G. R. No. 186732, June 13, 2013 for lack of merit.

19 He explained that no evidence had been adduced to support

ALPS TRANSPORTATION AND/OR ALFREDO E. the contention of Rodriguez that the latter had been terminated on 27 January
PEREZ, Petitioners, v. ELPIDIO M. RODRIGUEZ, Respondent. 2005.20 Moreover, during the mandatory conference, the representative of
Contact Tours manifested that the company had not dismissed Rodriguez, and
DECISION that it was in fact willing to reinstate him to his former position. 21 Thus, the
SERENO, C.J.: labor arbiter concluded that Rodriguez had not been illegally dismissed, and was
Before this Court is a Rule 45 Petition for Review1 assailing the Decision2 and actually an employee of Contact Tours, and not of ALPS Transportation. 22
Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 100163.
THE FACTS Rodriguez appealed the dismissal to the National Labor Relations Commission
(NLRC). On 28 February 2007, the NLRC set aside the decision of the labor
Respondent Elpidio Rodriguez (Rodriguez) was previously employed as a bus arbiter and entered a new one, the dispositive portion of which reads: cralavvonlinelawlibrary

conductor.4 He entered into an employment contract with Contact Tours WHEREFORE, the assailed Decision dated January 12, 2006 is hereby SET
Manpower5 (Contact Tours) and was assigned to work with petitioner bus ASIDE and a new one is being entered, directing the respondents to reinstate
company, ALPS Transportation.6 the complainant to his former position without loss of seniority rights and
privileges but without backwages.
During the course of his employment, Rodriguez was found to have committed
irregularities on 26 April 2003,7 12 October 2003,8 and 26 January 2005.9 The SO ORDERED.23
latest irregularity report dated 26 January 2005 stated that he had collected bus In so concluding, the NLRC ruled that Contact Tours was a labor-only
fares without issuing corresponding tickets to passengers. The report was contractor. 24 Thus, Rodriguez should be considered as a regular employee of
annotated with the word “Terminate.”10 ALPS Transportation.25

Rodriguez alleged that he was dismissed from his employment on 27 January As regards the claim of illegal dismissal, the NLRC found that Rodriguez failed to
2005, or the day after the issuance of the last irregularity report. However, he prove that his services were illegally terminated by petitioners, and that he was
did not receive any written notice of termination.11 He went back to the bus prevented from returning to work.26 However, the bus company likewise failed
company a number of times, but it refused to readmit him. 12 to prove that he had abandoned his work.27 Thus, citing previous rulings of this
Court, the NLRC held that in case the parties fail to prove either abandonment
On 11 August 2005, Rodriguez filed before the labor arbiter a complaint for or termination, the employer should order the employee to report back for
illegal dismissal, nonpayment of 13th month pay, and damages against ALPS work, accept the latter, and reinstate the employee to the latter’s former
Transportation and Alfredo Perez, the proprietor of petitioner bus company.13 position. However, an award for backwages is not warranted, as the parties
must bear the burden of their own loss.28
In response to the complaint, petitioners stated that they did not have any
prerogative to dismiss Rodriguez, as he was not their employee, but that of Dissatisfied with the ruling of the NLRC, Rodriguez filed a Rule 65 Petition for
Contact Tours.14 In fact, based on their agreement with Contact Tours, it was Certiorari with the CA.
supposedly the latter that had the obligation to inform respondent of the
contents of the reports and to decide on the appropriate sanctions.15 Petitioners After a review of the records, the CA concluded that the NLRC acted with grave
further explained that due to the issuance of the three irregularity reports abuse of discretion in rendering the assailed decision. The appellate court ruled
against Rodriguez, they wrote to Contact Tours and recommended the that, in termination cases, it is the employer who bears the burden of proving
termination of respondent’s assignment to them.16 that the employee was not illegally dismissed.29 Here, the CA found that ALPS
Transportation failed to present convincing evidence that Rodriguez had indeed
During the pendency of the illegal dismissal case before the labor arbiter, ALPS collected bus fares without issuing corresponding tickets to passengers. The
Transportation charged Rodriguez with theft before the Office of the Provincial appellate court held that the irregularity reports were mere allegations, the
Prosecutor of Tanauan, Batangas.17 However, petitioners eventually filed an truth of which had not been established by evidence. 30
Affidavit of Desistance and withdrew the criminal charges against respondent. 18
Moreover, the CA gave no credence to ALPS Transportation’s argument that
On 12 January 2006, the labor arbiter dismissed the illegal dismissal complaint Rodriguez had not yet been terminated when he filed the illegal dismissal
1
complaint, as he had not yet received any notice of termination. 31 The appellate
court explained that, before the illegal dismissal complaint was filed, more than
six months had lapsed since respondent was last given a bus assignment by
ALPS Transportation.32 Thus, the CA concluded that the argument of the bus
company was only an excuse to cover up the latter’s mistake in terminating him
without due process of law.33
The CA then ordered ALPS Transportation to reinstate Rodriguez and to pay him
full backwages, viz:cralavvonlinelawlibrary
WHEREFORE, the petition is GRANTED. Alfredo Perez is declared guilty of
having committed illegal dismissal. Accordingly, only the portions of the assailed
dispositions ordering the reinstatement of Elpidio Rodriguez to his former
position without loss of seniority rights is AFFIRMED and the phrase, “but
without backwages” is ANNULLED and SET ASIDE. In lieu thereof, Alfredo
Perez is ORDERED to pay Elpidio Rodriguez backwages computed from the time
he was illegally dismissed until his actual reinstatement. No costs.
SO ORDERED.34
Aggrieved by the appellate court’s decision, petitioners filed the instant Rule 45
Petition before this Court.
THE ISSUES
As culled from the records and the submissions of the parties, the issues in this
case are as follows:cralavvonlinelawlibrary
1. Whether respondent Rodriguez was validly dismissed; and
2. Assuming that respondent was illegally dismissed, whether ALPS
Transportation and/or Alfredo E. Perez is liable for the dismissal.
THE COURT’S RULING
We uphold the assailed Decision and Resolution and rule that respondent
Rodriguez has been illegally dismissed.
For a dismissal to be valid, the rule is that the employer must comply with both
substantive and procedural due process requirements.35 Substantive due
process requires that the dismissal must be pursuant to either a just or an
authorized cause under Articles 282, 283 or 284 of the Labor Code.36 Procedural
due process, on the other hand, mandates that the employer must observe the
twin requirements of notice and hearing before a dismissal can be effected. 37
Thus, to determine the validity of Rodriguez’s dismissal, we first discuss
whether his employment was terminated for a just cause.
Petitioners argue that the dismissal of Rodriguez was brought about by his act
of collecting fare from a passenger without issuing the corresponding
ticket.38 This was not the first irregularity report issued against respondent, as
2
similar reports had been issued against him on 26 April 2003 39 and 12 October
2003.40 Thus, the company had lost trust and confidence in him, as he had
committed serious misconduct by stealing company revenue.41 Petitioners
therefore submit that the dismissal was valid under Article 282 of the Labor
Code.42
For his part, Rodriguez denies the contents of the irregularity report. 43 He states
that the report consists of a mere charge, but is bereft of the necessary
proof.44 Moreover, he submits that while the bus company filed a criminal
complaint against him for the same act, the complaint was dismissed pursuant
to an Affidavit of Desistance, in which the bus company stated that “the incident
arose out of [a] misunderstanding between them.”45 Finally, he contends that
the company’s invocation of the 2003 irregularity reports to support his
dismissal effected in 2005 was a mere afterthought.46 In any event, he
maintains that even those alleged infractions were not duly supported by
evidence.47
We find for respondent and rule that the employer failed to prove that the
dismissal was due to a just cause.
The Labor Code provides that the burden of proving that the termination of an
employee was for a just or authorized cause lies with the employer. 48 If the
employer fails to meet this burden, the conclusion would be that the dismissal
was unjustified and, therefore, illegal.49
Here, we agree with Rodriguez’s position that the 26 January 2005 irregularity
report, which served as the basis of his dismissal, may only be considered as an
uncorroborated allegation if unsupported by substantial evidence. On this
matter, we quote with favor the ruling of the appellate court: cralavvonlinelawlibrary
[T]he nature of work of a bus conductor involves inherent or normal
occupational risks of incurring money shortages and uncollected fares. A
conductor’s job is to collect exact fares from the passengers and remit his
collections to the company. Evidence must, therefore, be substantial and not
based on mere surmises or conjectures for to allow an employer to terminate
the employment of a worker based on mere allegations places the latter in an
uncertain situation and at the sole mercy of the employer. An accusation that is
not substantiated will not ripen into a holding that there is just cause for
dismissal. A mere accusation of wrongdoing or a mere pronouncement of lack of
confidence is not sufficient cause for a valid dismissal of an employee. Thus, the
failure of the [petitioners] to convincingly show that the [respondent]
misappropriated the bus fares renders the dismissal to be without a valid cause.
To add, jurisprudence dictates that [if] doubt exists between the evidence
presented by the employer and the employee, the scales of justice must be
tilted in favor of the latter.50 (Citations omitted)
Thus, we rule that petitioners have failed to prove that the termination of to avoid liability, it bears the burden of proving that Contact Tours is an
Rodriguez’s employment was due to a just cause. independent contractor.53

Turning to the issue of procedural due process, both parties are in agreement It is thus incumbent upon ALPS Transportation to present sufficient proof that
that Rodriguez was not given a written notice specifying the grounds for his Contact Tours has substantial capital, investment and tools in order to
termination and giving him a reasonable opportunity to explain his side; a successfully impute liability to the latter. However, aside from making bare
hearing which would have given him the opportunity to respond to the charge assertions and offering the Kasunduan between Rodriguez and Contact Tours in
and present evidence in his favor; and a written notice of termination indicating evidence,54 ALPS Transportation has failed to present any proof to substantiate
that after considering all the circumstances, management has concluded that his the former’s status as a legitimate job contractor. Hence, the legal presumption
dismissal is warranted. Clearly, therefore, the inescapable conclusion is that that Contact Tours is a labor-only contractor has not been overcome.
procedural due process is wanting in the case at bar.
