the allegations of the petitioner, the President of the
Philippines does not appoint its board of directors.39 The "desire letter" that the President transmits is merely
recommendatory and not binding on the corporation.40 As a corporation organized under the Corporation Code, matters
relating to the election of its directors and officers, as well as its membership, are governed by the appropriate provisions
of the said code, its articles of incorporation and its by-laws.41 Thus, it is the directors who elect the corporations officers;
the members who elect the directors; and the directors who admit the members by way of a unanimous resolution. All of
its officers, directors, and members are private individuals and are not government officials.42
2. The government merely has policy supervision over it. Policy supervision is a lesser form of supervision wherein the
governments oversight is limited only to ensuring that the corporations activities are in tune with the countrys
commitments under the One China policy of the PROC.43 The day-to-day operations of the corporation, however, remain
to be controlled by its duly elected board of directors.44

The MECO emphasizes that categorizing it as a GOCC or a government instrumentality can potentially violate the countrys
commitment to the One China policy of the PROC.45 Thus, the MECO cautions against applying to the present mandamus petition
the pronouncement in the Wood decision regarding the alleged auditability of the AIT in the United States.46
The Position of the COA
The COA, on the other hand, advances that the mandamus petition ought to be dismissed on procedural grounds and on the ground
of mootness.
The COA argues that the mandamus petition suffers from the following procedural defects:
1. The petitioner lacks locus standi to bring the suit. The COA claims that the petitioner has not shown, at least in a concrete
manner, that he had been aggrieved or prejudiced by its failure to audit the accounts of the MECO.47
2. The petition was filed in violation of the doctrine of hierarchy of courts. The COA faults the filing of the instant
mandamus petition directly with this Court, when such petition could have very well been presented, at the first instance,
before the Court of Appeals or any Regional Trial Court.48 The COA claims that the petitioner was not able to provide
compelling reasons to justify a direct resort to the Supreme Court.49
At any rate, the COA argues that the instant petition already became moot when COA Chairperson Maria Gracia M. Pulido-Tan
(Pulido-Tan) issued Office Order No. 2011-69850 on 6 October 2011.51 The COA notes that under Office Order No. 2011-698,
Chairperson Pulido-Tan already directed a team of auditors to proceed to Taiwan, specifically for the purpose of auditing the
accounts of, among other government agencies based therein, the MECO.52
In conceding that it has audit jurisdiction over the accounts of the MECO, however, the COA clarifies that it does not consider the
former as a GOCC or a government instrumentality. On the contrary, the COA maintains that the MECO is a non-governmental
entity.53
The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees"
for overseas employment documents that it collects from Taiwanese employers on behalf of the DOLE.54 The COA claims that,
under Joint Circular No. 3-99,55 the MECO is mandated to remit to the Department of Labor and Employment (DOLE) a portion of
such "verification fees."56 The COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government
share" subject to a partial audit of its accounts under Section 26 of the Presidential Decree No. 1445 or the State Audit Code of the
Philippines (Audit Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non-governmental entity. However, under existing laws, the accounts
of the MECO pertaining to the "verification fees" it collects on behalf of the DOLE as well as the fees it was authorized to collect
under Section 2(6) of EO No. 15, s. 2001, are subject to the audit jurisdiction of the COA. Such fees pertain to the government and
should be audited by the COA.
I
We begin with the preliminary issues.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the instant mandamus petition, occasioned by the COAs issuance of
Office Order No. 2011-698. The COA claims that by issuing Office Order No. 2011-698, it had already conceded its jurisdiction over
the accounts of the MECO and so fulfilled the objective of the instant petition.58 The COA thus urges that the instant petition be
dismissed for being moot and academic.59
We decline to dismiss the mandamus petition on the ground of mootness.

