G.R. No.
L-22619 December 2, 1924 control, and thus to place the Government in a position to render all possible encouragement, assistance and help in
NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
Attorney-General Villa-Real for appellant.
Perfecto J. Salas Rodriguez for appellee.
JOHNSON, J.:
This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the
purpose of recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to
the defendant, as specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the
Philippine Legislature for the purpose of developing the coal industry in the Philippine Islands and is actually
engaged in coal mining on reserved lands belonging to the Government. It claimed exemption from taxes under the
provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the
plaintiff said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and costs
against the defendant.
The defendant answered denying generally and specifically all the material allegations of the complaint, except the
legal existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of
P12,044.68 was paid by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to
the Government of the Philippine Islands under the provisions of section 1496 of the Administrative Code and prayed
that the complaint be dismissed, with costs against the plaintiff.
Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by
both parties, the Honorable Pedro Conception, judge, held that the words "lands owned by any person, etc.," in
section 15 of Act No. 2719 should be understood to mean "lands held in lease or usufruct," in harmony with the other
provision of said Act; that the coal lands possessed by the plaintiff, belonging to the Government, fell within the
provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted
therefrom, as provided in said section, was the only tax which should be collected from the plaintiff; and sentenced
the defendant to refund to the plaintiff the sum of P11,081.11 which is the difference between the amount collected
under section 1496 of the Administrative Code and the amount which should have been collected under the
provisions of said section 15 of Act No. 2719. From that sentence the defendant appealed, and now makes the
following assignments of error:
I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and
corporations.
II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the
Administrative Code.
The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No.
2719, or to the specific taxes under section 1496 of the Administrative Code.
The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing
the coal industry in the Philippine Island, in harmony with the general plan of the Government to encourage the
development of the natural resources of the country, and to provided facilities therefor. By said Act, the company was
granted the general powers of a corporation "and such other powers as may be necessary to enable it to prosecute
the business of developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling
the coal contained in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the Government of the
Philippine Islands is made the majority stockholder, evidently in order to insure proper government supervision and
the prosecution and furtherance of the company's business.
On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine
Legislature passed Act No. 2719 "to provide for the leasing and development of coal lands in the Philippine Islands."
On October 18, 1917, upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39,
withdrew "from settlement, entry, sale or other disposition, all coal-bearing public lands within the Province of
Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." Almost immediately
after the issuance of said proclamation the National Coal Company took possession of the coal lands within the said
reservation, with an area of about 400 hectares, without any further formality, contract or lease. Of the 30,000 shares
of stock issued by the company, the Government of the Philippine Islands is the owner of 29,809 shares, that is, of
99 1/3 per centum of the whole capital stock.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has
mined the coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the
provisions of the section 1496 of the Administrative Code. That contention of the plaintiff leads us to an examination
of the evidence upon the question of the ownership of the land from which the coal in question was mined. Was the
plaintiff the owner of the land from which the coal in question was mined? If the evidence shows the affirmative, then
the judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff, then the
judgment should be reversed, unless the plaintiff's rights fall under section 3 of said Act.
The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr.
Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the
plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General,
known as Proclamation No. 39 of the year 1917; that no document had been issued in favor of the plaintiff
corporation; that said corporation had received no permission from the Secretary of Agriculture and Natural
Resources; that it took possession of said lands covering an area of about 400 hectares, from which the coal in
question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of
October, 1917, and provided: "Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from
settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." It will be noted that said
proclamation only provided that all coal-bearing public lands within said province and island should be withdrawn
from settlement, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the plaintiff
or any other person to enter upon said reversations and to mine coal, and no provision of law has been called to our
attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation
without first obtaining permission therefor.
The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does
not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions
of the Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705
are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no greater
rights, powers or privileges than any other corporation which might be organized for the same purpose under the
Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or right or privilege
over other legitimate private corporations in the mining of coal. While it is true that said proclamation No. 39 withdrew
"from settlement, entry, sale, or other disposition of coal-bearing public lands within the Province of Zamboanga . . .
and the Island of Polillo," it made no provision for the occupation and operation by the plaintiff, to the exclusion of
other persons or corporations who might, under proper permission, enter upon the operate coal mines.
On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island
in "an Act for the leasing and development of coal lands in the Philippine Islands" (Act No. 2719), made liberal
provision. Section 1 of said Act provides: "Coal-bearing lands of the public domain in the Philippine Island shall not
be disposed of in any manner except as provided in this Act," thereby giving a clear indication that no "coal-bearing
lands of the public domain" had been disposed of by virtue of said proclamation.
Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof
found in Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands
without first having obtained permission from the Secretary of Agriculture and Natural Resources.lawphi1.net
The following propositions are fully sustained by the facts and the law:
(1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no greater
powers nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act
No. 2719, and they do not change the situation here.
(2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal.
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of
article 1946 of the Administrative Code on the 15th day of December, 1922.
(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.
(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of October, 1917, by authority of
section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands
within the Province of Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal
Company, but for any person or corporation of the Philippine Islands or of the United States.
considering all the provisions of said Act, that said section 15 has reference only to persons, firms, associations or
corporations which had already, prior to the existence of said Act, become the owners of coal lands. Section 15
cannot certainty refer to "holders or lessees of coal lands' for the reason that practically all of the other provisions of
said Act has reference to lessees or holders. If section 15 means that the persons, firms, associations, or corporation
mentioned therein are holders or lessees of coal lands only, it is difficult to understand why the internal revenue duty
and tax in said section was made different from the obligations mentioned in section 3 of said Act, imposed upon
lessees or holders.
From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing
lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the
provisions of section 1496 of the Administrative Code?
Section 1496 of the Administrative Code provides that "on all coal and coke there shall be collected, per metric ton,
fifty centavos." Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a
specific internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or
consumption, and upon things imported from the United States or foreign countries. It having been demonstrated that
the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal
was produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax under the
provisions of section 1496 of the Administrative Code, and is not subject to the payment of the internal revenue tax
under section 15 of Act No. 2719, nor to any other provisions of said Act.
Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all
responsibility under the complaint. And, without any finding as to costs, it is so ordered.

(6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows, without
_____________________________________________________________________________________
any lease or other authority from either the Secretary of Agriculture and Natural Resources or any person having the
power to grant a leave or authority.