As a labor-only contractor, therefore, Contact Tours is deemed to be an agent of
Having found that Rodriguez was illegally dismissed, we now rule on petitioners’ ALPS Transportation. 55 Thus, the latter is responsible to Contact Tours’
liabilities and respondent’s entitlements under the law. employees in the same manner and to the same extent as if they were directly
employed by the bus company.56
An illegally dismissed employee is entitled to the twin remedies of reinstatement
and payment of full backwages. In Santos v. National Labor Relations Finally, the CA correctly ruled that since ALPS Transportation is a sole
Commission,51 we explained: cralavvonlinelawlibrary proprietorship owned by petitioner Alfredo Perez, it is he who must be held
The normal consequences of a finding that an employee has been illegally liable for the payment of backwages to Rodriguez. 57 A sole proprietorship does
dismissed are, firstly, that the employee becomes entitled to reinstatement to not possess a juridical personality separate and distinct from that of the owner
his former position without loss of seniority rights and, secondly, the payment of of the enterprise.58 Thus, the owner has unlimited personal liability for all the
backwages corresponding to the period from his illegal dismissal up to actual debts and obligations of the business, and it is against him that a decision for
reinstatement. The statutory intent on this matter is clearly discernible. illegal dismissal is to be enforced.59
Reinstatement restores the employee who was unjustly dismissed to the
position from which he was removed, that is, to his status quo ante dismissal, WHEREFORE, the instant Rule 45 Petition for Review is DENIED. The assailed
while the grant of backwages allows the same employee to recover from the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 100163 are
employer that which he had lost by way of wages as a result of his dismissal. hereby AFFIRMED.
These twin remedies — reinstatement and payment of backwages — make the
dismissed employee whole who can then look forward to continued employment. SO ORDERED.
Thus, do these two remedies give meaning and substance to the constitutional
right of labor to security of tenure. (Citations omitted) Leonardo-De Castro, Bersamin, Villarama, Jr., and Reyes, JJ., concur.
Thus, the CA committed no reversible error in upholding the NLRC’s order to
reinstate Rodriguez and in directing the payment of his full backwages, from the
time he was illegally dismissed until his actual reinstatement.
G.R. Nos. 116124-25               November 22, 2000
As to who should bear the burden of satisfying respondent’s lawful claims, BIBIANO O. REYNOSO, IV, petitioner,
petitioners submit that since Rodriguez was an employee of Contact Tours, the vs.
latter is liable for the settlement of his claims. HON. COURT OF APPEALS and GENERAL CREDIT
CORPORATION, respondents.
We do not agree. DECISION
YNARES-SANTIAGO, J.:
“The presumption is that a contractor is a labor-only contractor unless he Assailed in this petition for review is the consolidated decision of the Court of
overcomes the burden of proving that it has substantial capital, investment, Appeals dated July 7, 1994, which reversed the separate decisions of the
tools, and the like.”52 While ALPS Transportation is not the contractor itself,
Regional Trial Court of Pasig City and the Regional Trial Court of Quezon City
since it is invoking Contact Tours’ status as a legitimate job contractor in order
3
in two cases between petitioner Reynoso and respondent General Credit
Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter,
"CCC"), a financing and investment firm, decided to organize franchise
companies in different parts of the country, wherein it shall hold thirty percent
(30%) equity. Employees of the CCC were designated as resident managers
of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated
as the resident manager of the franchise company in Quezon City, known as
the Commercial Credit Corporation of Quezon City (hereinafter, "CCC-QC").
CCC-QC entered into an exclusive management contract with CCC whereby
the latter was granted the management and full control of the business
activities of the former. Under the contract, CCC-QC shall sell, discount and/or
assign its receivables to CCC. Subsequently, however, this discounting
arrangement was discontinued pursuant to the so-called "DOSRI Rule",
prohibiting the lending of funds by corporations to its directors, officers,
stockholders and other persons with related interests therein.
On account of the new restrictions imposed by the Central Bank policy by
virtue of the DOSRI Rule, CCC decided to form CCC Equity Corporation,
(hereinafter, "CCC-Equity"), a wholly-owned subsidiary, to which CCC
transferred its thirty (30%) percent equity in CCC-QC, together with two seats
in the latter’s Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation,
including petitioner Reynoso, became employees of CCC-Equity. While
petitioner continued to be the Resident Manager of CCC-QC, he drew his
salaries and allowances from CCC-Equity. Furthermore, although an employee
of CCC-Equity, petitioner, as well as all employees of CCC-QC, became
qualified members of the Commercial Credit Corporation Employees Pension
Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-
QC and supervised its employees. The business activities of CCC-QC pertain
to the acceptance of funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned out to various
borrowers. Petitioner, in order to boost the business activities of CCC-QC,
deposited his personal funds in the company. In return, CCC-QC issued to him
its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary
attachment, docketed as Civil Case No. Q-30583, was instituted in the then
1 
Court of First Instance of Rizal by CCC-QC against petitioner, who had in the
meantime been dismissed from his employment by CCC-Equity. The complaint
was subsequently amended in order to include Hidelita Nuval, petitioner’s wife,
as a party defendant. The complaint alleged that petitioner embezzled the
2 
4
funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least
P630,000.00 was used for the purchase of a house and lot located at No. 12
Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to
CCC, and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of
CCC-QC and asserted that the sum of P1,300,593.11 represented his money
placements in CCC-QC, as shown by twenty-three (23) checks which he
issued to the said company. 3
The case was subsequently transferred to the Regional Trial Court of Quezon
City, Branch 86, pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion
of which states:
Premises considered, the Court finds the complaint without merit. Accordingly,
said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered
degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff
corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per
annum from October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of
14% per annum from June 24, 1981, the date of filing of Amended
Answer, until fully paid; from this amount may be deducted the
remaining obligation of defendant under the promissory note of
October 24, 1977, in the sum of P9,738.00 plus penalty at the rate of
1% per month from December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs
of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of
Commercial Credit Corporation of Quezon City was dismissed for failure to pay
docket fees. Petitioner, on the other hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was
issued on July 24, 1989. However,
4 
the judgment remained
unsatisfied, prompting petitioner to file a Motion for Alias Writ of Execution,
5 
Examination of Judgment Debtor, and to Bring Financial Records for
Examination to Court. CCC-QC filed an Opposition to petitioner’s
motion, alleging that the possession of its premises and records had been
6 
taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an
Order directing General Credit Corporation to file its comment on petitioner’s
motion for alias writ of execution. General Credit Corporation filed a Special
7 
Appearance and Opposition on December 2, 1991, alleging that it was not a
8 
party to the case, and therefore petitioner should direct his claim against CCC-
QC and not General Credit Corporation. Petitioner filed his reply, stating that
9 
the CCC-QC is an adjunct instrumentality, conduit and agency of CCC.
Furthermore, petitioner invoked the decision of the Securities and Exchange
Commission in SEC Case No. 2581, entitled, "Avelina G. Ramoso, et al.,
Petitioner versus General Credit Corp., et al., Respondents," where it was
declared that General Credit Corporation, CCC-Equity and other franchised
companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the
issuance of an alias writ of execution. On December 20, 1991, General Credit
10 
Corporation filed an Omnibus Motion, alleging that SEC Case No. 2581 was
11 
still pending appeal, and maintaining that the levy on properties of the General
Credit Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit
Corporation is just the new name of Commercial Credit Corporation; hence,
General Credit Corporation and Commercial Credit Corporation should be
treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the
Omnibus Motion. On March 5, 1992, it issued an Order directing the issuance
12 
of an alias writ of execution.
13
Previously, on February 21, 1992, General Credit Corporation instituted a
complaint before the Regional Trial Court of Pasig against Bibiano Reynoso IV
and Edgardo C. Tanangco, in his capacity as Deputy Sheriff of Quezon
City, docketed as Civil Case No. 61777, praying that the levy on its parcel of
14 
land located in Pasig, Metro Manila and covered by Transfer Certificate of Title
No. 29940 be declared null and void, and that defendant sheriff be enjoined
from consolidating ownership over the land and from further levying on other
properties of General Credit Corporation to answer for any liability under the
decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary
restraining order. Thus, General Credit Corporation instituted two (2) petitions
for certiorari with the Court of Appeals, docketed as CA-G.R. SP No.
27518 and CA-G.R. SP No. 27683. These cases were later consolidated.
15 
On July 7, 1994, the Court of Appeals rendered a decision in the two
consolidated cases, the dispositive portion of which reads:
5
WHEREFORE, in SP No. 27518 we declare the issue of the respondent
court's refusal to issue a restraining order as having been rendered moot by
our Resolution of 7 April 1992 which, by way of injunctive relief, provided that
"the respondents and their representatives are hereby enjoined from
conducting an auction sale (on execution) of petitioner's properties as well as
initiating similar acts of levying (upon) and selling on execution other properties
of said petitioner". The injunction thus granted, as modified by the words in
parenthesis, shall remain in force until Civil Case No. 61777 shall have been
finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY
and SET ASIDE, for having been issued in excess of jurisdiction, the Order of
13 February 1992 in Civil Case No. Q-30583 as well as any other order or
process through which the petitioner is made liable under the judgment in said
Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED. 16
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP
NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF
BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY
THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE
LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN CIVIL
CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP
NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT
CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF
LEVYING UPON AND SELLING ON EXECUTION OF OTHER
PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT GENERAL CREDIT CORPORATION IS A STRANGER TO
CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT
COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE
ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF
COMMERCIAL CREDIT CORPORATION AND ITS SUCCESSOR
GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over
petitioner’s claims against his former employer, CCC-QC, inasmuch as the
decision in Civil Case No. Q-30583 of the Regional Trial Court of Quezon City
has long become final and executory. The only issue, therefore, to be resolved
in the instant petition is whether or not the judgment in favor of petitioner may
be executed against respondent General Credit Corporation. The latter
contends that it is a corporation separate and distinct from CCC-QC and,
therefore, its properties may not be levied upon to satisfy the monetary
judgment in favor of petitioner. In short, respondent raises corporate fiction as
its defense. Hence, we are necessarily called upon to apply the doctrine of
piercing the veil of corporate entity in order to determine if General Credit
Corporation, formerly CCC, may be held liable for the obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right
of succession and the powers, attributes, and properties expressly authorized
by law or incident to its existence. It is an artificial being invested by law with a
17 
personality separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related. It was
18 
evolved to make possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the advantage of non-
dependence on the lives of those who compose it even as it enjoys certain
rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in
the business life of the country, the law has to look carefully into the exercise
of powers by these artificial persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the
Court will not hesitate to use its supervisory and adjudicative powers where the
corporate fiction is used as an unfair device to achieve an inequitable result,
defraud creditors, evade contracts and obligations, or to shield it from the
effects of a court decision. The corporate fiction has to be disregarded when
necessary in the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., we held:
19 
When the fiction is urged as a means of perpetrating a fraud or an illegal act or
as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of
corporate fiction in numerous cases where it was used, among others, to avoid
a judgment credit; to avoid inclusion of corporate assets as part of the estate
20 
of a decedent; to avoid liability arising from debt; when made use of as a
21  22 
shield to perpetrate fraud and/or confuse legitimate issues; or to promote
23 
unfair objectives or otherwise to shield them. 24
6
In the appealed judgment, the Court of Appeals sustained respondent’s
arguments of separateness and its character as a different corporation which
is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of
a subsidiary corporation are so controlled by the mother corporation to the
extent that it becomes an instrument or agent of its parent. But even when
there is dominance over the affairs of the subsidiary, the doctrine of piercing
the veil of corporate fiction applies only when such fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime. 25
We stated in Tomas Lao Construction v. National Labor Relations
Commission, that the legal fiction of a corporation being a judicial entity with a
26 
distinct and separate personality was envisaged for convenience and to serve
justice. Therefore, it should not be used as a subterfuge to commit injustice
and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit
Corporation was intended to publicly identify it as a component of the CCC
group of companies engaged in one and the same business, i.e., investment
and financing. Aside from CCC-Quezon City, other franchise companies were
organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually
resorted to for the aggrupation of capital, the ability to cover more territory and
population, the decentralization of activities best decentralized, and the
securing of other legitimate advantages. But when the mother corporation and
its subsidiary cease to act in good faith and honest business judgment, when
the corporate device is used by the parent to avoid its liability for legitimate
obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem.