A case is deemed moot and academic when, by reason of the occurrence of a supervening event, it ceases to present any justiciable
controversy.60 Since they lack an actual controversy otherwise cognizable by courts, moot cases are, as a rule, dismissible.61
The rule that requires dismissal of moot cases, however, is not absolute. It is subject to exceptions. In David v. Macapagal-Arroyo,62
this Court comprehensively captured these exceptions scattered throughout our jurisprudence:
The "moot and academic" principle is not a magical formula that can automatically dissuade the courts in resolving a case. Courts
will decide cases, otherwise moot and academic, if: first, there is a grave violation of the Constitution;63 second, the exceptional
character of the situation and the paramount public interest is involved;64 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar, and the public;65 and fourth, the case is capable of repetition yet
evading review.66
In this case, We find that the issuance by the COA of Office Order No. 2011-698 indeed qualifies as a supervening event that
effectively renders moot and academic the main prayer of the instant mandamus petition. A writ of mandamus to compel the COA
to audit the accounts of the MECO would certainly be a mere superfluity, when the former had already obliged itself to do the same.
Be that as it may, this Court refrains from dismissing outright the petition. We believe that the mandamus petition was able to craft
substantial issues presupposing the commission of a grave violation of the Constitution and involving paramount public interest,
which need to be resolved nonetheless:
First. The petition makes a serious allegation that the COA had been remiss in its constitutional or legal duty to audit and examine
the accounts of an otherwise auditable entity in the MECO.
Second. There is paramount public interest in the resolution of the issue concerning the failure of the COA to audit the accounts of
the MECO. The propriety or impropriety of such a refusal is determinative of whether the COA was able to faithfully fulfill its
constitutional role as the guardian of the public treasury, in which any citizen has an interest.
Third. There is also paramount public interest in the resolution of the issue regarding the legal status of the MECO; a novelty insofar
as our jurisprudence is concerned. We find that the status of the MECOwhether it may be considered as a government agency or
nothas a direct bearing on the countrys commitment to the One China policy of the PROC.67
An allegation as serious as a violation of a constitutional or legal duty, coupled with the pressing public interest in the resolution of
all related issues, prompts this Court to pursue a definitive ruling thereon, if not for the proper guidance of the government or
agency concerned, then for the formulation of controlling principles for the education of the bench, bar and the public in general.68
For this purpose, the Court invokes its symbolic function.69
If the foregoing reasons are not enough to convince, We still add another:
Assuming that the allegations of neglect on the part of the COA were true, Office Order No. 2011-698 does not offer the strongest
certainty that they would not be replicated in the future. In the first place, Office Order No. 2011-698 did not state any legal
justification as to why, after decades of not auditing the accounts of the MECO, the COA suddenly decided to do so. Neither does it
state any determination regarding the true status of the MECO. The justifications provided by the COA, in fact, only appears in the
memorandum70 it submitted to this Court for purposes of this case.
Thus, the inclusion of the MECO in Office Order No. 2011-698 appears to be entirely dependent upon the judgment of the
incumbent chairperson of the COA; susceptible of being undone, with or without reason, by her or even her successor. Hence, the
case now before this Court is dangerously capable of being repeated yet evading review.
Verily, this Court should not dismiss the mandamus petition on the ground of mootness.
Standing of Petitioner
The second preliminary issue is concerned with the standing of the petitioner to file the instant mandamus petition. The COA claims
that petitioner has none, for the latter was not able to concretely establish that he had been aggrieved or prejudiced by its failure to
audit the accounts of the MECO.71

