35. Sappari K. Sawadjaan v.
CA Corporate Counsel, “the principal law office of government-
Facts:
Petitioner Sawadjaan was an appraiser/investigator in the
Philippine Amanah Bank (PAB) when on the basis of his
report, a credit line was granted to Compressed Air
Machineries and Equipment Corporation (CAMEC) by virtue of
the two parcels of land it offered as collaterals. Meanwhile,
Congress passed a law which created Al-Amanah Investment
Bank of the Philippines (AIIBP) and repealed the law creating
PAB, transferring all its assets, liabilities and capital accounts
to AIIBP. Later, AIIBP discovered that the collaterals were
spurious, thus conducted an investigation and found petitioner
Sawadjaan at fault. Petitioner appealed before the SC which
ruled against him. Petitioner moved for a new trial claiming he
recently discovered that AIIBP had not yet adopted its
corporate by-laws and since it failed to file within 60 days from
the passage of its law, it had forfeited its franchise or charter
and thus has no legal standing to initiate an administrative
case. The motion was denied.
Issue:
Whether or not the failure of AIIBP to file its by-laws within the
period prescribed results to a nullity of all actions and
proceedings it has initiated.
Ruling: NO.
The AIIBP was created by Rep. Act No. 6848. It has a main
office where it conducts business, has shareholders, corporate
officers, a board of directors, assets, and personnel. It is, in
fact, here represented by the Office of the Government
owned corporations, one of which is respondent bank.” At the
very least, by its failure to submit its by-laws on time, the AIIBP
may be considered a de facto corporation whose right to
exercise corporate powers may not be inquired into collaterally
in any private suit to which such corporations may be a party.
Moreover, a corporation which has failed to file its by-laws
within the prescribed period does not ipso facto lose its powers
as such. The SEC Rules on Suspension/Revocation of the
Certificate of Registration of Corporations, details the
procedures and remedies that may be availed of before an
order of revocation can be issued. There is no showing that
such a procedure has been initiated in this case.
36. Lim vs. Philippine Fishing Gear Industries Inc. [GR
136448, 3 November 1999]
FACTS: Lim Tong Lim requested Peter Yao and Antonio
Chuato engage in commercial fishing with him. The three
agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim the
brother of Lim Tong Lim. Subsequently, they again borrowed
money for the purchase of fishing nets and other fishing
equipments. Yao and Chua represented themselves as acting
in behalf of “Ocean Quest Fishing Corporation” (OQFC) and
they contracted with Philippine Fishing Gear Industries (PFGI)
for the purchase of fishing nets amounting to more than
P500k. However, they were unable to pay PFGI and hence
were sued in their own names as Ocean Quest Fishing
Corporation is a non-existent corporation. Chua admitted his
liability while Lim Tong Lim refused such liability alleging that
1
Chua and Yao acted without his knowledge and consent in
representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as a partner
HELD: Yes. It is apparent from the factual milieu that the three
decided to engage in a fishing business. Moreover, their
Compromise Agreement had revealed their intention to pay
the loan with the proceeds of the sale and to divide equally
among them the excess or loss. The boats and equipment
used for their business entails their common fund. The
contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows
that they had indeed formed a partnership. The principle of
corporation by estoppel cannot apply in the case as Lim Tong
Lim also benefited from the use of the nets in the boat, which
was an asset of the partnership. Under the law on estoppel,
those acting in behalf of a corporation and those benefited by
it, knowing it to be without valid existence are held liable as
general partners. Hence, the question as to whether such was
legally formed for unknown reasons is immaterial to the case.
37. International Express Travel And Tour Services Inc. vs
Court of Appeals
Facts: On June 30, 1989, petitioner International Express
Travel and Tours Services Inc., through its managing director,
wrote a letter to the Philippine Football Federation through its
President Henri Kahn, wherein the former offered its services
as a travel agency to the latter. The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes
and officials of the Federation to the South East Asian Games
in Kuala Lumpur as well as various other trips to the People’s
Republic of China and Brisbane. The total cost of the tickets
amounted to Php449,654.83. For the tickets received, the
Federation made two partial payments, both in September of
1989 in the total amount of Php176,467.50. On October 4,
1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of
Php265,844.33. On October 30, 1989, the Federation, through
the project gintong alay, paid the amount of Php31,603. On
December 27, 1989, Henri Kahn issued a personal check in
the amount of Php50,000 as partial payment for the
outstanding balance of the Federation. Thereafter, no further
payments were made despite repeated demands. Hence, this
petition.
Issue: Whether or not private respondent can be made
personally liable for the liabilities of the Philippines Football
Federation.
Held: Yes. A voluntary unincorporated association, like
defendant Federation has no power to enter into, or to ratify a
contract. The contract entered into by its officers or agents on