When that happens, the corporate character is not necessarily abrogated. It
continues for legitimate objectives. However, it is pierced in order to remedy
injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of the business
operations of CCC-QC. The exclusive management contract insured that
CCC-QC would be managed and controlled by CCC and would not deviate
from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the
resident manager of CCC-QC.
Petitioner’s designation as "resident manager" implies that he was placed in
CCC-QC by a superior authority. In fact, even after his assignment to the
subsidiary corporation, petitioner continued to receive his salaries, allowances,
and benefits from CCC, which later became respondent General Credit
Corporation. Not only that. Petitioner and the other permanent employees of
CCC-QC were qualified members and participants of the Employees Pension
Plan of CCC.
There are other indications in the record which attest to the applicability of the
identity rule in this case, namely: the unity of interests, management, and
control; the transfer of funds to suit their individual corporate conveniences;
and the dominance of policy and practice by the mother corporation insure that
CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same
principal line of business involving a single transaction process. Under their
discounting arrangements, CCC financed the operations of CCC-QC. The
subsidiary sold, discounted, or assigned its accounts receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since
1971, shows the pervasive and intensive auditing function of CCC over CCC-
QC. The two corporations also shared the same office space. CCC-QC had
27 
no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even
verified by the director-representative of CCC. The lawyers who filed the
complaint and amended complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General
Credit Corporation, is not a formal party in the case. The reason for this is that
the complaint was filed by CCC-QC against petitioner. The choice of parties
was with CCC-QC. The judgment award in this case arose from the
counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite
revealing.  As narrated above, the discounting agreements through which CCC
1âwphi1
controlled the finances of its subordinates became unlawful when Central Bank
adopted the DOSRI prohibitions. Under this rule the directors, officers, and
stockholders are prohibited from borrowing from their company. Instead of
adhering to the letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the prohibited practice.
CCC organized still another corporation, the CCC-Equity Corporation.
However, as a wholly owned subsidiary, CCC-Equity was in fact only another
name for CCC. Key officials of CCC, including the resident managers of
subsidiary corporations, were appointed to positions in CCC-Equity.
In order to circumvent the Central Bank’s disapproval of CCC-QC’s mode of
reducing its DOSRI lender accounts and its directive to follow Central Bank
requirements, resident managers, including petitioner, were told to observe a
pseudo-compliance with the phasing out orders. For his unwillingness to
satisfactorily conform to these directives and his reluctance to resort to illegal
7
practices, petitioner earned the ire of his employers. Eventually, his services
were terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC
because of difficulties faced by the firm in implementing the required phase-out
program. Funds from his current account in the Far East Bank and Trust
Company were transferred to CCC-QC. These monies were alleged in the
criminal complaints against him as having been stolen. Complaints for qualified
theft and estafa were brought by CCC-QC against petitioner.  These criminal
1âwphi1
cases were later dismissed. Similarly, the civil complaint which was filed with
the Court of First Instance of Pasig and later transferred to the Regional Trial
Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother
firm closed CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of
opposing its closure, cooperated in its own demise. Conveniently, CCC-QC
stated in its opposition to the motion for alias writ of execution that all its
properties and assets had been transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General
Credit Corporation, the new name of CCC, that the corporate fiction should be
appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations, reiterated
28 
in Concept Builders Inc. v. National Labor Relations, it is very obvious that
29 
respondent "seeks the protective shield of a corporate fiction whose veil the
present case could, and should, be pierced as it was deliberately and
maliciously designed to evade its financial obligation of its employees."
If the corporate fiction is sustained, it becomes a handy deception to avoid a
judgment debt and work an injustice. The decision raised to us for review is an
invitation to multiplicity of litigation. As we stated in Islamic Directorate vs.
Court of Appeals, the ends of justice are not served if further litigation is
30 
encouraged when the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case
CCC as a mother corporation, is placed beyond the legal reach of the
judgment creditor who, after protracted litigation, has been found entitled to
positive relief. Courts have been organized to put an end to controversy. This
purpose should not be negated by an inapplicable and wrong use of the fiction
of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED
and ASIDE. The injunction against the holding of an auction sale for the
execution of the decision in Civil Case No. Q-30583 of properties of General
Credit Corporation, and the levying upon and selling on execution of other
properties of General Credit Corporation, is LIFTED.
SO ORDERED.

G.R. No. L-23145      November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D.
TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary
administrator, the County Trust Company of New York, United States of
America, of the estate of the deceased Idonah Slade Perkins, who died in New
York City on March 27, 1960, to surrender to the ancillary administrator in the
Philippines the stock certificates owned by her in a Philippine corporation,
Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors,
the lower court, then presided by the Honorable Arsenio Santos, now retired,
issued on May 18, 1964, an order of this tenor: "After considering the motion of
the ancillary administrator, dated February 11, 1964, as well as the opposition
filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost
for all purposes in connection with the administration and liquidation of the
Philippine estate of Idonah Slade Perkins the stock certificates covering the
33,002 shares of stock standing in her name in the books of the Benguet
Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said
corporation to issue new certificates in lieu thereof, the same to be delivered
by said corporation to either the incumbent ancillary administrator or to the
Probate Division of this Court." 1
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly
prosper. The challenged order represents a response and expresses a policy,
to paraphrase Frankfurter, arising out of a specific problem, addressed to the
attainment of specific ends by the use of specific remedies, with full and ample
support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet
Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New
York City, left among others, two stock certificates covering 33,002 shares of
appellant, the certificates being in the possession of the County Trust
Company of New York, which as noted, is the domiciliary administrator of the
estate of the deceased. 2 Then came this portion of the appellant's brief: "On
8
August 12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was
appointed ancillary administrator, and on January 22, 1963, he was substituted
by the appellee Renato D. Tayag. A dispute arose between the domiciary
administrator in New York and the ancillary administrator in the Philippines as
to which of them was entitled to the possession of the stock certificates in
question. On January 27, 1964, the Court of First Instance of Manila ordered
the domiciliary administrator, County Trust Company, to "produce and deposit"
them with the ancillary administrator or with the Clerk of Court. The domiciliary
administrator did not comply with the order, and on February 11, 1964, the
ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the
name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or]
considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it
is immaterial" as far as it is concerned as to "who is entitled to the possession
of the stock certificates in question; appellant opposed the petition of the
ancillary administrator because the said stock certificates are in existence,
they are today in the possession of the domiciliary administrator, the County
Trust Company, in New York, U.S.A...." 4
It is its view, therefore, that under the circumstances, the stock certificates
cannot be declared or considered as lost. Moreover, it would allege that there
was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The
challenged order constitutes an emphatic affirmation of judicial authority
sought to be emasculated by the wilful conduct of the domiciliary administrator
in refusing to accord obedience to a court decree. How, then, can this order be
stigmatized as illegal?
As is true of many problems confronting the judiciary, such a response was
called for by the realities of the situation. What cannot be ignored is that
conduct bordering on wilful defiance, if it had not actually reached it, cannot
without undue loss of judicial prestige, be condoned or tolerated. For the law is
not so lacking in flexibility and resourcefulness as to preclude such a solution,
the more so as deeper reflection would make clear its being buttressed by
indisputable principles and supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the
honor of the judiciary no less than that of the country. Through this challenged
order, there is thus dispelled the atmosphere of contingent frustration brought
about by the persistence of the domiciliary administrator to hold on to the stock
certificates after it had, as admitted, voluntarily submitted itself to the
jurisdiction of the lower court by entering its appearance through counsel on
June 27, 1963, and filing a petition for relief from a previous order of March 15,
1963.
Thus did the lower court, in the order now on appeal, impart vitality and
effectiveness to what was decreed. For without it, what it had been decided
would be set at naught and nullified. Unless such a blatant disregard by the
domiciliary administrator, with residence abroad, of what was previously
ordained by a court order could be thus remedied, it would have entailed,
insofar as this matter was concerned, not a partial but a well-nigh complete
paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the
appellee ancillary administrator to gain control and possession of all assets of
the decedent within the jurisdiction of the Philippines. Nor could it. Such a
power is inherent in his duty to settle her estate and satisfy the claims of local
creditors.5 As Justice Tuason speaking for this Court made clear, it is a
"general rule universally recognized" that administration, whether principal or
ancillary, certainly "extends to the assets of a decedent found within the state
or country where it was granted," the corollary being "that an administrator
appointed in one state or country has no power over property in another state
or country."6
It is to be noted that the scope of the power of the ancillary administrator was,
in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to
have more than one administration of an estate. When a person dies intestate
owning property in the country of his domicile as well as in a foreign country,
administration is had in both countries. That which is granted in the jurisdiction
of decedent's last domicile is termed the principal administration, while any
other administration is termed the ancillary administration. The reason for the
latter is because a grant of administration does not ex proprio vigore have any
effect beyond the limits of the country in which it is granted. Hence, an
administrator appointed in a foreign state has no authority in the [Philippines].
The ancillary administration is proper, whenever a person dies, leaving in a
country other than that of his last domicile, property to be administered in the
nature of assets of the deceased liable for his individual debts or to be
distributed among his heirs."7
It would follow then that the authority of the probate court to require that
ancillary administrator's right to "the stock certificates covering the 33,002
shares ... standing in her name in the books of [appellant] Benguet
Consolidated, Inc...." be respected is equally beyond question. For appellant is
a Philippine corporation owing full allegiance and subject to the unrestricted
jurisdiction of local courts. Its shares of stock cannot therefore be considered
in any wise as immune from lawful court orders.