Related to the issue of lack of standing is the MECOs contention that petitioner has no cause of action to file the instant mandamus
petition. The MECO faults petitioner for not making any demand for it to submit to an audit by the COA or for the COA to perform
such an audit, prior to filing the instant petition.72
We sustain petitioners standing, as a concerned citizen, to file the instant petition.
The rules regarding legal standing in bringing public suits, or locus standi, are already well-defined in our case law. Again, We cite
David, which summarizes jurisprudence on this point:73
By way of summary, the following rules may be culled from the cases decided by this Court.1a\^/phi1 Taxpayers, voters, concerned
citizens, and legislators may be accorded standing to sue, provided that the following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be
settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon their prerogatives as
legislators.
We rule that the instant petition raises issues of transcendental importance, involved as they are with the performance of a
constitutional duty, allegedly neglected, by the COA. Hence, We hold that the petitioner, as a concerned citizen, has the requisite
legal standing to file the instant mandamus petition.
To be sure, petitioner does not need to make any prior demand on the MECO or the COA in order to maintain the instant petition.
The duty of the COA sought to be compelled by mandamus, emanates from the Constitution and law, which explicitly require, or
"demand," that it perform the said duty. To the mind of this Court, petitioner already established his cause of action against the COA
when he alleged that the COA had neglected its duty in violation of the Constitution and the law.
Principle of Hierarchy of Courts
The last preliminary issue is concerned with the petitions non-observance of the principle of hierarchy of courts. The COA assails the
filing of the instant mandamus petition directly with this Court, when such petition could have very well been presented, at the first
instance, before the Court of Appeals or any Regional Trial Court.74 The COA claims that the petitioner was not able to provide
compelling reasons to justify a direct resort to the Supreme Court.75
In view of the transcendental importance of the issues raised in the mandamus petition, as earlier mentioned, this Court waives this
last procedural issue in favor of a resolution on the merits.76
II
To the merits of this petition, then.
The single most crucial question asked by this case is whether the COA is, under prevailing law, mandated to audit the accounts of
the MECO. Conversely, are the accounts of the MECO subject to the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are subject to the audit jurisdiction of the COA.
Under Section 2(1) of Article IX-D of the Constitution,77 the COA was vested with the "power, authority and duty" to "examine, audit
and settle" the "accounts" of the following entities:
1. The government, or any of its subdivisions, agencies and instrumentalities;

2. GOCCs with original charters;


3. GOCCs without original charters;
4. Constitutional bodies, commissions and offices that have been granted fiscal autonomy under the Constitution; and
5. Non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are
required by law or the granting institution to submit to the COA for audit as a condition of subsidy or equity.78
The term "accounts" mentioned in the subject constitutional provision pertains to the "revenue," "receipts," "expenditures" and
"uses of funds and property" of the foregoing entities.79
Complementing the constitutional power of the COA to audit accounts of "non-governmental entities receiving subsidy or equity xxx
from or through the government" is Section 29(1)80 of the Audit Code, which grants the COA visitorial authority over the following
non-governmental entities:
1. Non-governmental entities "subsidized by the government";
2. Non-governmental entities "required to pay levy or government share";
3. Non-governmental entities that have "received counterpart funds from the government"; and
4. Non-governmental entities "partly funded by donations through the government."
Section 29(1) of the Audit Code, however, limits the audit of the foregoing non-governmental entities only to "funds xxx coming
from or through the government."81 This section of the Audit Code is, in turn, substantially reproduced in Section 14(1), Book V of
the Administrative Code.82
In addition to the foregoing, the Administrative Code also empowers the COA to examine and audit "the books, records and
accounts" of public utilities "in connection with the fixing of rates of every nature, or in relation to the proceedings of the proper
regulatory agencies, for purposes of determining franchise tax."83
Both petitioner and the COA claim that the accounts of the MECO are within the audit jurisdiction of the COA, but vary on the extent
of the audit and on what type of auditable entity the MECO is. The petitioner posits that all accounts of the MECO are auditable as
the latter is a bona fide GOCC or government instrumentality.84 On the other hand, the COA argues that only the accounts of the
MECO that pertain to the "verification fees" it collects on behalf of the DOLE are auditable because the former is merely a nongovernmental entity "required to pay xxx government share" per the Audit Code.85
We examine both contentions.
The MECO Is Not a GOCC or
Government Instrumentality
We start with the petitioners contention.
Petitioner claims that the accounts of the MECO ought to be audited by the COA because the former is a GOCC or government
instrumentality. Petitioner points out that the MECO is a non-stock corporation "vested with governmental functions relating to
public needs"; it is "controlled by the government thru a board of directors appointed by the President of the Philippines"; and it
operates "outside of the departmental framework," subject only to the "operational and policy supervision of the DTI."86 The MECO
thus possesses, petitioner argues, the essential characteristics of a bona fide GOCC and government instrumentality.87
We take exception to petitioners characterization of the MECO as a GOCC or government instrumentality. The MECO is not a GOCC
or government instrumentality.