behalf of such association is binding or, as enforceable against
it. The officers or agents are themselves personally liable.
In attempting to prove the juridical existence of the Federation,
Henri Kahn attached to his motion for reconsideration before
the trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same does
not prove that said Federation has indeed been recognized
and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football
Federation is not a national sports association within the
2
purview of the aforementioned laws and does not have
corporate existence of its own.
Thus being said, it follows that private respondent Henri Kahn
should be liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled
principle in corporation law that any person acting or
purporting to act on behalf of the corporation which has no
valid existence assumed such privileges and becomes
personally liable for contract entered into or for other acts
performed as such agent.
38. REPUBLIC OF THE PHILIPPINES, represented by the
PHILIPPINE RECLAMATION AUTHORITY (PRA) vs. CITY
OF PARANAQUE
This is a petition for review on certiorari assailing the Order of
the Regional Trial Court, Branch 195,Paranaque City (RTC),
which ruled that petitioner Philippine Reclamation Authority
(PRA) is a government-owned and controlled corporation
(GOCC), a taxable entity, and, therefore, not exempt from
payment of real property taxes.
The Public Estates Authority (PEA) is a government
corporation created by virtue of P.D. No. 1084 toprovide a
coordinated, economical and efficient reclamation of lands,
and the administration andoperation of lands belonging to,
managed and/or operated by, the government with the object
of maximizing their utilization and hastening their development
consistent with public interest.
On October 26, 2004, then President Gloria Macapagal-Arroyo
issued E.O. No. 380 transforming PEA into PRA, which shall
perform all the powers and functions of the PEA relating to
reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the
foreshore and offshore areas of Manila Bay,including those
located in Parañaque City. Parañaque City Treasurer issued
Warrants of Levy on PRA’s reclaimed properties based on the
assessment for delinquent real property for tax years 2001 and
2002.
PRA claimed that it is not a GOCC under the Administrative
Code, nor is it a GOCC under Section 16, Article XII of the
1987Constitution because it is not required to meet the test of
economic viability.
It is a government instrumentality vested with corporate
powers and performing an essential public service. It insists
that it may not be classified as a non-stock corporation
because it has no members and it is not organized for
charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or
similar purposes, like trade, industry, agriculture and like
chambers as provided in Section 88 of the Corporation Code.
Thus, PRA insists that, as an incorporated instrumentality of
the National Government, it is exempt from payment of real
property tax except when the beneficial use of the real
property is granted to a taxable person. PRA claims that based
on Section 133(o) of the LGC, local governments cannot tax
the national government which delegate to local governments
the power to tax.
Issue:
Whether or not Philippine Reclamation Authority (PRA) is an
incorporated instrumentality of the national government and is,
therefore, exempt from payment of real property tax under
sections 234(a) and 133(o) of Republic Act 7160?
3
Held: Yes it is a Government Instrumentality.
In the case at bench, PRA is not a GOCC because it is neither
a stock nor a non-stock corporation. It cannot be considered
as a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 74 of
P.D. No. 1084, it is not authorized to distribute dividends,
surplus allotments or profits to stockholders. PRA is a
government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative
Code. Being an incorporated government instrumentality, it is
exempt from payment of real property tax.
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency
or instrumentality is deemed a GOCC. The fundamental
provision above authorizes Congress to create GOCCs
through special charters on two conditions: 1) the GOCC must
be established for the common good; and 2) the GOCC must
meet the test of economic viability. In this case, PRA may
have passed the first condition of common good but failed the
second one - economic viability. Undoubtedly, the purpose
behind the creation of PRA was not for economic or
commercial activities.
Clearly, respondent has no valid or legal basis in taxing the
subject reclaimed lands managed by PRA. On the other hand,
Section 234(a) of the LGC, in relation to its Section 133(o),
exempts PRA from paying realty taxes and protects it from the
taxing powers of local government units.
Section 234(a) of the Local Government Code states that real
property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person.
Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax
national government instrumentalities.
In this case, there is no proof that PRA granted the beneficial
use of the subject reclaimed lands to a taxable entity. There is
no showing on record either that PRA leased the subject
reclaimed properties to a private taxable entity.
WHEREFORE, the petition is GRANTED. The Order of the
Regional Trial Court, Branch 195, Parañaque City, is
REVERSED and SET ASIDE.
39. Boy Scouts of the Philippines vs. Commission on
Audit
FACTS: The Commission on Audit issued COA Resolution
No. 99-011 in which the said resolution state that the BSP was