9
Our holding in Wells Fargo Bank and Union v. Collector of Internal
Revenue8 finds application. "In the instant case, the actual situs of the shares
of stock is in the Philippines, the corporation being domiciled [here]." To the
force of the above undeniable proposition, not even appellant is insensible. It
does not dispute it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather
conclusive fashion for the legality of the challenged order, how does appellant,
Benguet Consolidated, Inc. propose to carry the extremely heavy burden of
persuasion of precisely demonstrating the contrary? It would assign as the
basic error allegedly committed by the lower court its "considering as lost the
stock certificates covering 33,002 shares of Benguet belonging to the
deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress
that the "lower court could not "consider as lost" the stock certificates in
question when, as a matter of fact, his Honor the trial Judge knew, and does
know, and it is admitted by the appellee, that the said stock certificates are in
existence and are today in the possession of the domiciliary administrator in
New York."10
There may be an element of fiction in the above view of the lower court. That
certainly does not suffice to call for the reversal of the appealed order. Since
there is a refusal, persistently adhered to by the domiciliary administrator in
New York, to deliver the shares of stocks of appellant corporation owned by
the decedent to the ancillary administrator in the Philippines, there was nothing
unreasonable or arbitrary in considering them as lost and requiring the
appellant to issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and his
responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being
made to depend on the uncontrolled discretion of the party or entity, in this
case domiciled abroad, which thus far has shown the utmost persistence in
refusing to yield obedience. Certainly, appellant would not be heard to contend
in all seriousness that a judicial decree could be treated as a mere scrap of
paper, the court issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court
did not correspond exactly with the facts. To be more blunt, the quality of truth
may be lacking in such a conclusion arrived at. It is to be remembered
however, again to borrow from Frankfurter, "that fictions which the law may
rely upon in the pursuit of legitimate ends have played an important part in its
development."11
Speaking of the common law in its earlier period, Cardozo could state fictions
"were devices to advance the ends of justice, [even if] clumsy and at times
offensive."12 Some of them have persisted even to the present, that eminent
jurist, noting "the quasi contract, the adopted child, the constructive trust, all of
flourishing vitality, to attest the empire of "as if" today." 13 He likewise noted "a
class of fictions of another order, the fiction which is a working tool of thought,
but which at times hides itself from view till reflection and analysis have
brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that
fictions as such played in the law. There should be then on the part of the
appellant a further refinement in the catholicity of its condemnation of such
judicial technique. If ever an occasion did call for the employment of a legal
fiction to put an end to the anomalous situation of a valid judicial order being
disregarded with apparent impunity, this is it. What is thus most obvious is that
this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above
contention by its invoking one of the provisions of its by-laws which would set
forth the procedure to be followed in case of a lost, stolen or destroyed stock
certificate; it would stress that in the event of a contest or the pendency of an
action regarding ownership of such certificate or certificates of stock allegedly
lost, stolen or destroyed, the issuance of a new certificate or certificates would
await the "final decision by [a] court regarding the ownership [thereof]." 15
Such reliance is misplaced. In the first place, there is no such occasion to
apply such by-law. It is admitted that the foreign domiciliary administrator did
not appeal from the order now in question. Moreover, there is likewise the
express admission of appellant that as far as it is concerned, "it is immaterial ...
who is entitled to the possession of the stock certificates ..." Even if such were
not the case, it would be a legal absurdity to impart to such a provision
conclusiveness and finality. Assuming that a contrariety exists between the
above by-law and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a
statute, to which, however, the judiciary must yield deference, when
appropriately invoked and deemed applicable. It would be most highly
unorthodox, however, if a corporate by-law would be accorded such a high
estate in the jural order that a court must not only take note of it but yield to its
alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled
unless the appealed order be set aside for its inconsistency with one of its by-
laws does not impress us. Its obedience to a lawful court order certainly
constitutes a valid defense, assuming that such apprehension of a possible
court action against it could possibly materialize. Thus far, nothing in the
circumstances as they have developed gives substance to such a fear.
Gossamer possibilities of a future prejudice to appellant do not suffice to nullify
the lawful exercise of judicial authority.
10
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is
fraught with implications at war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being
created by operation of law...." 16 It owes its life to the state, its birth being
purely dependent on its will. As Berle so aptly stated: "Classically, a
corporation was conceived as an artificial person, owing its existence through
creation by a sovereign power."17 As a matter of fact, the statutory language
employed owes much to Chief Justice Marshall, who in the Dartmouth College
decision defined a corporation precisely as "an artificial being, invisible,
intangible, and existing only in contemplation of law." 18
The well-known authority Fletcher could summarize the matter thus: "A
corporation is not in fact and in reality a person, but the law treats it as though
it were a person by process of fiction, or by regarding it as an artificial person
distinct and separate from its individual stockholders.... It owes its existence to
law. It is an artificial person created by law for certain specific purposes, the
extent of whose existence, powers and liberties is fixed by its charter." 19 Dean
Pound's terse summary, a juristic person, resulting from an association of
human beings granted legal personality by the state, puts the matter neatly. 20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of
which to quote from Friedmann, "is the reality of the group as a social and
legal entity, independent of state recognition and concession." 21 A corporation
as known to Philippine jurisprudence is a creature without any existence until it
has received the imprimatur of the state according to law. It is logically
inconceivable therefore that it will have rights and privileges of a higher priority
than that of its creator. More than that, it cannot legitimately refuse to yield
obedience to acts of its state organs, certainly not excluding the judiciary,
whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American
law still of persuasive authority in our jurisdiction, comes more often within the
ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from
judicial control in those instances, where a duty under the law as ascertained
in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard
is to confer upon it not autonomy which may be conceded but license which
cannot be tolerated. It is to argue that it may, when so minded, overrule the
state, the source of its very existence; it is to contend that what any of its
governmental organs may lawfully require could be ignored at will. So
extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown
that in a guardianship proceedings then pending in a lower court, the United
States Veterans Administration filed a motion for the refund of a certain sum of
money paid to the minor under guardianship, alleging that the lower court had
previously granted its petition to consider the deceased father as not entitled to
guerilla benefits according to a determination arrived at by its main office in the
United States. The motion was denied. In seeking a reconsideration of such
order, the Administrator relied on an American federal statute making his
decisions "final and conclusive on all questions of law or fact" precluding any
other American official to examine the matter anew, "except a judge or judges
of the United States court." 23 Reconsideration was denied, and the
Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We
are of the opinion that the appeal should be rejected. The provisions of the
U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans'
Administrator final and conclusive when made on claims property submitted to
him for resolution; but they are not applicable to the present case, where the
Administrator is not acting as a judge but as a litigant. There is a great
difference between actions against the Administrator (which must be filed
strictly in accordance with the conditions that are imposed by the Veterans'
Act, including the exclusive review by United States courts), and those actions
where the Veterans' Administrator seeks a remedy from our courts and
submits to their jurisdiction by filing actions therein. Our attention has not been
called to any law or treaty that would make the findings of the Veterans'
Administrator, in actions where he is a party, conclusive on our courts. That, in
effect, would deprive our tribunals of judicial discretion and render them mere
subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept
as final and conclusive, determinations made by foreign governmental
agencies. It is infinitely worse if through the absence of any coercive power by
our courts over juridical persons within our jurisdiction, the force and effectivity
of their orders could be made to depend on the whim or caprice of alien
entities. It is difficult to imagine of a situation more offensive to the dignity of
the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which
appellant Benguet Consolidated seems to be firmly committed as shown by its
failure to accept the validity of the order complained of; it seeks its reversal.
Certainly we must at all pains see to it that it does not succeed. The deplorable
consequences attendant on appellant prevailing attest to the necessity of
negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot
succeed. It is always easy to conjure extreme and even oppressive
possibilities. That is not decisive. It does not settle the issue. What carries
11
weight and conviction is the result arrived at, the just solution obtained,
grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the
appealed order, the imperative requirement of justice according to law is
satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the
Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With
costs against oppositor-appelant Benguet Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in
the result.
G.R. No. 155650             July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy
Aquino International Airport (NAIA) Complex in Parañaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter"). Executive Order No.
903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA
Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land, 3 including the
runways and buildings ("Airport Lands and Buildings") then under the Bureau
of Air Transportation.4 The MIAA Charter further provides that no portion of the
land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines. 5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC)
issued Opinion No. 061. The OGCC opined that the Local Government Code
of 1991 withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City
of Parañaque to pay the real estate tax imposed by the City. MIAA then paid Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No.
some of the real estate tax already due. 66878.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax On 5 October 2001, the Court of Appeals dismissed the petition because MIAA
Delinquency from the City of Parañaque for the taxable years 1992 to 2001. filed it beyond the 60-day reglementary period. The Court of Appeals also
MIAA's real estate tax delinquency is broken down as follows: denied on 27 September 2002 MIAA's motion for reconsideration and
TAX supplemental motion for reconsideration. Hence, MIAA filed on 5 December
TAXABLE YEAR TAX DUE PENALTY TOTAL2002 the present petition for review.7
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 Meanwhile, in January 2003, the City of Parañaque posted notices of auction
30,789,243.20
sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo,
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
Parañaque City; in the public market of Barangay La Huerta; and in the main
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
lobby of the Parañaque City Hall. The City of Parañaque published the notices
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a
93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 newspaper of general circulation in the Philippines. The notices announced the
29,199,803.24
public auction sale of the Airport Lands and Buildings to the highest bidder on
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
Parañaque City.
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA
12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 filed before this Court an Urgent Ex-Parte and Reiteratory Motion for the
9,344,974.50
Issuance of a Temporary Restraining Order. The motion sought to restrain
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
respondents — the City of Parañaque, City Mayor of Parañaque, Sangguniang
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City
GRAND TOTAL P392,435,861.95 P232,070,863.47 P Assessor of Parañaque ("respondents") — from auctioning the Airport Lands
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for and Buildings.
P4,207,028.75 On 7 February 2003, this Court issued a temporary restraining order (TRO)
#9476101 for P28,676,480.00 effective immediately. The Court ordered respondents to cease and desist
#9476103 for P49,115.006 from selling at public auction the Airport Lands and Buildings. Respondents
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued received the TRO on the same day that the Court issued it. However,
notices of levy and warrants of levy on the Airport Lands and Buildings. The respondents received the TRO only at 1:25 p.m. or three hours after the
Mayor of the City of Parañaque threatened to sell at public auction the Airport conclusion of the public auction.
Lands and Buildings should MIAA fail to pay the real estate tax delinquency. On 10 February 2003, this Court issued a Resolution confirming nunc pro
MIAA thus sought a clarification of OGCC Opinion No. 061. tunc the TRO.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC On 29 March 2005, the Court heard the parties in oral arguments. In
Opinion No. 061. The OGCC pointed out that Section 206 of the Local compliance with the directive issued during the hearing, MIAA, respondent City
Government Code requires persons exempt from real estate tax to show proof of Parañaque, and the Solicitor General subsequently submitted their
of exemption. The OGCC opined that Section 21 of the MIAA Charter is the respective Memoranda.
proof that MIAA is exempt from real estate tax. MIAA admits that the MIAA Charter has placed the title to the Airport Lands
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for and Buildings in the name of MIAA. However, MIAA points out that it cannot
prohibition and injunction, with prayer for preliminary injunction or temporary claim ownership over these properties since the real owner of the Airport
restraining order. The petition sought to restrain the City of Parañaque from Lands and Buildings is the Republic of the Philippines. The MIAA Charter
imposing real estate tax on, levying against, and auctioning for public sale the mandates MIAA to devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted to public use
12
and public service, the ownership of these properties remains with the State.