Government instrumentalities are agencies of the national government that, by reason of some "special function or jurisdiction"
they perform or exercise, are allotted "operational autonomy" and are "not integrated within the department framework."88
Subsumed under the rubric "government instrumentality" are the following entities:89
1. regulatory agencies,
2. chartered institutions,
3. government corporate entities or government instrumentalities with corporate powers (GCE/GICP),90 and
4. GOCCs
The Administrative Code defines a GOCC:91
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fiftyone (51) per cent of its capital stock: x x x.
The above definition is, in turn, replicated in the more recent Republic Act No. 10149 or the GOCC Governance Act of 2011, to wit:92
(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government of the
Republic of the Philippines directly or through its instrumentalities either wholly or, where applicable as in the case of stock
corporations, to the extent of at least a majority of its outstanding capital stock: x x x.
GOCCs, therefore, are "stock or non-stock" corporations "vested with functions relating to public needs" that are "owned by the
Government directly or through its instrumentalities."93 By definition, three attributes thus make an entity a GOCC: first, its
organization as stock or non-stock corporation;94 second, the public character of its function; and third, government ownership over
the same.
Possession of all three attributes is necessary to deem an entity a GOCC.
In this case, there is not much dispute that the MECO possesses the first and second attributes. It is the third attribute, which the
MECO lacks.
The MECO Is Organized as a Non-Stock Corporation
The organization of the MECO as a non-stock corporation cannot at all be denied. Records disclose that the MECO was incorporated
as a non-stock corporation under the Corporation Code on 16 December 1977.95 The incorporators of the MECO were Simeon R.
Roxas, Florencio C. Guzon, Manuel K. Dayrit, Pio K. Luz and Eduardo B. Ledesma, who also served as the corporations original
members and directors.96
The purposes for which the MECO was organized also establishes its non-profit character, to wit:97
1. To establish and develop the commercial and industrial interests of Filipino nationals here and abroad and assist on all
measures designed to promote and maintain the trade relations of the country with the citizens of other foreign countries;
2. To receive and accept grants and subsidies that are reasonably necessary in carrying out the corporate purposes provided
they are not subject to conditions defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title real and personal properties as may be necessary for the use and
need of the corporation, and in like manner when they are
4. To do and perform any and all acts which are deemed reasonably necessary to carry out the purposes. (Emphasis
supplied)

The purposes for which the MECO was organized are somewhat analogous to those of a trade, business or industry chamber,98 but
only on a much larger scale i.e., instead of furthering the interests of a particular line of business or industry within a local sphere,
the MECO seeks to promote the general interests of the Filipino people in a foreign land.
Finally, it is not disputed that none of the income derived by the MECO is distributable as dividends to any of its members, directors
or officers.
Verily, the MECO is organized as a non-stock corporation.
The MECO Performs Functions with a Public Aspect.
The public character of the functions vested in the MECO cannot be doubted either. Indeed, to a certain degree, the functions of the
MECO can even be said to partake of the nature of governmental functions. As earlier intimated, it is the MECO that, on behalf of
the people of the Philippines, currently facilitates unofficial relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was "authorized" by the Philippine government to perform certain "consular and
other functions" relating to the promotion, protection and facilitation of Philippine interests in Taiwan.99 The full extent of such
authorized functions are presently detailed in Sections 1 and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject to the conditions stated in Section 3 hereof, MECO is hereby
authorized to assist in the performance of the following functions:
1. Formulation and implementation of a program to attract and promote investments from Taiwan to Philippine industries
and businesses, especially in manufacturing, tourism, construction and other preferred areas of investments;
2. Promotion of the export of Philippine products and Filipino manpower services, including Philippine management
services, to Taiwan;
3. Negotiation and/or assistance in the negotiation and conclusion of agreements or other arrangements concerning trade,
investment, economic cooperation, technology transfer, banking and finance, scientific, cultural, educational and other
modes of cooperative endeavors between the Philippines and Taiwan, on a people-to-people basis, in accordance with
established rules and regulations;
4. Reporting on, and identification of, employment and business opportunities in Taiwan for the promotion of Philippine
exports, manpower and management services, and tourism;
5. Dissemination in Taiwan of information on the Philippines, especially in the fields of trade, tourism, labor, economic
cooperation, and cultural, educational and scientific endeavors;
6. Conduct of periodic assessment of market conditions in Taiwan, including submission of trade statistics and commercial
reports for use of Philippine industries and businesses; and
7. Facilitation, fostering and cultivation of cultural, sports, social, and educational exchanges between the peoples of the
Philippines and Taiwan.
SECTION 2. In addition to the above-mentioned authority and subject to the conditions stated in Section 3 hereof, MECO, through its
branch offices in Taiwan, is hereby authorized to perform the following functions:
1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by
the Department of Foreign Affairs;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under the circumstances;
3. Certification or affirmation of the authenticity of documents submitted for authentication;

