Topic: Doctrine of State Action

Case: Manila Prince Hotel, petitioner, vs. Government Service Insurance System, Manila Hotel
Corporation, Committee on Privatization and Office of the Government Corporate Counsel, respondents

Facts:
 The GSIS decided to sell through a public bidding 30% to 51% of the issued and outstanding shares
of the respondent MHC.
 In a close bidding, only two (2) bidders participated: petitioner Manila Prince Hotel Corporation
(MPHC), a Filipino Corporation, which offered to buy 51% of the MHC or 15,300,000 shares at
P41.58 per share, and Renong Berhad, a Malaysian firm, which bid for the same number of shares
at P44.00 per share, or P2.42 more than the first bid of the petitioner. However, subsequently,
petitioner sent a manager’s check as Bid Security to match the bid of the Malaysian Group, which
was refused to be accepted by the GSIS.
 Perhaps, apprehensive that respondent GSIS has disregarded the tender of the matching bid, and
that the sale may be hastened by respondent GSIS and consummated with Renong Berhad,
petitioner came to this Court on prohibition and mandamus. The Court issued a temporary
restraining order enjoining respondents from perfecting and consummating the sale to the
Malaysian firm.
 Petitioner invoked the Filipino First Policy enshrined in the 1987 Constitution, i.e., in the grant of
rights, privileges, and concessions covering the national economy and patrimony, the State shall
give preference to qualified Filipinos,” in its bid to acquire 51% of the shares of the MHC but
respondents argue that the constitutional provision is addressed to the State, not to respondent
GSIS which by itself possess a separate and distinct personality.

Issue:
WON, the constitutional provision “” is addressed to the State and not to respondent GSIS.

Ruling:
In constitutional jurisprudence, the acts of persons distinct from the government are considered “state
action” covered by the Constitution when:
1. The activity it engages in is a “public function”;
2. The government is so-significantly involved with the private actor as to make the government
responsible for his action; and
3. The government has approved or authorized the action.
The act of GSIS in selling 51% if its share in respondent MHC comes under the second and third categories
of “state action”. Hence, the transaction although entered into by respondent GSIS, is in fact a transaction
of the State and therefore subject to the constitutional command.
Wherefore, the respondents GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTEL
CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATE
COUNSEL are directed to CEASE and DESIST from selling 51% of the shares of the Manila Hotel Corporation
to RENONG BERHAD, and to ACCEPT the matching bid of petitioner MANILA PRINCE HOTEL CORPORATION
to purchase the subject 51% of the shares of the Manila Hotel Corporation at P44.00 per share and
thereafter to execute the necessary agreements and documents to effect the sale, to issue the necessary
clearances and to do such other acts and deeds as may be necessary for the purpose.