The Airport Lands and Buildings are thus inalienable and are not subject to
real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts
MIAA from the payment of real estate tax. MIAA insists that it is also exempt
from real estate tax under Section 234 of the Local Government Code because
the Airport Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government cannot tax itself.
MIAA points out that the reason for tax exemption of public property is that its
taxation would not inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code,
which expressly withdrew the tax exemption privileges of "government-
owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act excludes
all others. An international airport is not among the exceptions mentioned in
Section 193 of the Local Government Code. Thus, respondents assert that
MIAA cannot claim that the Airport Lands and Buildings are exempt from real
estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport
v. Marcos8 where we held that the Local Government Code has withdrawn the
exemption from real estate tax granted to international airports. Respondents
further argue that since MIAA has already paid some of the real estate tax
assessments, it is now estopped from claiming that the Airport Lands and
Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws. If so
exempt, then the real estate tax assessments issued by the City of Parañaque,
and all proceedings taken pursuant to such assessments, are void. In such
event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate
tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
13
Respondents argue that MIAA, being a government-owned or controlled
corporation, is not exempt from real estate tax. Respondents claim that the
deletion of the phrase "any government-owned or controlled so exempt by its
charter" in Section 234(e) of the Local Government Code withdrew the real
estate tax exemption of government-owned or controlled corporations. The
deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not
exempt from real estate tax. However, MIAA is not a government-owned or
controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or controlled
corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of
stock corporations, to the extent of at least fifty-one (51) percent of its
capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock
or non-stock corporation." MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. Section 10
of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed
by the National Government shall be increased from Two and One-half
Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,] which
may be contributed by the National Government or transferred by it
from any of its agencies, the valuation of which shall be determined
jointly with the Department of Budget and Management and the
Commission on Audit on the date of such contribution or transfer after
making due allowances for depreciation and other deductions taking
into account the loans and other liabilities of the Authority at the time of
the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted share
of the National Government from 1983 to 1986 to be remitted to the
 National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government contribution
to the capital of the Authority shall be provided in the General
Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into
shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to
the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as "one where no
part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that
the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury.11 This prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
14
operational autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and charges.14 At the same
time, MIAA exercises "all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order."15
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a "separate and
autonomous body"16 will make its operation more "financially viable." 17
Many government instrumentalities are vested with corporate powers but they
do not become stock or non-stock corporations, which is a necessary condition
before an agency or instrumentality is deemed a government-owned or
controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities and local
government units.(Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may
only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments.
The rule is that a tax is never presumed and there must be clear language in
the law imposing the tax. Any doubt whether a person, article or activity is
taxable is resolved against taxation. This rule applies with greater force when
local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer
claiming the exemption. However, when Congress grants an exemption to a
national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this
Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-
liability of such agencies.19
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended
to tax government instrumentalities for the delivery of essential public
services for sound and compelling policy considerations. There must be
express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is
resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
15
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities,
or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool for
regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to
destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat
an instrumentality or creation of the very entity which has the inherent
power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil
Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
 ARTICLE 422. Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial
property of the State.
No one can dispute that properties of public dominion mentioned in Article 420
of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under Article 420 of the Civil
Code, the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they
are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government of
a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public indirectly
through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the
property whether it is of public dominion or not. Article 420 of the Civil Code
defines property of public dominion as one "intended for public use." Even if
the government collects toll fees, the road is still "intended for public use" if
anyone can use the road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind of vehicles that can
use the road, the speed restrictions and other conditions for the use of the
road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user's tax.
This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular
public facility. A user's tax is more equitable — a principle of taxation
mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal
airport of the Philippines for both international and domestic air traffic," 22 are
properties of public dominion because they are intended for public use. As
16
properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus
are properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are outside the commerce of man. The Court
has ruled repeatedly that properties of public dominion are outside the
commerce of man. As early as 1915, this Court already ruled in Municipality
of Cavite v. Rojas that properties devoted to public use are outside the
commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and
public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude from
public use a portion thereof in order to lease it for the sole benefit of
the defendant Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered
so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895, which
says: "Communal things that cannot be sold because they are by
their very nature outside of commerce are those for public use,
such as the plazas, streets, common lands, rivers, fountains, etc."
(Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of
public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They
are outside the commerce of man and cannot be disposed of or
even leased by the municipality to private parties. While in case of war
or during an emergency, town plazas may be occupied temporarily by
private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said
temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the
 public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale. 25
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance,
levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties
of public dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and compel the
auction sale of the 600-hectare runway of the MIAA for non-payment of real
estate tax.
Before MIAA can encumber 26 the Airport Lands and Buildings, the President
must first withdraw from public use the Airport Lands and Buildings.
Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141,
which "remains to this day the existing general law governing the classification
and disposition of lands of the public domain other than timber and mineral
lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations for
highways, rights of way for railroads, hydraulic power sites, irrigation
systems, communal pastures or lequas communales, public parks,
public quarries, public fishponds, working men's village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the
provisions of Section eighty-three shall be non-alienable and shall
not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of
this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport
Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they are
not subject to levy on execution or foreclosure sale. As long as the Airport
17
Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public
use, and to withdraw such public use, is reiterated in Section 14, Chapter 4,
Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of
the Government. — (1) The President shall have the power to
reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which
is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are
withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever
real property of the Government is authorized by law to be conveyed,
the deed of conveyance shall be executed in behalf of the government
by the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but
titled in the name of any political subdivision or of any corporate
agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings
is clearer because even its executive head cannot sign the deed of
conveyance on behalf of the Republic. Only the President of the Republic can
sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport
Lands and Buildings from the Bureau of Air Transportation of the Department
of Transportation and Communications. The MIAA Charter provides:
 SECTION 3. Creation of the Manila International Airport Authority. — x
xxx
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any.
The Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year from
the promulgation of this Executive Order and the corresponding title to
be issued in the name of the Authority. Any portion thereof shall not
be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. —
All existing public airport facilities, runways, lands, buildings and
other property, movable or immovable, belonging to the Airport, and
all assets, powers, rights, interests and privileges belonging to the
Bureau of Air Transportation relating to airport works or air
operations, including all equipment which are necessary for the
operation of crash fire and rescue facilities, are hereby transferred to
the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division
in the Bureau of Air Transportation and Transitory Provisions. — The
Manila International Airport including the Manila Domestic Airport as a
division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without
the Republic receiving cash, promissory notes or even stock since MIAA is not
a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer
of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of
the Philippines for both international and domestic air traffic, is required
to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air traffic
and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated
that the objectives of providing high standards of accommodation
18
and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial ownership of
these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air Transportation into a
separate and autonomous body. The Republic remains the beneficial owner
of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic.
No party claims any ownership rights over MIAA's assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings
"shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines." This only
means that the Republic retained the beneficial ownership of the Airport Lands
and Buildings because under Article 428 of the Civil Code, only the "owner has
the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport
Lands and Buildings without the Republic paying MIAA any consideration.
Under Section 3 of the MIAA Charter, the President is the only one who can
authorize the sale or disposition of the Airport Lands and Buildings. This only
confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax
any "[r]eal property owned by the Republic of the Philippines." Section 234(a)
provides:
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing "[t]axes, fees or
charges of any kind on the National Government, its agencies
and instrumentalities x x x." The real properties owned by the Republic are
titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real
property is transferred to an agency or instrumentality even as the Republic
remains the owner of the real property. Such arrangement does not result in
the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if
the "beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person." MIAA, as a government instrumentality, is not a taxable
person under Section 133(o) of the Local Government Code. Thus, even if we
assume that the Republic has granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make these real properties subject to
real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v. Quezon City,
the Court ruled:
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because
Section 193 of the Local Government Code of 1991 withdrew the tax
exemption of "all persons, whether natural or juridical" upon the effectivity
of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A.
19
No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code.
(Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority
argues that since the Local Government Code withdrew the tax exemption
of all juridical persons, then MIAA is not exempt from real estate tax. Thus,
the minority declares:
It is evident from the quoted provisions of the Local Government
Code that the withdrawn exemptions from realty tax cover not just
GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption applies
to all persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons.
Obviously, MIAA is not a natural person. Thus, the determinative
test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is exempt from
local taxation is its status — whether MIAA is a juridical person or not. The
minority also insists that "Sections 193 and 234 may be examined in isolation
from Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local
Government Code expressly withdrew the tax exemption of all juridical
persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of
the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on
national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government,
its agencies and instrumentalities, and local government units.
(Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government instrumentalities like the
MIAA. Local governments are devoid of power to tax the national government,
its agencies and instrumentalities. The taxing powers of local governments do
not extend to the national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the saving clause of
Section 133. The saving clause refers to Section 234(a) on the exception to
the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all
juridical persons are subject to tax by local governments. The minority insists
that the juridical persons exempt from local taxation are limited to the three
classes of entities specifically enumerated as exempt in Section 193. Thus, the
minority states:
x x x Under Section 193, the exemption is limited to (a) local water
districts; (b) cooperatives duly registered under Republic Act No. 6938;
and (c) non-stock and non-profit hospitals and educational institutions.
It would be belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis supplied)
The minority's theory directly contradicts and completely negates Section
133(o) of the Local Government Code. This theory will result in gross
absurdities. It will make the national government, which itself is a juridical
person, subject to tax by local governments since the national government is
not included in the enumeration of exempt entities in Section 193. Under this
theory, local governments can impose any kind of local tax, and not only real
estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with
juridical personalities will also be subject to any kind of local tax, and not only
real estate tax. Some of the national government instrumentalities vested by
law with juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine
Rice Research Institute,31 Laguna Lake
Development Authority,32 Fisheries Development Authority, 33 Bases Conversion
Development Authority,34 Philippine Ports Authority,35 Cagayan de Oro Port
Authority,36 San Fernando Port Authority, 37 Cebu Port Authority,38 and
Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government Code
which expressly prohibits local governments from imposing any kind of tax on
national government instrumentalities. Section 133(o) does not distinguish
between national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test
whether MIAA is exempt from local taxation is not whether MIAA is a juridical
person, but whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the specific provision
of law prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
20
Section 133 of the Local Government Code starts with the saving clause
"[u]nless otherwise provided in this Code." This means that unless the Local
Government Code grants an express authorization, local governments have no
power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule,
local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject to
real estate tax when it gives the beneficial use of its real properties to a taxable
entity. Section 234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real
estate tax. The exception to this exemption is when the government gives the
beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the
national government, its agencies and instrumentalities are subject to any kind
of tax by local governments. The exception to the exemption applies only to
real estate tax and not to any other tax. The justification for the exception to
the exemption is that the real property, although owned by the Republic, is not
devoted to public use or public service but devoted to the private gain of a
taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234
of the Local Government Code, the later provisions prevail over Section 133.
Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and
234. Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the Local
Government Code being qualified by Sections 193 and 234 of the
same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between Section
133 on one hand, and Sections 193 and 234 on the other. No one has urged
that there is such a conflict, much less has any one presenteda persuasive
argument that there is such a conflict. The minority's assumption of an
irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because
Section 193 expressly admits its subordination to other provisions of the Code
when Section 193 states "[u]nless otherwise provided in this Code." By its own
words, Section 193 admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in Section 193.
When a provision of law grants a power but withholds such power on certain
matters, there is no conflict between the grant of power and the withholding of
power. The grantee of the power simply cannot exercise the power on matters
withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing Powers of
Local Government Units." Section 133 limits the grant to local governments of
the power to tax, and not merely the exercise of a delegated power to tax.
Section 133 states that the taxing powers of local governments "shall not
extend to the levy" of any kind of tax on the national government, its agencies
and instrumentalities. There is no clearer limitation on the taxing power than
this.
Since Section 133 prescribes the "common limitations" on the taxing powers of
local governments, Section 133 logically prevails over Section 193 which
grants local governments such taxing powers. By their very meaning and
purpose, the "common limitations" on the taxing power prevail over the grant
or exercise of the taxing power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in Section 133,
then local governments can impose any kind of tax on the national
government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies
and instrumentalities, except as otherwise provided in the Local Government
Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise
provided in this Code." This exception — which is an exception to the
exemption of the Republic from real estate tax imposed by local governments
— refers to Section 234(a) of the Code. The exception to the exemption in
Section 234(a) subjects real property owned by the Republic, whether titled in
the name of the national government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the
phrase "government-owned or controlled corporation" is not controlling. The
minority points out that Section 2 of the Introductory Provisions of the
Administrative Code admits that its definitions are not controlling when it
provides:
21
SEC. 2. General Terms Defined. — Unless the specific words of the
text, or the context as a whole, or a particular statute, shall require a
different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition
is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a different meaning
than that defined in the Administrative Code. However, this does not
automatically mean that the definition in the Administrative Code does not
apply to the Local Government Code. Section 2 of the Administrative Code
clearly states that "unless the specific words x x x of a particular statute shall
require a different meaning," the definition in Section 2 of the Administrative
Code shall apply. Thus, unless there is specific language in the Local
Government Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative Code, the
definition in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code
defining the phrase "government-owned or controlled corporation" differently
from the definition in the Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase "government-owned
or controlled corporation." The Administrative Code, however, expressly
defines the phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of the phrase
"government-owned or controlled corporation" applies to the Local
Government Code.
The third whereas clause of the Administrative Code states that the Code
"incorporates in a unified document the major structural, functional and
procedural principles and rules of governance." Thus, the Administrative Code
is the governing law defining the status and relationship of government
departments, bureaus, offices, agencies and instrumentalities. Unless a statute
expressly provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or controlled
corporation" should apply only to corporations organized under the Corporation
Code, the general incorporation law, and not to corporations created by special
charters. The minority sees no reason why government corporations with
special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which
 are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs without
original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring
a capital structure for GOCCs whose full ownership is limited by its
charter to the State or Republic. Such GOCCs are not empowered to
declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the
Constitution and existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or
controlled corporation" does not distinguish between one incorporated under
the Corporation Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-
owned corporations organized as stock corporations. Prime examples are the
Land Bank of the Philippines and the Development Bank of the Philippines.
The special charter40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall
be nine billion pesos, divided into seven hundred and eighty million
common shares with a par value of ten pesos each, which shall be fully
subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be
issued in accordance with the provisions of Sections seventy-seven
and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines
provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock
of the Bank shall be Five Billion Pesos to be divided into Fifty Million
common shares with par value of P100 per share. These shares are
available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to
Twenty-Five Million common shares of stock worth Two Billion Five
Hundred Million which shall be deemed paid for by the Government
with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis
supplied)
Other government-owned corporations organized as stock corporations under
their special charters are the Philippine Crop Insurance
Corporation,42 Philippine International Trading Corporation, 43 and the Philippine
22
National Bank44 before it was reorganized as a stock corporation under the
Corporation Code. All these government-owned corporations organized under
special charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-owned or
controlled corporations because they are not registered with the Securities and
Exchange Commission would remove them from the reach of Section 234 of
the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through
special charters are those that meet the two conditions prescribed in Section
16, Article XII of the Constitution. The first condition is that the government-
owned or controlled corporation must be established for the common good.
The second condition is that the government-owned or controlled corporation
must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for
the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and
subject to the test of economic viability. (Emphasis and underscoring
supplied)
The Constitution expressly authorizes the legislature to create "government-
owned or controlled corporations" through special charters only if these entities
are required to meet the twin conditions of common good and economic
viability. In other words, Congress has no power to create government-owned
or controlled corporations with special charters unless they are made to
comply with the two conditions of common good and economic viability. The
test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to
compete in the market place. Being essentially economic vehicles of the State
for the common good — meaning for economic development purposes —
these government-owned or controlled corporations with special charters are
usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public services for
the common good, services that every modern State must provide its citizens.
These instrumentalities need not be economically viable since the government
may even subsidize their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section 16,
Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing
essential governmental or public functions. Congress has plenary authority to
create government instrumentalities vested with corporate powers provided
these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters
corporations that perform economic or commercial activities, such entities —
known as "government-owned or controlled corporations" — must meet the
test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the Development
Bank of the Philippines and similar government-owned or controlled
corporations, which derive their income to meet operating expenses solely
from commercial transactions in competition with the private sector. The intent
of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,
explained to the Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which
this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a
budget of P115 billion for the entire government, about P28 billion of
this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's consideration
and I am glad that I am joined in this proposal by Commissioner Foz,
the insertion of the standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.45
23
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the Republic of
the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in the
interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show capacity
to function efficiently in business and that they should not go into
activities which the private sector can do better. Moreover, economic
viability is more than financial viability but also includes capability to
make profit and generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities
vested with corporate powers and performing essential public services. The
State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the
test of economic viability. These are the government-owned or controlled
corporations that are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the Development Bank
of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of
"government-owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature
did not create MIAA to compete in the market place. MIAA does not compete
in the market place because there is no competing international airport
operated by the private sector. MIAA performs an essential public service as
the primary domestic and international airport of the Philippines. The operation
of an international airport requires the presence of personnel from the following
government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival
and departure of passengers, screening out those without visas or
travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban
on prohibited importations;
 3. The quarantine office of the Department of Health, to enforce health
measures against the spread of infectious diseases into the country;
4. The Department of Agriculture, to enforce measures against the
spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as to
secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and
buildings — for the government personnel, passengers, and airlines,
and to manage the airport operations.
All these agencies of government perform government functions essential to
the operation of an international airport.
MIAA performs an essential public service that every modern State must
provide its citizens. MIAA derives its revenues principally from the mandatory
fees and charges MIAA imposes on passengers and airlines. The terminal fees
that MIAA charges every passenger are regulatory or administrative fees 47 and
not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section
2(10) of the Introductory Provisions of the Administrative Code, which
provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make
MIAA a government-owned or controlled corporation. Without a change in its
capital structure, MIAA remains a government instrumentality under Section
2(10) of the Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it need not
comply with the test of economic viability. Thus, MIAA is outside the scope of
the phrase "government-owned or controlled corporations" under Section 16,
Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase
"government-owned or controlled corporation" as merely "clarificatory or
illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions
for the creation of "government-owned or controlled corporations." The
24
Administrative Code defines what constitutes a "government-owned or
controlled corporation." To belittle this phrase as "clarificatory or illustrative" is
grave error.
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article
XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate
powers and performing essential public services pursuant to Section 2(10) of
the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments
under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only
if the beneficial use of real property owned by the Republic is given to a
taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil Code
provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and seaports.
The Airport Lands and Buildings of MIAA are intended for public use, and at
the very least intended for public service. Whether intended for public use or
public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a government-
owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable
person because it is not subject to "[t]axes, fees or charges of any kind" by
local governments. The only exception is when MIAA leases its real property to
a "taxable person" as provided in Section 234(a) of the Local Government
Code, in which case the specific real property leased becomes subject to real
estate tax. Thus, only portions of the Airport Lands and Buildings leased to
taxable persons like private parties are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus owned
by the State or the Republic of the Philippines. Article 420 specifically
mentions "ports x x x constructed by the State," which includes public airports
and seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This
Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed
Resolutions of the Court of Appeals of 5 October 2001 and 27 September
2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Parañaque. We declare VOID all the real
estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the portions
that the Manila International Airport Authority has leased to private parties. We
also declare VOID the assailed auction sale, and all its effects, of the Airport
Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
G.R. No. 148076               January 12, 2011
ANTONIO M. CARANDANG, Petitioner,
vs.
HONORABLE ANIANO A. DESIERTO, OFFICE OF THE
OMBUDSMAN, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 153161
25
ANTONIO M. CARANDANG, Petitioner,
vs.
SANDIGANBAYAN (FIFTH DIVISION), Respondent.
DECISION
BERSAMIN, J.:
Petitioner Antonio M. Carandang (Carandang) challenges the jurisdiction over
him of the Ombudsman and of the Sandiganbayan on the ground that he was
being held to account for acts committed while he was serving as general
manager and chief operating officer of Radio Philippines Network, Inc. (RPN),
which was not a government-owned or -controlled corporation; hence, he was
not a public official or employee.
In G.R. No. 148076, Carandang seeks the reversal of the decision 1 and
resolution2 promulgated by the Court of Appeals (CA) affirming the decision 3 of
the Ombudsman dismissing him from the service for grave misconduct.
In G.R. No. 153161, Carandang assails on certiorari the resolutions dated
October 17, 20014 and March 14, 20025 of the Sandiganbayan (Fifth Division)
that sustained the Sandiganbayan’s jurisdiction over the criminal complaint
charging him with violation of Republic Act No. 3019 (Anti-Graft and Corrupt
Practices Act).
Antecedents
Roberto S. Benedicto (Benedicto) was a stockholder of RPN, a private
corporation duly registered with the Securities and Exchange Commission
(SEC).6 In March 1986, the Government ordered the sequestration of RPN’s
properties, assets, and business. On November 3, 1990, the Presidential
Commission on Good Government (PCGG) entered into a compromise
agreement with Benedicto, whereby he ceded to the Government, through the
PCGG, all his shares of stock in RPN. Consequently, upon motion of the
PCGG, the Sandiganbayan (Second Division) directed the president and
corporate secretary of RPN to transfer to the PCGG Benedicto’s shares
representing 72.4% of the total issued and outstanding capital stock of RPN.