4. Providing translation services;


5. Assistance and protection to Filipino nationals and other legal/juridical persons working or residing in Taiwan, including
making representations to the extent allowed by local and international law on their behalf before civil and juridical
authorities of Taiwan; and
6. Collection of reasonable fees on the first four (4) functions enumerated above to defray the cost of its operations.
A perusal of the above functions of the MECO reveals its uncanny similarity to some of the functions typically performed by the DFA
itself, through the latters diplomatic and consular missions.100 The functions of the MECO, in other words, are of the kind that
would otherwise be performed by the Philippines own diplomatic and consular organs, if not only for the governments
acquiescence that they instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a public aspect.
The MECO Is Not Owned or Controlled by the Government Organization as a non-stock corporation and the mere performance of
functions with a public aspect, however, are not by themselves sufficient to consider the MECO as a GOCC. In order to qualify as a
GOCC, a corporation must also, if not more importantly, be owned by the government.
The government owns a stock or non-stock corporation if it has controlling interest in the corporation. In a stock corporation, the
controlling interest of the government is assured by its ownership of at least fifty-one percent (51%) of the corporate capital
stock.101 In a non-stock corporation, like the MECO, jurisprudence teaches that the controlling interest of the government is
affirmed when "at least majority of the members are government officials holding such membership by appointment or
designation"102 or there is otherwise "substantial participation of the government in the selection" of the corporations governing
board.103
In this case, the petitioner argues that the government has controlling interest in the MECO because it is the President of the
Philippines that indirectly appoints the directors of the corporation.104 The petitioner claims that the President appoints directors
of the MECO thru "desire letters" addressed to the corporations board.105 As evidence, the petitioner cites the assumption of one
Mr. Antonio Basilio as chairman of the board of directors of the MECO in 2001, which was allegedly accomplished when former
President Macapagal-Arroyo, through a memorandum dated 20 February 2001, expressed her "desire" to the board of directors of
the MECO for the election of Mr. Basilio as chairman.106
The MECO, however, counters that the "desire letters" that the President transmits are merely recommendatory and not binding on
it.107 The MECO maintains that, as a corporation organized under the Corporation Code, matters relating to the election of its
directors and officers, as well as its membership, are ultimately governed by the appropriate provisions of the said code, its articles
of incorporation and its by-laws.108
As between the contrasting arguments, We find the contention of the MECO to be the one more consistent with the law.
The fact of the incorporation of the MECO under the Corporation Code is key. The MECO was correct in postulating that, as a
corporation organized under the Corporation Code, it is governed by the appropriate provisions of the said code, its articles of
incorporation and its by-laws. In this case, it is the by-laws109 of the MECO that stipulates that its directors are elected by its
members; its officers are elected by its directors; and its members, other than the original incorporators, are admitted by way of a
unanimous board resolution, to wit:
SECTION II. MEMBERSHIP
Article 2. Members shall be classified as (a) Regular and (b) Honorary.
(a) Regular members shall consist of the original incorporators and such other members who, upon application for
membership, are unanimously admitted by the Board of Directors.
(b) Honorary member A person of distinction in business who as sympathizer of the objectives of the corporation, is
invited by the Board to be an honorary member.