PHILIPPINE SOCIETY FOR G.R. No. 169752
From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The THE PREVENTION OF
plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes provided for under CRUELTY TO ANIMALS,
section 15 of Act No. 2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the Petitioners, Members:
internal revenue duty provided for in section 1496 of the Administrative Code. That being the issue, an examination
of the provisions of Act No. 2719 becomes necessary. PUNO, C.J.
QUISUMBING,
An examination of said Act (No. 2719) discloses the following facts important for consideration here: YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
CARPIO,
First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner AUSTRIA-MARTINEZ,
except as provided in this Act." Second. Provisions for leasing by the Secretary of Agriculture and Natural Resources CORONA,
of "unreserved, unappropriated coal-bearing public lands," and the obligation to the Government which shall be - versus - CARPIO-MORALES,
imposed by said Secretary upon the lessee.lawphi1.net AZCUNA,
TINGA,
Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm, CHICO-NAZARIO,
association or corporation. GARCIA,
VELASCO, JR.,
NACHURA, and
To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved, REYES, JJ.
unappropriated coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural COMMISSION ON AUDIT,
Resources; and, second, that said Act (No. 2719) provides an internal revenue duty and tax imposed upon any DIR. RODULFO J. ARIESGA
person, firm, association or corporation, who may be the owner of "coal-bearing lands." A reading of said Act clearly (in his official capacity as Director
shows that the tax imposed thereby is imposed upon two classes of persons only — lessees and owners. of the Commission on Audit), MS.
MERLE M. VALENTIN and MS.
SUSAN GUARDIAN (in their official
The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by
capacities as Team Leader and Team
reason of what he believed to be some difference in the interpretation of the language used in Spanish and English.
Member, respectively, of the audit
While there is some ground for confusion in the use of the language in Spanish and English, we are persuaded,
Team of the Commission on Audit), Promulgated:
Respondents. September 25, 2007
x-----------------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court, in relation
to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-021[1] dated September 14, 2005
issued by the respondents which constituted the audit team, as well as its September 23, 2005 Letter [2] informing the
petitioner that respondents audit team shall conduct an audit survey on the petitioner for a detailed audit of its
accounts, operations, and financial transactions. No temporary restraining order was issued.
The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted
on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of
animal aficionados and animal propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall
be to enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and
generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote
their welfare.[3]
At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in
existence. Act No. 1285 antedated both the Corporation Law and the constitution of the Securities and Exchange
Commission. Important to note is that the nature of the petitioner as a corporate entity is distinguished from
the sociedad anonimasunder the Spanish Code of Commerce.
For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of
animals, the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare
laws. In addition, the petitioner was to share one-half (1/2) of the fines imposed and collected through its efforts for
violations of the laws related thereto. As originally worded, Sections 4 and 5 of Act No. 1285 provide:
SEC. 4. The said society is authorized to appoint not to exceed five agents in the City
of Manila, and not to exceed two in each of the provinces of the Philippine Islands who shall
have all the power and authority of a police officer to make arrests for violation of the
laws enacted for the prevention of cruelty to animals and the protection of animals, and to serve
any process in connection with the execution of such laws; and in addition thereto, all the police
force of the Philippine Islands, wherever organized, shall, as occasion requires, assist said
society, its members or agents, in the enforcement of all such laws.
SEC. 5. One-half of all the fines imposed and collected through the efforts of said
society, its members or its agents, for violations of the laws enacted for the prevention of cruelty
to animals and for their protection, shall belong to said society and shall be used to promote its
objects.
(emphasis supplied)
Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for
violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No. 148, [4] which reads, in its
entirety, thus:
Be it enacted by the National Assembly of the Philippines:
Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act
Numbered Thirty five hundred and forty-eight, is hereby further amended so as to read as
follows:
Sec. 4. The said society is authorized to appoint not to exceed ten agents in
the City of Manila, and not to exceed one in each municipality of the
Philippines who shall have the authority to denounce to regular peace
officers any violation of the laws enacted for the prevention of cruelty to
animals and the protection of animals and to cooperate with said peace
officers in the prosecution of transgressors of such laws.
Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals
and for the protection of animals, shall accrue to the general fund of the Municipality where the
offense was committed.
Sec. 3. This Act shall take effect upon its approval.
Approved, November 8, 1936. (Emphasis supplied)
Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated November 12,
1936, portions of which provide:
Whereas, during the first regular session of the National Assembly, Commonwealth Act
Numbered One Hundred Forty Eight was enacted depriving the agents of the Society for the
Prevention of Cruelty to Animals of their power to arrest persons who have violated the laws
prohibiting cruelty to animals thereby correcting a serious defect in one of the laws existing in
our statute books.
xxxx
Whereas, the cruel treatment of animals is an offense against the State, penalized under our
statutes, which the Government is duty bound to enforce;
Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority
conferred upon me by the Constitution, hereby decree, order, and direct the Commissioner of
Public Safety, the Provost Marshal General as head of the Constabulary Division of the
Philippine Army, every Mayor of a chartered city, and every municipal president to detail and
organize special members of the police force, local, national, and the Constabulary to watch,
capture, and prosecute offenders against the laws enacted to prevent cruelty to
animals. (Emphasis supplied)
On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of the petitioner
to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November 18, 2003[5] addressed to the
petitioner. The petitioner demurred on the ground that it was a private entity not under the jurisdiction of COA, citing
Section 2(1) of Article IX of the Constitution which specifies the general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and
duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to the
Government, or any of its subdivisions, agencies, or instrumentalities, including government-
owned and controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and officers that have been granted fiscal autonomy under
the Constitution; (b) autonomous state colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving
subsidy or equity, directly or indirectly, from or through the government, which are required by
 law or the granting institution to submit to such audit as a condition of subsidy or
equity. However, where the internal control system of the audited agencies is inadequate, the
Commission may adopt such measures, including temporary or special pre-audit, as are
necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the
Government, and for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto.(Emphasis supplied)
Petitioner explained thus:
a. Although the petitioner was created by special legislation, this necessarily came about because in
January 1905 there was as yet neither a Corporation Law or any other general law under which it
may be organized and incorporated, nor a Securities and Exchange Commission which would have
passed upon its organization and incorporation.
b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the
petitioner of its power to make arrests, and that the petitioner lost its operational funding, underscore
the fact that it exercises no governmental function. In fine, the government itself, by its overt acts,
confirmed petitioners status as a private juridical entity.
The COA General Counsel issued a Memorandum [6] dated May 6, 2004, asserting that the petitioner was subject to
its audit authority. In a letter dated May 17, 2004,[7]respondent COA informed the petitioner of the result of the
evaluation, furnishing it with a copy of said Memorandum dated May 6, 2004 of the General Counsel.
Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004,[8] insisting that
it was a private domestic corporation.
Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13,
2004,[9] affirmed her earlier opinion that the petitioner was a government entity that was subject to the audit
jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA informed the petitioner of
the result of the re-evaluation, maintaining its position that the petitioner was subject to its audit jurisdiction, and
requested an initial conference with the respondents.
In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant
Commissioner Juanito Espino, Corporate Government Sector, that the audit survey was not conducted due to the
refusal of the petitioner because the latter maintained that it was a private corporation.
Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14, 2005 and
the COA Letter dated September 23, 2005.
Hence, herein Petition on the following grounds:
A.
RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT
PETITIONER IS SUBJECT TO ITS AUDIT AUTHORITY.
B.
PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR
ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW
AVAILABLE TO IT.[10]
The essential question before this Court is whether the petitioner qualifies as a government agency that may be
subject to audit by respondent COA.
Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general law then
existing under which it may be organized or incorporated, it exercises no governmental functions because these
have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public
corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of the Philippines, defined its powers
and purposes, and specifically stated that it was An Act to Create a Public Corporation in which, even as amended
by Presidential Decree No. 460, the law still adverted to the Boy Scouts of the Philippines as a public corporation, all
of which are not obtaining in the charter of the petitioner; third, if it were a government body, there would have been
no need for the State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so exempted
strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered and
covered by the Social Security System at the latters initiative and not through the Government Service Insurance
System, which should have been the case had the employees been considered government employees; fifth, the
petitioner does not receive any form of financial assistance from the government, since C.A. No. 148, amending
Section 5 of Act No. 1285, states that the full amount of the fines, collected for violation of the laws against cruelty to
animals and for the protection of animals, shall accrue to the general fund of the Municipality where the offense was
committed; sixth, C.A. No. 148 effectively deprived the petitioner of its powers to make arrests and serve processes
as these functions were placed in the hands of the police force; seventh, no government appointee or representative
sits on the board of trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to
show that any act or decision of the petitioner is subject to the approval of or control by any government agency,
except to the extent that it is governed by the law on private corporations in general; and finally, ninth, the Committee
on Animal Welfare, under the Animal Welfare Act of 1998, includes members from both the private and the public
sectors.
The respondents contend that since the petitioner is a body politic created by virtue of a special legislation and
endowed with a governmental purpose, then, indubitably, the COA may audit the financial activities of the
latter. Respondents in effect divide their contentions into six strains: first, the test to determine whether an entity is a
government corporation lies in the manner of its creation, and, since the petitioner was created by virtue of a special
charter, it is thus a government corporation subject to respondents auditing power; second, the petitioner exercises
sovereign powers, that is, it is tasked to enforce the laws for the protection and welfare of animals which ultimately
redound to the public good and welfare, and, therefore, it is deemed to be a government instrumentality as defined
under the Administrative Code of 1987, the purpose of which is connected with the administration of government, as
purportedly affirmed by American jurisprudence; third, by virtue of Section 23,[11] Title II, Book III of the same Code,
the Office of the President exercises supervision or control over the petitioner; fourth, under the same Code, the
requirement under its special charter for the petitioner to render a report to the Civil Governor, whose functions have
been inherited by the Office of the President, clearly reflects the nature of the petitioner as a government
instrumentality; fifth, despite the passage of the Corporation Code, the law creating the petitioner had not been
abolished, nor had it been re-incorporated under any general corporation law; and finally, sixth, Republic Act No.
8485, otherwise known as the Animal Welfare Act of 1998, designates the petitioner as a member of its Committee
on Animal Welfare which is attached to the Department of Agriculture.
In view of the phrase One-half of all the fines imposed and collected through the efforts of said society, the Court, in
a Resolution dated January 30, 2007, required the Office of the Solicitor General (OSG) and the parties to comment
on: a) petitioner's authority to impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act
No. 148 considering that there are no standard measures provided for in the aforecited laws as to the manner of
implementation, the specific violations of the law, the person/s authorized to impose fine and in what amount; and, b)
the effect of the 1935 and 1987 Constitutions on whether petitioner continues to exist or should organize as a private
corporation under the Corporation Code, B.P. Blg. 68 as amended.
Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that since they
were being represented by the OSG which filed its Comment, they opted to dispense with the filing of a separate one
and adopt for the purpose that of the OSG.
The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws; it only
enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the enforcement of animal
welfare laws; such privilege, however, was subsequently abolished by C.A. No. 148; that it continues to exist as a
private corporation since it was created by the Philippine Commission before the effectivity of the Corporation law,
Act No. 1459; and the 1935 and 1987 Constitutions.
The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to impose fines for
violation of laws[12] relating to the prevention of cruelty to animals and the protection of animals; that even prior to the
amendment of Act No. 1285, petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that
privilege to share in the fines collected; that petitioner is a public corporation and has continued to exist since Act No.
1285; petitioner was not repealed by the 1935 and 1987 Constitutions which contain transitory provisions maintaining
all laws issued not inconsistent therewith until amended, modified or repealed.
The petition is impressed with merit.
The arguments of the parties, interlaced as they are, can be disposed of in five points.
First, the Court agrees with the petitioner that the charter test cannot be applied.
Essentially, the charter test as it stands today provides:
[T]he test to determine whether a corporation is government owned or controlled, or private in
nature is simple. Is it created by its own charter for the exercise of a public function, or by
incorporation under the general corporation law? Those with special charters are government
corporations subject to its provisions, and its employees are under the jurisdiction of the Civil
Service Commission, and are compulsory members of the Government Service Insurance
System. xxx (Emphasis supplied)[13]
The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime established by the
1935 Constitution, Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law, provide for the formation,
organization, or regulation of private corporations, unless such corporations are owned or
controlled by the Government or any subdivision or instrumentality thereof.[14]
The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of Article XII of
the present Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled corporations
may be created or established by special charters in the interest of the common good and
subject to the test of economic viability.
Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4 of Article
XIV of the 1973 Constitution.