created as a public corporation under Commonwealth Act No.
111, as amended by Presidential Decree No. 460 and
Republic Act No. 7278; that in Boy Scouts of the Philippines
vs. National Labor Relations Commission, the Supreme Court
ruled that the BSP, as constituted under its charter, was a
“government-controlled corporation within the meaning of
Article IX (B)(2)(1) of the Constitution; and that “the BSP is
appropriately regarded as a government instrumentality under
the 1987 Administrative Code.”
The BSP sought reconsideration of the COA
Resolution in a letter signed by the BSP National President
Jejomar Binay. He claimed that RA 7278 eliminated the
4
“substantial government participation” in the National
Executive Board by removing: (i) the President of the
Philippines and executive secretaries, with the exception of the
Secretary of Education, as members thereof; and (ii) the
appointment and confirmation power of the President of the
Philippines, as Chief Scout, over the members of the said
Board.
The BSP further claimed that the 1987 Administrative
Code itself, of which the BSP s. NLRC relied on for some
terms, defines government-owned and controlled corporations
as agencies organized as stock or non-stock corporations
which the BSP, under its present charter, is not.
And finally, they claim that the Government, like in
other GOCCs, does not have funds invested in the BSP. The
BSP is not an entity administering special funds. The BSP is
neither a unit of the Government; a department which refers to
an executive department as created by law; nor a bureau
which refers to any principal subdivision or unit of any
department.
ISSUE: Whether the BSP falls under the COA’s audit
jurisdiction.
RULING: After considering the legislative history of the
amended charter and the applicable laws and the arguments
of both parties, the Court found that the BSP is a public
corporation and its funds are subject to the COA’s audit
jurisdiction.
The BSP Charter created the BSP as a “public
corporation” to serve the following public interest or purpose:
xxx to promote through organization and cooperation with
other agencies, the ability of boys to do useful things for
themselves and others, to train them in scout craft, and to
inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in
common use by boy scouts.
The purpose of the BSP as stated in its amended
charter shows that it was created in order to implement a State
policy declared in Article II, Section 13 of the Constitution.
Evidently, the BSP, which was created by a special law to
serve a public purpose in pursuit of a constitutional mandate,
comes within the class of “public corporations” defined by
paragraph 2, Article 44 of the Civil Code and governed by the
law which creates it, pursuant to Article 45 of the same Code.
The Constitution emphatically prohibits the creation of
private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban
private corporations created by special charters, which
historically gave certain individuals, families or groups special
privileges denied to other citizens.
The BSP is a public corporation or a government
agency or instrumentality with juridical personality, which does
not fall within the constitutional prohibition in Article XII,
Section 16, notwithstanding the amendments to its charter.
Not all corporations, which are not government owned or
controlled, are ipso facto to be considered private corporations
as there exist another distinct class of corporations or
chartered institutions which are otherwise known as “public
corporations.” These corporations are treated by law as
agencies or instrumentalities of the government which are not
5
subject to the test of ownership or control and economic duty, created and conferred by law, by which, for a given
viability but to different criteria relating to their public period, is invested with some portion of the sovereign
purposes/interests or constitutional policies and objectives and functions of the government, to be exercised for the benefit of
their administrative relationship to the government or any of its the public.
Departments or Offices.
In the instant case, the functions of VFP – the
Since BSP, under its amended charter, continues to be protection of the interests of war veterans which promotes
a public corporation or a government instrumentality, the Court social justice and reward patriotism – certainly fall within the
concludes that it is subject to the exercise by the COA of its category of sovereign functions. The fact that VFP has no
audit jurisdiction in the manner consistent with the provisions budgetary appropriation is only a product of erroneous
of the BSP Charter. application of the law by public officers in the DBM which will
40. Veterans Federation of the Philippines vs. Reyes not bar subsequent correct application.
Facts: Petitioner Veterans Federation of the Philippines (VFP) Hence, placing it under the control and supervision of
is a corporate body organized under Republic Act No. 2640. DND is proper.
Sometime in August 2002, petitioner received a letter from
Undersecretary of the Department of National Defense (DND)
to conduct Management Audit of VFP pursuant to RA 2640,
where it stated that VFP is under the supervision and control
of the Secretary of National Defense. Petitioner complained
about the broadness of audit and requested suspension until
issues are threshed out, which was subsequently denied by
DND. As a result, petitioner sought relief under Rule 65
assailing that it is a private non-government corporation.