SECTION III. BOARD OF DIRECTORS


Article 3. At the first meeting of the regular members, they shall organize and constitute themselves as a Board composed of five (5)
members, including its Chairman, each of whom as to serve until such time as his own successor shall have been elected by the
regular members in an election called for the purpose. The number of members of the Board shall be increased to seven (7) when
circumstances so warrant and by means of a majority vote of the Board members and appropriate application to and approval by
the Securities and Exchange Commission. Unless otherwise provided herein or by law, a majority vote of all Board members present
shall be necessary to carry out all Board resolutions.
During the same meeting, the Board shall also elect its own officers, including the designation of the principal officer who shall be
the Chairman. In line with this, the Chairman shall also carry the title Chief Executive Officer. The officer who shall head the branch
or office for the agency that may be established abroad shall have the title of Director and Resident Representative. He will also be
the Vice-Chairman. All other members of the Board shall have the title of Director.
xxxx
SECTION IV. EXECUTIVE COMMITTEE
Article 5. There shall be established an Executive Committee composed of at least three (3) members of the Board. The members of
the Executive Committee shall be elected by the members of the Board among themselves.
xxxx
SECTION VI. OFFICERS: DUTIES, COMPENSATION
Article 8. The officers of the corporation shall consist of a Chairman of the Board, Vice-Chairman, Chief Finance Officer, and a
Secretary. Except for the Secretary, who is appointed by the Chairman of the Board, other officers and employees of the corporation
shall be appointed by the Board.
The Deputy Representative and other officials and employees of a branch office or agency abroad are appointed solely by the Vice
Chairman and Resident Representative concerned. All such appointments however are subject to ratification by the Board.
It is significant to note that none of the original incorporators of the MECO were shown to be government officials at the time of the
corporations organization. Indeed, none of the members, officers or board of directors of the MECO, from its incorporation up to
the present day, were established as government appointees or public officers designated by reason of their office. There is, in fact,
no law or executive order that authorizes such an appointment or designation. Hence, from a strictly legal perspective, it appears
that the presidential "desire letters" pointed out by petitionerif such letters even exist outside of the case of Mr. Basilioare, no
matter how strong its persuasive effect may be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.
The categorical exclusion of the MECO from a GOCC makes it easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the regulatory agencies, chartered institutions and GCE/GICP are all, by
explicit or implicit definition, creatures of the law.110 The MECO cannot be any other instrumentality because it was, as mentioned
earlier, merely incorporated under the Corporation Code.
Hence, unless its legality is questioned, and in this case it was not, the fact that the MECO is operating under the policy supervision
of the DTI is no longer a relevant issue to be reckoned with for purposes of this case.
For whatever it is worth, however, and without justifying anything, it is easy enough for this Court to understand the rationale, or
necessity even, of the executive branch placing the MECO under the policy supervision of one of its agencies.
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO was not intended to operate as any other
ordinary corporation. And it is not. Despite its private origins, and perhaps deliberately so, the MECO was "entrusted"111 by the
government with the "delicate and precarious"112 responsibility of pursuing "unofficial"113 relations with the people of a foreign
land whose government the Philippines is bound not to recognize. The intricacy involved in such undertaking is the possibility that,