During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing
proscription to prevent the pressure of special interests upon the lawmaking body in the creation of corporations or in
the regulation of the same. To permit the lawmaking body by special law to provide for the organization, formation, or
regulation of private corporations would be in effect to offer to it the temptation in many cases to favor certain groups,
to the prejudice of others or to the prejudice of the interests of the country.[15]
And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it
follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted
on January 19, 1905. Settled is the rule that laws in general have no retroactive effect, unless the contrary is
provided.[16] All statutes are to be construed as having only a prospective operation, unless the purpose and intention
of the legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language
used. In case of doubt, the doubt must be resolved against the retrospective effect.[17]
There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the law itself so
expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in case of laws interpreting
others; and (5) in case of laws creating new rights.[18] None of the exceptions is present in the instant case.
The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the Corporation
Law, which had been enacted by virtue of the plenary powers of the Philippine Commission on March 1, 1906, a little
over a year after January 19, 1905, the time the petitioner emerged as a juridical entity. Even the Corporation Law
respects the rights and powers of juridical entities organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the
laws of the Philippine Islands and lawfully transacting business in the Philippine Islands on the
date of the passage of this Act, shall be subject to the provisions hereof so far as such
provisions may be applicable and shall be entitled at its option either to continue business as
such corporation or to reform and organize under and by virtue of the provisions of this Act,
transferring all corporate interests to the new corporation which, if a stock corporation, is
authorized to issue its shares of stock at par to the stockholders or members of the old
corporation according to their interests. (Emphasis supplied).
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws
issued not inconsistent therewith until amended, modified or repealed. [19]
In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been
created by virtue of a special law does not necessarily qualify it as a public corporation.
What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights, powers, and
duties?
As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902, and, emphatically,
as also stated above, no proscription similar to the charter test can be found therein.
The textual foundation of the charter test, which placed a limitation on the power of the legislature, first appeared in
the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No. 1258, a law antedating
the Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a
general law on the formation and organization of private corporations nor a restriction on the legislature to create
private corporations by direct legislation, the Philippine Commission at that moment in history was well within its
powers in 1905 to constitute the petitioner as a private juridical entity.
Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on
the danger of imposing legal concepts of a later date on facts of an earlier date. [20]
The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation and not an
agency of the government. This was evident in Executive Order No. 63, issued by then President of the Philippines
Manuel L. Quezon, declaring that the revocation of the powers of the petitioner to appoint agents with powers of
arrest corrected a serious defect in one of the laws existing in the statute books.
As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given retroactive effect,
thereby freeing all doubt as to which class of corporations the petitioner belongs, that is, it is a quasi-public
corporation, a kind of private domestic corporation, which the Court will further elaborate on under the fourth point.
Second, a reading of petitioners charter shows that it is not subject to control or supervision by any agency of the
State, unlike government-owned and -controlled corporations.No government representative sits on the board of
trustees of the petitioner. Like all private corporations, the successors of its members are determined voluntarily and
solely by the petitioner in accordance with its by-laws, and may exercise those powers generally accorded to private
corporations, such as the powers to hold property, to sue and be sued, to use a common seal, and so forth. It may
adopt by-laws for its internal operations: the petitioner shall be managed or operated by its officers in accordance
with its by-laws in force. The pertinent provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary
S. Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose
Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be associated with
them in conformity with this act, and their successors, are hereby constituted and created a body
politic and corporate at law, under the name and style of The Philippines Society for the
Prevention of Cruelty to Animals.
As incorporated by this Act, said society shall have the power to add to its
organization such and as many members as it desires, to provide for and choose such officers
as it may deem advisable, and in such manner as it may wish, and to remove members as it
shall provide.
It shall have the right to sue and be sued, to use a common seal, to
receive legacies and donations, to conduct social enterprises for the purpose of obtaining funds,
to levy dues upon itsmembers and provide for their collection to hold real and personal estate
such as may be necessary for the accomplishment of the purposes of the society, and to adopt
such by-laws for its government as may not be inconsistent with law or this charter.
xxxx
Sec. 3. The said society shall be operated under the direction of its officers, in
accordance with its by-laws in force, and this charter.
xxxx
Sec. 6. The principal office of the society shall be kept in the city of Manila, and the
society shall have full power to locate and establish branch offices of the society wherever it may
deem advisable in the Philippine Islands, such branch offices to be under the supervision and
control of the principal office.
Third. The employees of the petitioner are registered and covered by the Social Security System at the latters
initiative, and not through the Government Service Insurance System, which should be the case if the employees are
considered government employees. This is another indication of petitioners nature as a private entity. Section 1 of
Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise known as the Social Security Act of 1997,
defines the employer:
Employer Any person, natural or juridical, domestic or foreign, who carries on in the
Philippines any trade, business, industry, undertaking or activity of any kind and uses the
services of another person who is under his orders as regards the employment, except the
Government and any of its political subdivisions, branches or instrumentalities, including
corporations owned or controlled by the Government: Provided, That a self-employed person
shall be both employee and employer at the same time. (Emphasis supplied)
Fourth. The respondents contend that the petitioner is a body politic because its primary purpose is to secure the
protection and welfare of animals which, in turn, redounds to the public good.
This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest does not,
by that circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although
its charter contains provisions of a public character, incorporated solely for the public good. This class of
corporations may be considered quasi-public corporations, which are private corporations that render public service,
supply public wants,[21] or pursue other eleemosynary objectives. While purposely organized for the gain or benefit of
its members, they are required by law to discharge functions for the public benefit. Examples of these corporations
are utility,[22] railroad, warehouse, telegraph, telephone, water supply corporations and transportation companies. [23] It
must be stressed that a quasi-public corporation is a species of private corporations, but the qualifying factor is
the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public
corporation.[24]
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is
that almost all corporations are nowadays created to promote the interest, good, or convenience of the public. A
bank, for example, is a private corporation; yet, it is created for a public benefit. Private schools and universities are
likewise private corporations; and yet, they are rendering public service. Private hospitals and wards are charged
with heavy social responsibilities. More so with all common carriers. On the other hand, there may exist a public
corporation even if it is endowed with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered cities, and barangays can best exemplify public
corporations. They are created by the State as its own device and agency for the accomplishment of parts of its own
public works.[25]
It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to arrest offenders of
animal welfare laws and the power to serve processes in connection therewith.
Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic reports to
the Civil Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government
instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and powers to
the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public,
quasi-public, or private corporationsas creatures of the State, there is a reserved right in the legislature to investigate
the activities of a corporation to determine whether it acted within its powers. In other words, the reportorial
requirement is the principal means by which the State may see to it that its creature acted according to the powers
and functions conferred upon it. These principles were extensively discussed in Bataan Shipyard & Engineering Co.,
Inc. v. Presidential Commission on Good Government.[26] Here, the Court, in holding that the subject corporation
could not invoke the right against self-incrimination whenever the State demanded the production of its corporate
books and papers, extensively discussed the purpose of reportorial requirements, viz:
x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit
of the public. It received certain special privileges and franchises, and holds them subject to the
laws of the state and the limitations of its charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so
long as it obeys the laws of its creation. There is a reserve[d] right in the legislature to
investigate its contracts and find out whether it has exceeded its powers. It would be a strange
anomaly to hold that a state, having chartered a corporation to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these franchises had been employed, and
whether they had been abused, and demand the production of the corporate books and papers
 for that purpose. The defense amounts to this, that an officer of the corporation which is charged
with a criminal violation of the statute may plead the criminality of such corporation as a refusal
to produce its books. To state this proposition is to answer it. While an individual may lawfully
refuse to answer incriminating questions unless protected by an immunity statute, it does not
follow that a corporation vested with special privileges and franchises may refuse to show its
hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771,
780.)[27]
WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation subject to the
jurisdiction of the Securities and Exchange Commission. The respondents are ENJOINED from investigating,
examining and auditing the petitioner's fiscal and financial affairs.
SO ORDERED.
____________________________________________________________________________________
G.R. No. 95237-38 September 13, 1991
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER
DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY WATER
DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER
DISTRICT, LA UNION WATER DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT,
URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM
WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN WATER
DISTRICT,petitioners,
vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.
Rodolfo S. De Jesus for petitioners.
Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-Tingzon for CSC.
MEDIALDEA, J.:p
Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No.
198, as amended, are government-owned or controlled corporations with original charter falling under the Civil
Service Law and/or covered by the visitorial power of the Commission on Audit is the issue which the petitioners
entreat this Court, en banc, to shed light on.
Petitioners are among the more than five hundred (500) water districts existing throughout the country formed
pursuant to the provisions of Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479,
otherwise known as the "Provincial Water Utilities Act of 1973."
Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his legislative power
under Proclamation No. 1081. It authorized the different local legislative bodies to form and create their respective
water districts through a resolution they will pass subject to the guidelines, rules and regulations therein laid down.
The decree further created and formed the "Local Water Utilities Administration" (LWUA), a national agency attached
to the National Economic and Development Authority (NEDA), and granted with regulatory power necessary to
optimize public service from water utilities operations.
The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on Audit (COA),
both government agencies and represented in this case by the Solicitor General.
On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No. 63742, 172 SCRA
253):
Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil Service embraces
all branches, subdivisions, instrumentalities, and agencies of the government, including government-
owned and controlled corporations with original charters. Inasmuch as PD No. 198, as amended, is the
original charter of the petitioner, Tanjay Water District, and respondent Tarlac Water District and all water
districts in the country, they come under the coverage of the Civil Service Law, rules and regulations. (Sec.
35, Art. VIII and Sec. 37, Art. IX of PD No. 807).
As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the dispositive portion of
which reads:
NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby resolves to rule
that Local Water Districts, being quasi-public corporations created by law to perform public services and
supply public wants, the matter of hiring and firing of its officers and employees should be governed by the
Civil Service Law, rules and regulations. Henceforth, all appointments of personnel of the different local
water districts in the country shall be submitted to the Commission for appropriate action. (Rollo. p. 22).
However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National Labor Relations
Commission, et al.," the Third Division of this Court ruled in a minute resolution:
xxx xxx xxx
Considering that PD 198 is a general legislation empowering and/or authorizing government agencies and
entities to create water districts, said PD 198 cannot be considered as the charter itself creating the Water
District. Public respondent NLRC did not commit any grave abuse of discretion in holding that the
operative act, that created the Metro Iloilo Water District was the resolution of the Sangguniang
Panglunsod of Iloilo City. Hence, the employees of Water Districts are not covered by Civil Service Laws
as the latter do (sic) not have original charters.
In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-575 by issuing
Resolution No. 90-770 which reads:
xxx xxx xxx
NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it hereby rules, that
the implementation of CSC. Resolution No. 575 dated June 27, 1990 be deferred in the meantime pending
clarification from the Supreme Court are regards its conflicting decisions in the cases of Tanjay Water
District v. Gabaton and Metro Iloilo Water District v. National Labor Relations Commission. (p. 26, Rollo)
In the meanwhile, there exists a divergence of opinions between COA on one hand, and the (LWUA), on the other
hand, with respect to the authority of COA to audit the different water districts.
COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in them by
law (letter of COA to LWUA dated August 13, 1985, pp. 29-30, Rollo).
On the other hand, LWUA maintained that only those water districts with subsidies from the government fall within
the COA's jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision of the
Government Auditing Code of the Phils.
It is to be observed that just like the question of whether the employees of the water districts falls under the coverage
of the Civil Service Law, the conflict between the water districts and the COA is also dependent on the final
determination of whether or not water districts are government-owned or controlled corporations with original charter.
The reason behind this is Sec. 2(1), Article IX-D of the 1987 constitution which reads:
 Sec. 2(1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle
all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies or
instrumentalities, including government-owned or controlled corporations with original charters, and on a
post audit basis. (emphasis supplied)
Petitioners' main argument is that they are private corporations without original charter, hence they are outside the
jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case which declared petitioners as
quasi-public corporations created by virtue of PD 198, a general legislation which cannot be considered as the
charter itself creating the water districts. Holding on to this ruling, petitioners contend that they are private
corporations which are only regarded as quasi-public or semi-public because they serve public interest and
convenience and that since PD 198 is a general legislation, the operative act which created a water district is not the
said decree but the resolution of the sanggunian concerned.
After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well as the
constitutional provisions involved, We rule against the petitioners and reiterate Our ruling in Tanjay case declaring
water districts government-owned or controlled corporations with original charter.
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA 730), We
already ruled that a water district is a corporation created pursuant to a special law — P.D. No. 198, as amended,
and as such its officers and employees are covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA 272), We ruled once
again that local water districts are quasi-public corporations whose employees belong to the Civil Service. The
Court's pronoucement in this case, as extensively quoted in the Tanjay case, supra, partly reads:
"The only question here is whether or not local water districts are governmkent owned or controlled
corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on
Section 25 of Presidential decree No. 198, known as the Provincial Water Utilities Act of 1973" which went
onto effect in 25 May 1973, and which provides as follows:
Exemption from Civil Service. — The district and its employees, being engaged in a proprietary
function, are hereby exempt from the provisions of the Civil Service Law. Collective Bargaining
shall be available only to personnel below supervisory levels: Provided, however, That the total
of all salaries, wages emoluments, benefits or other compensation paid to all employees in any
month shall not exceed fifty percent (50%) of average net monthy revenue. Said net revenue
representing income from water sales and sewerage service charges, less pro-rata share of debt
service and expenses for fuel or energy for pumping during the preceding fiscal year.