However, Benedicto moved for a reconsideration, contending that his RPN
shares ceded to the Government, through the PCGG, represented only 32.4%
of RPN’s outstanding capital stock, not 72.4%. Benedicto’s motion for
reconsideration has remained unresolved to this date. 7
Administrative Complaint for Grave Misconduct
On July 28, 1998, Carandang assumed office as general manager and chief
operating officer of RPN.8
On April 19, 1999, Carandang and other RPN officials were charged with
grave misconduct before the Ombudsman. The charge alleged that
Carandang, in his capacity as the general manager of RPN, had entered into a
contract with AF Broadcasting Incorporated despite his being an incorporator,
director, and stockholder of that corporation; that he had thus held financial
and material interest in a contract that had required the approval of his office;
and that the transaction was prohibited under Section 7 (a) and Section 9 of
Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public
Officials and Employees), thereby rendering him administratively liable for
grave misconduct.
Carandang sought the dismissal of the administrative charge on the ground
that the Ombudsman had no jurisdiction over him because RPN was not a
government-owned or -controlled corporation.9
On May 7, 1999, the Ombudsman suspended Carandang from his positions in
RPN.
On September 8, 1999, Carandang manifested that he was no longer
interested and had no further claim to his positions in RPN. He was
subsequently replaced by Edgar San Luis.10
In its decision dated January 26, 2000, 11 the Ombudsman found Carandang
guilty of grave misconduct and ordered his dismissal from the service.
Carandang moved for reconsideration on two grounds: (a) that the
Ombudsman had no jurisdiction over him because RPN was not a
government-owned or -controlled corporation; and (b) that he had no financial
and material interest in the contract that required the approval of his office. 12
The Ombudsman denied Carandang’s motion for reconsideration on March 15,
2000.13
On appeal (CA G.R. SP No. 58204), 14 the CA affirmed the decision of the
Ombudsman on February 12, 2001, stating:
The threshold question to be resolved in the present case is whether or not the
Office of the Ombudsman has jurisdiction over the herein petitioner.
It is therefore of paramount importance to consider the definitions of the
following basic terms, to wit: A public office "is the right, authority and duty,
created and conferred by law, by which for a given period, either fixed by law
or enduring at the pleasure of the creating power, an individual is invested with
some portion of the sovereign functions of the state to be exercised by him for
the benefit of the public." (San Andres, Catanduanes vs. Court of Appeals, 284
SCRA 276: Chapter I, Section 1, Mechem, A Treatise on Law of Public Offices
and Officers). The individual so invested is called the public officer which
"includes elective and appointive officials and employees, permanent or
temporary, whether in the classified or unclassified or exemption service
receiving compensation, even nominal, from the government as defined in xxx
[Sec. 2 (a) of Republic Act No. 3019 as amended]." (Sec. 2 (b) of Republic Act
No. 3019 as amended. Unless the powers conferred are of this nature, the
individual is not a public officer.
26
With these time-honored definitions and the substantial findings of the
Ombudsman, We are constrained to conclude that, indeed, the herein
petitioner (Antonio M. Carandang) is a public officer. Precisely, since he
(Antonio M. Carandang) was appointed by then President Joseph Ejercito
Estrada as general manager and chief operating officer of RPN-9 (page 127 of
the Rollo). As a presidential appointee, the petitioner derives his authority from
the Philippine Government. It is luce clarius that the function of the herein
petitioner (as a presidential appointee), relates to public duty, i.e., to represent
the interest of the Philippine Government in RPN-9 and not purely personal
matter, thus, the matter transcends the petitioner’s personal pique or pride.
xxx
Having declared earlier that the herein petitioner is a public officer, it follows
therefore that, that jurisdiction over him is lodged in the Office of the
Ombudsman.
It is worth remembering that as protector of the people, the Ombudsman has
the power, function and duty to act promptly on complaints filed in any form or
manner against officers or employees of the Government, or of any,
subdivision, agency or instrumentality thereof, including government-owned or
controlled corporations, and enforce their administrative, civil and criminal
liability in every case where the evidence warrants in order to promote efficient
service by the Government to the people. (Section 13 of Republic Act No.
6770).
xxx
Accordingly, the Office of the Ombudsman is, therefore, clothed with the
proper armor when it assumed jurisdiction over the case filed against the
herein petitioner. x x x
xxx
It appears that RPN-9 is a private corporation established to install, operate
and manage radio broadcasting and/or television stations in the Philippines
(pages 59-79 of the Rollo). On March 2, 1986, when RPN-9 was sequestered
by the Government on ground that the same was considered as an illegally
obtained property (page 3 of the Petition for Review; page 2 of the
Respondent’s Comment; pages 10 and 302 of the Rollo), RPN-9 has shed-off
its private status. In other words, there can be no gainsaying that as of the
date of its sequestration by the Government, RPN-9, while retaining its own
corporate existence, became a government-owned or controlled corporation
within the Constitutional precept.
Be it noted that a government-owned or controlled corporation "refers to any
agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether government or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly,
or, where applicable as in the case of stock corporations, to the extent of at
least fifty-one (51) percent of its capital stock; Provided, That government-
owned or controlled corporations may be further categorized by the
department of Budget, the Civil Service, and the Commission on Audit for
purposes of the exercise and discharge of their respective powers, functions
and responsibilities with respect to such corporations." (Section 2 [13],
Executive Order No. 292).
Contrary to the claim of the petitioner, this Court is of the view and so holds
that RPN-9 perfectly falls under the foregoing definition. For one, "the
government’s interest to RPN-9 amounts to 72.4% of RPN’s capital stock with
an uncontested portion of 32.4% and a contested or litigated portion of 40%."
(page 3 of the Petition for Review; pages 8-9 of the Respondent’s Comment).
On this score, it ought to be pointed out that while the forty percent (40%) of
the seventy two point four percent (72.4%) is still contested and litigated, until
the matter becomes formally settled, the government, for all interests and
purposes still has the right over said portion, for the law is on its side. Hence,
We can safely say that for the moment, RPN-9 is a government owned and
controlled corporation. Another thing, RPN 9, though predominantly tackles
proprietary functions—those intended for private advantage and benefit, still, it
is irrefutable that RPN-9 also performs governmental roles in the interest of
health, safety and for the advancement of public good and welfare, affecting
the public in general.
xxx
Coming now to the last assignment of error- While it may be considered in
substance that the "latest GIS clearly shows that petitioner was no longer a
stockholder of record of AF Broadcasting Corporation at the time of his
assumption of Office in RPN 9 x x x" (Petitioner’s Reply [to Comment]; page
317 of the Rollo), still severing ties from AF Broadcasting Corporation does not
convince this Court fully well to reverse the finding of the Ombudsman that
Antonio Carandang "appears to be liable for Grave Misconduct" (page 10 of
the Assailed Decision; page 36 of the Rollo). Note that, as a former
stockholder of AF Broadcasting Corporation, it is improbable that the herein
petitioner was completely oblivious of the developments therein and unaware
of the contracts it (AF Broadcasting Corporation) entered into. By reason of his
past (Antonio Carandang) association with the officers of the AF Broadcasting
Corporation, it is unbelievable that herein petitioner could simply have ignored
the contract entered into between RPN-9 and AF Broadcasting Corporation
and not at all felt to reap the benefits thereof. Technically, it is true that herein
petitioner did not directly act on behalf of AF Broadcasting Corporation,
however, We doubt that he (herein petitioner) had no financial and/or material
27
interest in that particular transaction requiring the approval of his office—a fact
that could not have eluded Our attention.
xxx
WHEREFORE, premises considered and pursuant to applicable laws and
jurisprudence on the matter, the present Petition for Review is hereby DENIED
for lack of merit. The assailed decision (dated January 26, 2000) of the Office
of the Ombudsman in OMB-ADM-0-99-0349 is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.15
After the denial of his motion for reconsideration, 16 Carandang commenced
G.R. No. 148076.
Violation of Section 3 (g), Republic Act No. 3019
On January 17, 2000, the Ombudsman formally charged Carandang in the
Sandiganbayan with a violation of Section 3 (g) of RA 3019 by alleging in the
following information, 17 viz:
That sometime on September 8, 1998 or thereabouts, in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, accused
ANTONIO M. CARANDANG, a high ranking officer (HRO) being then the
General Manager of Radio Philippines Network, Inc. (RPN-9), then a
government owned and controlled corporation, did then and there willfully,
unlawfully and criminally give unwarranted benefits to On Target Media
Concept, Inc. (OTMCI) through manifest partiality and gross inexcusable
negligence and caused the government undue injury, by pre-terminating the
existing block time contract between RPN 9 and OTMCI for the telecast of
"Isumbong Mo Kay Tulfo" which assured the government an income of Sixty
Four Thousand and Nine Pesos (P 64,009.00) per telecast and substituting the
same with a more onerous co-production agreement without any prior study as
to the profitability thereof, by which agreement RPN-9 assumed the additional
obligation of taking part in the promotions, sales and proper marketing of the
program, with the end result in that in a period of five (5) months RPN-9 was
able to realize an income of only Seventy One Thousand One Hundred Eighty
Five Pesos (P 71,185.00), and further, by waiving RPN-9’s collectible from
OTMCI for August 1-30, 1998 in the amount of Three Hundred Twenty
Thousand and Forty Five Pesos (P 320,045.00).
Carandang moved to quash the information, 18 arguing that Sandiganbayan had
no jurisdiction because he was not a public official due to RPN not being a
government-owned or -controlled corporation.
The Sandiganbayan denied Carandang’s motion to quash on October 17,
2001.19
After the denial by the Sandiganbayan of his motion for
reconsideration,20 Carandang initiated G.R. No. 153161. 21
On May 27, 2002, Carandang moved to defer his arraignment and pre-trial,
citing the pendency of G.R. No. 153161.22
On July 29, 2002, the Court directed the parties in G.R. No. 153161 to
maintain the status quo until further orders.23
On November 20, 2006, G.R. No. 148076 was consolidated with G.R. No.
153161.24
Issue
Carandang insists that he was not a public official considering that RPN was
not a government-owned or -controlled corporation; and that, consequently,
the Ombudsman and the Sandiganbayan had no jurisdiction over him. He
prays that the administrative and criminal complaints filed against him should
be dismissed. Accordingly, decisive is whether or not RPN was a government-
owned or -controlled corporation.
Ruling
We find the petitions to be meritorious.
It is not disputed that the Ombudsman has jurisdiction over administrative
cases involving grave misconduct committed by the officials and employees of
government-owned or -controlled corporations; and that the Sandiganbayan
has jurisdiction to try and decide criminal actions involving violations of R.A.
3019 committed by public officials and employees, including presidents,
directors and managers of government-owned or -controlled corporations. The
respective jurisdictions of the respondents are expressly defined and
delineated by the law.25
Similarly, the law defines what are government-owned or -controlled
corporations. For one, Section 2 of Presidential Decree No. 2029 (Defining
Government Owned or Controlled Corporations and Identifying Their Role in
National Development) states:
Section 2. A government-owned or controlled corporation is a stock or a non-
stock corporation, whether performing governmental or proprietary functions,
which is directly chartered by a special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly
through a parent corporation or subsidiary corporation, to the extent of at least
a majority of its outstanding capital stock or of its outstanding voting capital
stock.