at any given time in fulfilling the purposes for which it was incorporated, the MECO may find itself engaged in dealings or activities
that can directly contradict the Philippines commitment to the One China policy of the PROC. Such a scenario can only truly be
avoided if the executive department exercises some form of oversight, no matter how limited, over the operations of this otherwise
private entity.
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other private corporations. From its overreaching corporate objectives, its special duty and authority to exercise certain consular functions, up to the oversight by the
executive department over its operationsall the while maintaining its legal status as a non-governmental entitythe MECO is, for
all intents and purposes, sui generis.
Certain Accounts of the MECO May
Be Audited By the COA.
We now come to the COAs contention.
The COA argues that, despite being a non-governmental entity, the MECO may still be audited with respect to the "verification fees"
for overseas employment documents that the latter collects from Taiwanese employers on behalf of the DOLE.114 The COA claims
that, under Joint Circular No. 3-99, the MECO is mandated to remit to the national government a portion of such "verification
fees."115 The COA, therefore, classifies the MECO as a non-governmental entity "required to pay xxx government share" per the
Audit Code.116
We agree that the accounts of the MECO pertaining to its collection of "verification fees" is subject to the audit jurisdiction of the
COA. However, We digress from the view that such accounts are the only ones that ought to be audited by the COA. Upon careful
evaluation of the information made available by the records vis--vis the spirit and the letter of the laws and executive issuances
applicable, We find that the accounts of the MECO pertaining to the fees it was authorized to collect under Section 2(6) of EO No.
15, s. 2001, are likewise subject to the audit jurisdiction of the COA.
Verification Fees Collected by the MECO
In its comment,117 the MECO admitted that roughly 9% of its income is derived from its share in the "verification fees" for overseas
employment documents it collects on behalf of the DOLE.
The "verification fees" mentioned here refers to the "service fee for the verification of overseas employment contracts, recruitment
agreement or special powers of attorney" that the DOLE was authorized to collect under Section 7 of EO No. 1022,118 which was
issued by President Ferdinand E. Marcos on 1 May 1985. These fees are supposed to be collected by the DOLE from the foreign
employers of OFWs and are intended to be used for "the promotion of overseas employment and for welfare services to Filipino
workers within the area of jurisdiction of [concerned] foreign missions under the administration of the [DOLE]."119
Joint Circular 3-99 was issued by the DOLE, DFA, the Department of Budget Management, the Department of Finance and the COA in
an effort to implement Section 7 of Executive Order No. 1022.120 Thus, under Joint Circular 3-99, the following officials have been
tasked to be the "Verification Fee Collecting Officer" on behalf of the DOLE:121
1. The labor attach or duly authorized overseas labor officer at a given foreign post, as duly designated by the DOLE
Secretary;
2. In foreign posts where there is no labor attach or duly authorized overseas labor officer, the finance officer or collecting
officer of the DFA duly deputized by the DOLE Secretary as approved by the DFA Secretary;
3. In the absence of such finance officer or collecting officer, the alternate duly designated by the head of the foreign post.
Since the Philippines does not maintain an official post in Taiwan, however, the DOLE entered into a "series" of Memorandum of
Agreements with the MECO, which made the latter the formers collecting agent with respect to the "verification fees" that may be
due from Taiwanese employers of OFWs.122 Under the 27 February 2004 Memorandum of Agreement between DOLE and the
MECO, the "verification fees" to be collected by the latter are to be allocated as follows: (a) US$ 10 to be retained by the MECO as
administrative fee, (b) US $10 to be remitted to the DOLE, and (c) US$ 10 to be constituted as a common fund of the MECO and
DOLE.123