The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479, which went into
effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198 quoted above, and Section 26 of
PD 198 was renumbered as Section 25 in the following manner:
Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:
Section 25. Authorization. — The district may exercise all the powers which are expressly granted by this
Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the
purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain,
the exercise thereof shall, however, be subject to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water districts from the application of the Civil
Service Law was removed from the statute books:
xxx xxx xxx
We grant the petition for the following reasons:
1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD No. 198 was
amended ro read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree took effect on June 11,
1978.
xxx xxx xxx
3. The BWD is a corporation created pursuant to a special law — PD No. 198, as amended. As such its
officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).
Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the different water
districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a special purpose which is
intended to meet a particular set of conditions and cirmcumstances. The fact that said decree generally applies to all
water districts throughout the country does not change the fact that PD 198 is a special law. Accordingly, this Court's
resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby abandoned.
By "government-owned or controlled corporation with original charter," We mean government owned or controlled
corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case
of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:
The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No
69870, promulgated on 29 November 1988, quoting extensively from the deliberations of 1986
Constitutional Commission in respect of the intent and meaning of the new phrase "with original character,"
in effect held that government-owned and controlled corporations with original charter refer to corporations
chartered by special law as distinguished from corporations organized under our general incorporation
statute — the Corporations Code. In NASECO, the company involved had been organized under the
general incorporation statute and was a sbusidiary of the National Investment Development Corporation
(NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special
statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from
the scope of the Civil Service. (emphasis supplied)
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those
corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code,
but on the contrary, they were created pursuant to a special law and are governed primarily by its provision.
No consideration may thus be given to petitioners' contention that the operative act which created the water districts
are the resolutions of the respective local sanggunians and that consequently, PD 198, as amended, cannot be
considered as their charter.
It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a district.
Section 6 of said decree provides:
Sec. 6. Formation of District. — This Act is the source of authorization and power to form and maintain a
district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any
political subdivision, . . . .
Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a charter
creating a juridical person. For example, Section 6(a) provides for the name that will be used by a water district, thus:
 Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall enact a
resolution containing the following:
a) The name of the local water district, which shall include the name of the city, municipality, or province,
or region thereof, served by said system, followed by the words "Water District."
It also prescribes for the numbers and qualifications of the members of the Board of Directors:
Sec. 8. Number and Qualification. — The Board of Directors of a district shall be composed of five citizens
of the Philippines who are of voting age and residents within the district. One member shall be a
representative of civic-oriented service clubs, one member of representative of professional associations,
one member a representative of business, commercial or financial organizations, one member a
representative of educational institutions and one member a representative of women's organization. No
public official shall serve as director. Provided, however, that if the district has availed of the financial
assistance of the Administration, the Administration may appoint any of its personnel to sit in the board of
directors with all the rights and privileges appertaining to a regular member for such period as the
indebtedness remains unpaid in which case the board shall be composed of six members; (as amended by
PDs Nos. 768 and 1479).
the manner of their appointment and nominations;
Sec. 9. Appointment. — Board members shall be appointed by the appointing authority. Said appointments
shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations are
submitted, the appointing authority shall appoint any qualified person of the category to the vacant
position;
Sec.10. Nominations. — On or before October 1 of each even numbered year, the secretary of the district
shall contact each known organization, association, or institution being represented by the director whose
term will expire on December 31 and solicit nominations from these organizations to fill the position for the
ensuing term. One nomination may be submitted in writing by each such organization to the Secretary of
the district on or before November 1 of such year: This list of nominees shall be transmitted by the
Secretary of the district to the office of the appointing authority on or before November 15 of such year and
he shall make his appointment from the list submitted on or before December 15. In the event the
appointing authority fails to make his appointments on or before December 15, selection shall be made
from said list of nominees by majority vote of the seated directors of the district constituting a quorum.
Initial nominations for all five seats of the board shall be solicited by the legislative body or bodies at the
time of adoption of the resolution forming the district. Thirty days thereafter, a list of nominees shall be
submitted to the provincial governor in the event the resolution forming the district is by a provincial board,
or the mayor of the city or municipality in the event the resolution forming the adoption of the district is by
the city or municipal board of councilors, who shall select the initial directors therefrom within 15 days after
receipt of such nominations;
their terms of office:
Sec. 11. Term of Office. — Of the five initial directors of each newly formed district, two shall be appointed
for a maximum term of two years, two for a maximum term of four years, and one for a maximum term of
six years. Terms of office of all directors in a given district shall be such that the term of at least one
director, but not more then two, shall expire on December 31 of each even-numbered year. Regular terms
of office after the initial terms shall be for six years commencing on January 1 of odd-numbered years.
Directors may be removed for cause only, subject to review and approval of the Administration; (as
amended by PD 768).
the manner of filling up vacancies:
Sec. 12. Vacancies. — In the event of a vacancy in the board of directors occurring more than six months
before expiration of any director's term, the remaining directors shall within 30 days, serve notice to or
request the secretary of the district for nominations and within 30 days, thereafter a list of nominees shall
be submitted to the appointing authority for his appointment of a replacement director from the list of
nominees. In the absence of such nominations, the appointing authority shall make such appointment. If
within 30 days after submission to him of a list of nominees the appointing authority fails to make an
appointment, the vacancy shall be filled from such list by a majority vote of the remaining members of the
Board of Directors constituting a quorum. Vacancies occurring within the last six months of an unexpired
term shall also be filled by the Board in the above manner. The director thus appointed shall serve the
unexpired term only; (as amended by PD 768).
and the compensation and personal liability of the members of the Board of Directors:
Sec. 13. Compensation. — Each director shall receive a per diem, to be determined by the board, for each
meeting of the board actually attended by him, but no director shag receive per diems in any given month
in excess of the equivalent of the total per diems of four meetings in any given month. No director shall
receive other compensation for services to the district.
Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD
768).
Sec. 14. Personal Liability. — No director may be held to be personally liable for any action of the district.
Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually contained
in other corporate charters. The conclusion is inescapable that the said decree is in truth and in fact the charter of the
different water districts for it clearly defines the latter's primary purpose and its basic organizational set-up. In other
words, PD 198, as amended, is the very law which gives a water district juridical personality. While it is true that a
resolution of a local sanggunian is still necessary for the final creation of a district, this Court is of the opinion that
said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said
decree. In passing a resolution forming a water district, the local sanggunian is entrusted with no authority or
discretion to grant a charter for the creation of a private corporation. It is merely given the authority for the formation
of a water district, on a local option basis, to be exercised under and in pursuance of PD 198.
More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b) of the
same decree which reads:
Sec. 3(b). Appointing authority. — The person empowered to appoint the members of the Board of
Directors of a local water district, depending upon the geographic coverage and population make-up of the
particular district. In the event that more than seventy-five percent of the total active water service
connections of a local water districts are within the boundary of any city or municipality, the appointing
authority shall be the mayor of that city or municipality, as the case may be; otherwise, the appointing
authority shall be the governor of the province within which the district is located: Provided, That if the
existing waterworks system in the city or municipality established as a water district under this Decree is
operated and managed by the province, initial appointment shall be extended by the governor of the
province. Subsequent appointments shall be as specified herein.
If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governors then the power to appoint shall rotate between the governors involved with
the initial appointments made by the governor in whose province the greatest number of service
connections exists (as amended by PD 768).
The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. It is
clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the local
executives of the local subdivision units where such districts are located. In contrast, the members of the Board of
Directors or trustees of a private corporation are elected from among the members and stockholders thereof. It would of Manila, the deed of donation in question should not be admitted for admitted for registration. (Printed
not be amiss to emphasize at this point that a private corporation is created for the private purpose, benefit, aim and Rec. App. pp 17-18).
end of its members or stockholders. Necessarily, said members or stockholders should be given a free hand to
choose those who will compose the governing body of their corporation. But this is not the case here and this clearly
Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed to
indicates that petitioners are definitely not private corporations.
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:
The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this may bring
to the thousands of water districts' employees throughout the country who stand to be affected because they do not
SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether
have the necessary civil service eligibilities. As these employees are equally protected by the constitutional
incorporated in the Philippine Islands or in the name of other country, or not incorporated at all, to hold
guarantee to security of tenure, We find it necessary to rule for the protection of such right which cannot be impaired
land in the Philippine Islands upon which to build churches, parsonages, or educational or charitable
by a subsequent ruling of this Court. Thus, those employees who have already acquired their permanent
institutions.
employment status at the time of the promulgation of this decision cannot be removed by the mere reason that they
lack the necessary civil service eligibilities.
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.)
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or controlled
corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA.
and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art. III,
Sec. 1(7)].
SO ORDERED.

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, —
G.R. No. L-6776 May 21, 1955
Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except
THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee, to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the
vs. Philippines,
UNG SIU SI TEMPLE, respondent-appellant.
the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in
Alejo F. Candido for appellant. sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources to
Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee. "corporations or associations at least sixty per centum of the capital of which is owned by such citizens" (of the
Philippines).
REYES, J.B.L., J.:
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
The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due form requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land or to exploit
on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal, natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the absence of
known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered religious capital stock, the controlling membership should be composed of Filipino citizens.
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. 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.
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:
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
The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of indispensable to the free exercise and enjoyment of religious profession or worship; or that one may not worship the
donation of a parcel of land executed in favor of a religious organization whose founder, trustees and Deity according to the dictates of his own conscience unless upon land held in fee simple.
administrator are Chinese citizens should be registered or not.

The resolution appealed from is affirmed, with costs against appellant.

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 G.R. No. L-6055 June 12, 1953
said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the Register of Deeds
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
WILLIAM H. QUASHA, defendant-appellant.
Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.
REYES, J.:
William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with the
crime of falsification of a public and commercial document in that, having been entrusted with the preparation and
registration of the article of incorporation of the Pacific Airways Corporation, a domestic corporation organized for the
purpose of engaging in business as a common carrier, he caused it to appear in said article of incorporation that one
Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent of the subscribed capital
stock of the corporation when in reality, as the accused well knew, such was not the case, the truth being that the
owner of the portion of the capital stock subscribed to by Baylon and the money paid thereon were American citizen
whose name did not appear in the article of incorporation, and that the purpose for making this false statement was
to circumvent the constitutional mandate that no corporation shall be authorize to operate as a public utility in the
Philippines unless 60 per cent of its capital stock is owned by Filipinos.
Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.
The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles of
incorporation with the Securities and Exchanged Commission. The article were prepared and the registration was
effected by the accused, who was in fact the organizer of the corporation. The article stated that the primary purpose
of the corporation was to carry on the business of a common carrier by air, land or water; that its capital stock was
P1,000,000, represented by 9,000 preferred and 100,000 common shares, each preferred share being of the par
value of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one vote; that
the amount capital stock actually subscribed was P200,000, and the names of the subscribers were Arsenio Baylon,
Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H. Quasha, the first being a
Filipino and the other five all Americans; that Baylon's subscription was for 1,145 preferred shares, of the total value
of P114,500, and for 6,500 common shares, of the total par value of P6,500, while the aggregate subscriptions of the
American subscribers were for 200 preferred shares, of the total par value of P20,000, and 59,000 common shares,
of the total par value of P59,000; and that Baylon and the American subscribers had already paid 25 per cent of their
respective subscriptions. Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed capital stock of
the corporation, Baylon nevertheless did not have the controlling vote because of the difference in voting power
between the preferred shares and the common shares. Still, with the capital structure as it was, the article of
incorporation were accepted for registration and a certificate of incorporation was issued by the Securities and
Exchange Commission.
There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the
corporation. But it is admitted that the money paid on his subscription did not belong to him but to the Americans
subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that in the process of
organization Baylon was made a trustee for the American incorporators, and that the reason for making Baylon such
trustee was as follows:
Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a
total value of P1,135. Do you know how that came to be?
A. Yes.
The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy
came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There was
considerable difficulty to get them all together at one time because they were pilots. They had difficulty in deciding
what their respective share holdings would be. Onstott had invested a certain amount of money in airplane surplus
property and they had obtained a considerable amount of money on those planes and as I recall they were desirous
of getting a corporation formed right away. And they wanted to have their respective shares holdings resolved at a
latter date. They stated that they could get together that they feel that they had no time to settle their respective
share holdings. We discussed the matter and finally it was decided that the best way to handle the things was not to
put the shares in the name of anyone of the interested parties and to have someone act as trustee for their
respective shares holdings. So we looked around for a trustee. And he said "There are a lot of people whom I trust."