Issue: Whether or not veterans federation created by law is a

public office, considering that it does not possess a portion of
the sovereign functions of the government and considering
further that, it has no budgetary appropriation from DBM and
that its funds come from membership dues.

Ruling: Yes, petitioner is a public corporation. In Laurel v.

Desierto, public office is defined as the right, authority and

6
41. Leyson Jr. v. Office of the Ombudsman 42. Liban v. Gordon

FACTS

Dante V. Liban, together with other petitioners, petitioned in

Court to declare Richard J. Gordon as “having forfeited his
seat in the Senate.” The petitioners were officers of the Board
of Directors of the Quezon City Red Cross Chapter, while
respondent is Chairman of the Philippine National Red Cross
(PNRC) Board of Governors.

During Gordon’s incumbency as a member of the Senate of

the Philippines, he was elected Chairman of the PNRC during
the February 23, 2006 meeting of the PNRC Board of
Governors, in which the petitioners alleged that by accepting
the responsibility, Gordon deemed ceased to be a member of
the Senate as provided in Sec. 13, Article VI of the
Constitution:

Sec. 13. No Senator or Member of the House of

Representatives may hold any other office or employment in
the Government, or any subdivision, agency, or instrumentality
thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without
forfeiting his seat….

Respondent contested that the petitioners’ citation of a

constitutional provision had no basis, since PNRC is not a
government-owned or controlled corporation. Thus, prohibition
under Sec. 13, Art. VI of the Constitution did not apply to his
case. Furthermore, service rendered in PNRC is a volunteer
service to which is neither an office nor an employment.

7

ISSUE
By accepting the PNRC Chair, did Gordon forfeit his Senate
Seat?
HELD
No. The Philippine National Red Cross is a private
organization performing public functions. It does not have
government assets and does not receive any appropriation
from the Philippine Congress. The PNRC is financed primarily
by contributions from private individuals and private entities
obtained through solicitation campaigns organized by its Board
of Governors. Apart from that, PNRC must not only be, but
must also be seen to be, autonomous, neutral and
independent to be able to conduct its activities in accord to
their fundamental principles of humanity, impartiality,
neutrality, independence, voluntary service, unity, and
universality. Hence, Article VI, Section 13 could not apply to
Gordon’s case, in accepting the position in the PNRC. The
petition was deemed to have no merit.
43. Feliciano v COA
Facts
A Special Audit Team from COA Regional Office No. VIII
audited the accounts of Leyte Metropolitan Water District
(LMWD). For its auditing services, COA requested payment
but was denied by Petitioner Feliciano as General Manager of
LMWD, citing PD198 and Section 18 of RA 6758. He further
requested that COA cease all audit services, stop charging
auditing fees and refund all auditing fees previously paid by
LMWD.
On March 16, 2000, petitioner received the Resolution of COA
Chairman Celso Gangan, holding that local water districts are
not private corporations, and are therefore under its audit
jurisdiction, as pronounced by the Supreme Court in the case
of Davao City Water District vs. CSC and COA.
Issues:
1. Whether or not a local water district created under PD198,
as amended, is a government-owned or controlled corporation
subject to the audit jurisdiction of COA;
2. Whether or not Section 20 of PD 198, as amended,
prohibits COA’s certified public accountants from auditing local
water districts; and
3. Whether or not Section 18 of RA 6758 prohibits COA from
charging government-owned and controlled corporations
auditing fees.
Ruling:
8
The petition lacks merit.
A local water district is considered a GOCC with an original
charter. It exists as a corporation only by virtue of PD198,
which expressly confers on LWDs corporate powers. Without
PD198, LWDs would have no corporate powers. PD 198
constitutes the special enabling charter of LWDs. Thus, LWDs
are government-owned and controlled corporations with a
special charter, and not private corporations created under the
Corporation Code.
LWDs, therefore, are subject to the audit jurisdiction of COA,
as provided under Section 2(1), Article IX-D of the
Constitution, which mandates the latter to audit all government
agencies or instrumentalities, including government-owned
and controlled corporations (GOCCs) with original charters, as
well as other government-owned or controlled corporations
without original charters.
As regards the second issue, the petitioner argues that PD
198 expressly prohibits COA auditors, or any government
auditor for that matter, from auditing LWDs, as stated in
Section 18 of the aforementioned law, which provides in part
that “auditing shall be performed by a certified public
accountant not in the government service.”
auditors from auditing LWDs, and Sections 2(1) and 3, Article
IX-D of the Constitution, vesting in COA the power to audit all
GOCCs, it is ruled that the second sentence of Section 20 of
PD 198 is unconstitutional since it violates the aforementioned
section of the Constitution.
The third issue is likewise bereft of merit. COA is not
prohibited from charging GOCCs auditing fees. As opposed to
petitioner’s contention, COA may charge GOCCs actual audit
cost, but the same must be paid directly to COA and not to
COA auditors. What Section 18 of RA 6758 prohibits is the
receiving of COA personnel of any kind of compensation from
any government entity except “compensation paid directly by
COA out of its appropriations and contributions.” Petitioner has
not alleged that COA charges LWDs auditing fees in excess of
COA’s actual audit cost. Neither has he alleged that the
auditing fees are paid by LWDs directly to individual COA
auditors.

The Supreme Court however ruled that PD 198 cannot prevail

over the Constitution, as it provides in Section 3, Article IX-C
that “no law shall be passed exempting any entity of the
government or its subsidiary in any guise whatever, or any
investment of public funds, from the jurisdiction of the
Commission on Audit. And since there is an irreconcilable
conflict between Section 20 of PD 198, prohibiting COA