Evidently, the entire "verification fees" being collected by the MECO are receivables of the DOLE.124 Such receipts pertain to the
DOLE by virtue of Section 7 of EO No. 1022.
Consular Fees Collected by the MECO
Aside from the DOLE "verification fees," however, the MECO also collects "consular fees," or fees it collects from the exercise of its
delegated consular functions.
The authority behind "consular fees" is Section 2(6) of EO No. 15, s. 2001. The said section authorizes the MECO to collect
"reasonable fees" for its performance of the following consular functions:
1. Issuance of temporary visitors visas and transit and crew list visas, and such other visa services as may be authorized by
the DFA;
2. Issuance, renewal, extension or amendment of passports of Filipino citizens in accordance with existing regulations, and
provision of such other passport services as may be required under the circumstances;
3. Certification or affirmation of the authenticity of documents submitted for authentication; and
4. Providing translation services.
Evidently, and just like the peculiarity that attends the DOLE "verification fees," there is no consular office for the collection of the
"consular fees." Thus, the authority for the MECO to collect the "reasonable fees," vested unto it by the executive order.
The "consular fees," although held and expended by the MECO by virtue of EO No. 15, s. 2001, are, without question, derived from
the exercise by the MECO of consular functionsfunctions it performs by and only through special authority from the government.
There was never any doubt that the visas, passports and other documents that the MECO issues pursuant to its authorized functions
still emanate from the Philippine government itself.
Such fees, therefore, are received by the MECO to be used strictly for the purpose set out under EO No. 15, s. 2001. They must be
reasonable as the authorization requires. It is the government that has ultimate control over the disposition of the "consular fees,"
which control the government did exercise when it provided in Section 2(6) of EO No. 15, s. 2001 that such funds may be kept by the
MECO "to defray the cost of its operations."
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the COA to audit accounts of non-governmental entities "required to
pay xxx or have government share" but only with respect to "funds xxx coming from or through the government." This provision of
law perfectly fits the MECO:
First. The MECO receives the "verification fees" by reason of being the collection agent of the DOLEa government agency. Out of
its collections, the MECO is required, by agreement, to remit a portion thereof to the DOLE. Hence, the MECO is accountable to the
government for its collections of such "verification fees" and, for that purpose, may be audited by the COA.
Second. Like the "verification fees," the "consular fees" are also received by the MECO through the government, having been
derived from the exercise of consular functions entrusted to the MECO by the government. Hence, the MECO remains accountable
to the government for its collections of "consular fees" and, for that purpose, may be audited by the COA.
Tersely put, the 27 February 2008 Memorandum of Agreement between the DOLE and the MECO and Section 2(6) of EO No. 15, s.
2001, vis--vis, respectively, the "verification fees" and the "consular fees," grant and at the same time limit the authority of the
MECO to collect such fees. That grant and limit require the audit by the COA of the collections thereby generated.
Conclusion
The MECO is not a GOCC or government instrumentality. It is a sui generis private entity especially entrusted by the government
with the facilitation of unofficial relations with the people in Taiwan without jeopardizing the countrys faithful commitment to the

One China policy of the PROC. However, despite its non-governmental character, the MECO handles government funds in the form
of the "verification fees" it collects on behalf of the DOLE and the "consular fees" it collects under Section 2(6) of EO No. 15, s. 2001.
Hence, under existing laws, the accounts of the MECO pertaining to its collection of such "verification fees" and "consular fees"
should be audited by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Manila Economic and Cultural Office is hereby declared
a non-governmental entity. However, the accounts of the Manila Economic and Cultural Office pertaining to: the verification fees
contemplated by Section 7 of Executive Order No. 1022 issued 1 May 1985, that the former collects on behalf of the Department of
Labor and Employment, and the fees it was authorized to collect under Section 2(6) of Executive Order No. 15 issued 16 May 2001,
are subject to the audit jurisdiction of the COA.

CIR VS. CLUB FILIPINO (5 SCRA 321; 1962)

FACTS: Club Filipino owns and operates a club house, a sports complex, and a bar restaurant, which is incident to the operation of the
club and its gold course. The club is operated mainly with funds derived from membership fees and dues. The BIR seeks to tax the
said restaurant as a business.

HELD: The Club was organized to develop and cultivate sports of all class and denomination for the healthful recreation and
entertainment of its stockholders and members. There was in fact, no cash dividend distribution to its stockholders and whatever was
derived on retail from its bar and restaurants used were to defray its overhead expenses and to improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) a capital stock divided into shares


(2) an authority to distribute to the holders of such shares, dividends or allotments
of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the distribution of its dividends or
surplus profits.