He said, "Is there someone around whom we could get right away?" I said, "There is Arsenio. He was my boy during
the liberation and he cared for me when i was sick and i said i consider him my friend." I said. They all knew Arsenio.
He is a very kind man and that was what was done. That is how it came about.
Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised
Penal Code, which read:
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:
xxx xxx xxx
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:
xxx xxx xxx
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.
Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new edition,
pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the narration
of facts must be made with the wrongful intent of injuring a third person; and on the authority of U.S. vs. Lopez (15
Phil., 515), the same author further maintains that even if such wrongful intent is proven, still the untruthful statement
will not constitute the crime of falsification if there is no legal obligation on the part of the narrator to disclose the
truth. Wrongful intent to injure a third person and obligation on the part of the narrator to disclose the truth are thus
essential to a conviction for a crime of falsification under the above article of the Revised Penal Code.
Now, as we see it, the falsification imputed in the accused in the present case 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 which, as
above stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the trial court, is a
malicious perversion of the truth made with the wrongful intent circumventing section 8, Article XIV of the
Constitution, which provides that " no franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporation or other entities organized under
the law of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines . . . ."
Plausible though it may appear at first glance, this opinion loses validity once it is noted that it is predicated on the
erroneous assumption that the constitutional provision just quoted was meant to prohibit the mere formation of a
public utility corporation without 60 per cent of its capital being owned by the Filipinos, a mistaken belief which has
induced the lower court to that the accused was under obligation to disclose the whole truth about the nationality of
the subscribed capital stock of the corporation by revealing that Baylon was a mere trustee or dummy of his
American co-incorporators, and that in not making such disclosure defendant's intention was to circumvent the
Constitution to the detriment of the public interests. Contrary to the lower court's assumption, the Constitution does
not prohibit the mere formation of a public utility corporation without the required formation of Filipino capital. What it
does prohibit is the granting of a franchise or other form of authorization for the operation of a public utility to
a corporation already in existence but without the requisite proportion of Filipino capital. This is obvious from the
context, for the constitutional provision in question qualifies the terms " franchise", "certificate", or "any other form of
authorization" with the phrase "for the operation of a public utility," thereby making it clear that the franchise meant is
not the "primary franchise" that invest a body of men with corporate existence but the "secondary franchise" or the
privilege to operate as a public utility after the corporation has already come into being.
If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then how
can the accused be charged with having wrongfully intended to circumvent that fundamental law by not revealing in
the articles of incorporation that Baylon was a mere trustee of his American co-incorporation and that for that reason
the subscribed capital stock of the corporation was wholly American? For the mere formation of the corporation such
revelation was not essential, and the Corporation Law does not require it. Defendant was, therefore, under no
obligation to make it. In the absence of such obligation and of the allege wrongful intent, defendant cannot be legally
convicted of the crime with which he is charged.
It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing in
the name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition and the
laws implementing the policy expressed therein. This view is not correct. For a corporation to be entitled to operate a
public utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos from the start. A
corporation formed with capital that is entirely alien may subsequently change the nationality of its capital through
transfer of shares to Filipino citizens. conversely, a corporation originally formed with Filipino capital may
subsequently change the national status of said capital through transfer of shares to foreigners. What need is there
then for a corporation that intends to operate a public utility to have, at the time of its formation, 60 per cent of its
capital owned by Filipinos alone? That condition may anytime be attained thru the necessary transfer of stocks. 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. And that can be done after the corporation
has already come into being and not while it is still being formed. And at that moment, the corporation must show
that it has complied not only with the requirement of the Constitution as to the nationality of its capital, but also with
the requirements of the Civil Aviation Law if it is a common carrier by air, the Revised Administrative Code if it is a
common carrier by water, and the Public Service Law if it is a common carrier by land or other kind of public service.
Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under
article 59 of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a crime
for the simple reason that the alleged constitutional prohibition which he is charged for having tried to circumvent
does not exist, conviction under that article is out of the question.
The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the crime
charged. The majority of the court, however, are also of the opinion that, even supposing that the act imputed to the
defendant constituted falsification at the time it was perpetrated, still with the approval of the Party Amendment to the
Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens with respect to the right
to operate public utilities in the Philippines, thus doing away with the prohibition in section 8, Article XIV of the
Constitution in 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.
In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted,
with costs de oficio.
________________________________________________________________________________
G.R. No. L-2294 May 25, 1951
FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding
premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000,
covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27,
1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the
respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and,
after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to
pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent Corporation (though organized under and by virtue of
the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the
order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering
from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured
merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be
effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and
that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was
under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to
costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with
costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy
when the United States declared war against Germany, relying on English and American cases which held that a
corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected
the theory that nationality of private corporation is determine by the character or citizenship of its controlling
stockholders.
There is no question that majority of the stockholders of the respondent corporation were German subjects. This
being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between
the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their
force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the
controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second
International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following
enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations, themselves considered as
enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established
after the First World War.
 The United States of America did not adopt the control test during the First World War. Courts refused to In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified
recognized the concept whereby American-registered corporations could be considered as enemies and term it is plain that when the parties become alien enemies, the contractual tie is broken and the
thus subject to domestic legislation and administrative measures regarding enemy property. contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

World War II revived the problem again. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation but also by long term loans and other
factual situations. For that reason, legislation on enemy property enacted in various countries during World
War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents
of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in
determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the last war,
include as did other legislations the applications of the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in
the treatment of foreign-owned property in the United States allowed to large degree the determination of
enemy interest in domestic corporations and thus the application of the control test. Court decisions
sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more
recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control
theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly
controlled by German interest, the Court: "The property of all foreign interest was placed within the reach
of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to
reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and
vesting was extended to all property of any foreign country or national so that no innocent appearing
device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision.
However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held
that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the
Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but
because it was controlled by enemies.
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 (a Philippine corporation) had ceased to be valid and enforcible, 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.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in
question became null and void upon the declaration of war between the United States and Germany on December
10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did
not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the
respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of
fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its
lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the
respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the
following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated
February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of
the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay
the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by
means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case.
However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid
on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that
should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941.
Without costs. So ordered.

Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent with
a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or
trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with
or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that
the subjects of one country cannot be permitted to lend their assistance to protect by insurance the
commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's
interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay in insurance the value of what
has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it
aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy,
which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)