Section 2 (13) of Executive Order No. 292 (Administrative Code of
1987)26 renders a similar definition of government-owned or -controlled
corporations:
Section 2. General Terms Defined. – Unless the specific words of the text or
the context as a whole or a particular statute, shall require a different meaning:
xxx
28
(13) government-owned or controlled corporations refer to any agency
organized as a stock or non-stock corporation vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
government directly or indirectly through its instrumentalities either wholly, or
where applicable as in the case of stock corporations to the extent of at least
51% of its capital stock.
It is clear, therefore, that a corporation is considered a government-owned or -
controlled corporation only when the Government directly or indirectly owns or
controls at least a majority or 51% share of the capital stock. Applying this
statutory criterion, the Court ruled in Leyson, Jr. v. Office of the Ombudsman:27
But these jurisprudential rules invoked by petitioner in support of his claim that
the CIIF companies are government owned and/or controlled corporations are
incomplete without resorting to the definition of "government owned or
controlled corporation" contained in par. (13), Sec.2, Introductory Provisions of
the Administrative Code of 1987, i.e., any agency organized as a stock or non-
stock corporation vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the government directly
or indirectly through its instrumentalities either wholly, or where applicable as
in the case of stock corporations to the extent of at least fifty-one (51) percent
of its capital stock. The definition mentions three (3) requisites, namely, first,
any agency organized as a stock or non-stock corporation; second, vested
with functions relating to public needs whether governmental or proprietary in
nature; and, third, owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) of its capital stock.
In the present case, all three (3) corporations comprising the CIIF companies
were organized as stock corporations. The UCPB-CIIF owns 44.10% of the
shares of LEGASPI OIL, xxx. Obviously, the below 51% shares of stock in
LEGASPI OIL removes this firm from the definition of a government
owned or controlled corporation. x x x The Court thus concludes that the
CIIF are, as found by public respondent, private corporations not within the
scope of its jurisdiction.28
Consequently, RPN was neither a government-owned nor a controlled
corporation because of the Government’s total share in RPN’s capital stock
being only 32.4%.
Parenthetically, although it is true that the Sandiganbayan (Second Division)
ordered the transfer to the PCGG of Benedicto’s shares that represented
72.4% of the total issued and outstanding capital stock of RPN, such
quantification of Benedicto’s shareholding cannot be controlling in view of
Benedicto’s timely filing of a motion for reconsideration whereby he clarified
and insisted that the shares ceded to the PCGG had accounted for only
32.4%, not 72.4%, of RPN’s outstanding capital stock. With the extent of
Benedicto’s holdings in RPN remaining unresolved with finality, concluding that
the Government held the majority of RPN’s capital stock as to make RPN a
government-owned or -controlled corporation would be bereft of any factual
and legal basis.
Even the PCGG and the Office of the President (OP) have recognized RPN’s
status as being neither a government-owned nor -controlled corporation.
In its Opinion/Clarification dated August 18, 1999, the PCGG communicated to
San Luis as the president and general manager of RPN regarding a case
involving RPN and Carandang:29
MR. EDGAR S. SAN LUIS
President & General Manager
Radio Philippines Network, Inc.
Broadcast City, Capitol Hills
Diliman, Quezon City
Sir:
This refers to your letter dated August 4, 1999, seeking "PCGG’s position on
the following:
"1. Whether RPN-9 is a GOCC x x x or a private corporation outside the scope
of OGCC and COA’s control given 32% Government ownership x x x.
xxx
It appears that under the RP-Benedicto Compromise Agreement dated
November 3, 1990 – validity of which has been sustained by the Supreme
Court in G.R. No. 96087, March 31, 1992, (Guingona, Jr. vs. PCGG, 207
SCRA 659) – Benedicto ceded all his rights, interest and/or participation, if he
has any, in RPN-9, among others, to the government which rights, interest
and/or participation per PCGG’s understanding, include 9,494,327.50 shares
of stock, i.e, about 72.4% of the total issued and outstanding capital stock of
RPN-9.
Accordingly, the Sandiganbayan (Second Division), on motion of the
government through PCGG, ordered the president and corporate secretary of
the RPN-9 to "effect the immediate cancellation and transfer of the
9,494,327.50 shares corresponding to Benedicto’s proprietary interest in RPN-
9 to the Republic of the Philippines c/o PCGG" (Sandiganbayan’s Resolution
of February 3, 1998 in Civil Case No. 0034, RP vs. Roberto Benedicto, et. al.)
Benedicto, however, filed a motion for reconsideration of said Resolution,
contending that the number of RPN-9 shares ceded by him embraces only his
personal holdings and those of his immediate family and nominees totaling
4,161,207.5 shares but excluding the RPN-9 shares in the name of Far East
Managers and Investors, Inc. ("FEMIE"), which is about 40%, as they are
29
corporate properties/assets of FEMIE and not his personal holdings. Said
motion for reconsideration is still pending resolution by the Sandiganbayan.
xxx
We agree with your x x x view that RPN-9 is not a government owned or
controlled corporation within the contemplation of the Administrative
Code of 1987, for admittedly, RPN-9 was organized for private needs and
profits, and not for public needs and was not specifically vested with
functions relating to public needs.
Neither could RPN-9 be considered a "government-owned or controlled
corporation" under Presidential Decree (PD) No. 2029 dated February 4,
1986, which defines said terms as follows:
"Sec.2. Definition. – A government owned- or controlled corporation is a stock
or non-stock corporation, whether performing governmental or proprietary
functions which is directly chartered by special law or organized under the
general corporation law is owned or controlled by the government directly, or
indirectly through a parent corporation or subsidiary corporation, to the extent
of at least a majority of its outstanding capital stock or of its outstanding voting
capital stock;
Provided, that a corporation organized under the general corporation law
under private ownership at least a majority of the shares of stock of which
were conveyed to a government corporation in satisfaction of debts incurred
with a government financial institution, whether by foreclosure or otherwise, or
a subsidiary corporation of a government corporation organized exclusively to
own and manage, or lease, or operate specific physical assets acquired by a
government financial institution in satisfaction of debts incurred therewith, and
which in any case by enunciated policy of the government is required to be
disposed of to private ownership within a specified period of time, shall not be
considered a government-owned or controlled corporation before such
disposition and even if the ownership or control thereof is subsequently
transferred to another government-owned or controlled corporation."
A government-owned or controlled corporation is either "parent" corporation,
i.e., one "created by special law" (Sec. 3 (a), PD 2029) or a "subsidiary"
corporation, i.e, one created pursuant to law where at least a majority of the
outstanding voting capital stock of which is owned by parent government
corporation and/or other government-owned subsidiaries. (Sec. 3 (b), PD
2029).
RPN-9 may not likewise be considered as an "acquired asset corporation"
which is one organized under the general corporation law (1) under private
ownership at least a majority of the shares of stock of which were conveyed to
a government corporation in satisfaction of debts incurred with a government
financial institution, whether by foreclosure or otherwise, or (2) as a subsidiary
corporation of a government corporation organized exclusively to own and
manage, or lease, or operate specific physical assets acquired by a
government financial institution in satisfaction of debts incurred therewith, and
which in any case by enunciated policy of the government is required to be
disposed of to private ownership within a specified period of time" (Sec 3 c, PD
2029), for the following reasons:
1. as noted above, the uncontested (not litigated) RPN-9 shares of the
government is only 32.4% (not a majority) of its capital stock;
2. said 32.4% shares of stock, together with the contested/litigated
40%, were not conveyed to a government corporation or the
government "in satisfaction of debts incurred with government financial
institution, whether by foreclosure or otherwise;
3. RPN-9 was not organized as a subsidiary corporation of a
government corporation organized exclusively to own and manage, or
lease, or operate specific physical assets acquired by a government
financial institution in satisfaction of debts incurred therewith.
It should be parenthetically noted that the 32.4% or 72.4% shares of stocks
were turned over to the government by virtue of a compromise agreement
between the government and Benedicto in Civil Case No. 0034 which is "a civil
action against Defendants Roberto S. Benedicto, Ferdinand E. Marcos, Imelda
R. Marcos" and others, to recover from them ill-gotten wealth" (Amended
Complaint, Aug. 12, 1987, Civil Case No. 0034, p. 2.) As the case between the
government and Benedicto, his family and nominees was compromised, no
judicial pronouncement was made as to the character or nature of the assets
and properties turned over by Benedicto to the government – whether they are
ill-gotten wealth or not.30
The PCGG’s Opinion/Clarification was affirmed by the OP itself on February
10, 2000: 31
February 10, 2000
Mr. Edgar S. San Luis
President and General Manager
Radio Philippines Network Inc.
Broadcasting City, Capitol Hills, Diliman Quezon City
Dear President San Luis,
xxx
Relative thereto, please be informed that we affirm the PCGG’s opinion that
RPNI is not a government-owned and/or controlled corporation
(GOCC). Section 2 (13), Introductory Provisions of the Administrative Code of
1987 defines a GOCC as an agency organized as a stock or non-stock
corporation vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the government directly
30
or indirectly through its instrumentalities either wholly, or where applicable as
in the case of stock corporations to the extent of at least 51% of its capital
stock. As government ownership over RPNI is only 32.4% of its capital
stock, pending the final judicial determination of the true and legal
ownership of RPNI, the corporation is deemed private.32
Even earlier, a similar construction impelled the Ombudsman to dismiss a
criminal complaint for violation of R.A. 3019 filed against certain
RPN officials, as the Ombudsman’s resolution dated December 15, 1997
indicates,33 a pertinent portion of which is quoted thus:
This is not to mention the fact that the other respondents, the RPN officials,
are outside the jurisdiction of this Office (Office of the Ombudsman); they are
employed by a private corporation registered with the Securities and Exchange
Commission, the RPN, which is not a government owned or controlled
corporation x x x34
Considering that the construction of a statute given by administrative agencies
deserves respect,35 the uniform administrative constructions of the relevant
aforequoted laws defining what are government-owned or -controlled
corporations as applied to RPN is highly persuasive.
Lastly, the conclusion that Carandang was a public official by virtue of his
having been appointed as general manager and chief operating officer of RPN
by President Estrada deserves no consideration. President Estrada’s
intervention was merely to recommend Carandang’s designation as general
manager and chief operating officer of RPN to the PCGG, which then cast the
vote in his favor vis-à-vis said positions. 36 Under the circumstances, it was
RPN’s Board of Directors that appointed Carandang to his positions pursuant
to RPN’s By-Laws.37 1avvphi1
In fine, Carandang was correct in insisting that being a private individual he
was not subject to the administrative authority of the Ombudsman and to the
criminal jurisdiction of the Sandiganbayan.38
WHEREFORE, we grant the petitions in G.R. No. 148076 and G.R. No.
153161.
We reverse and set aside the decision promulgated on February 12, 2001 by
the Court of Appeals in C.A.-G.R. SP No. 58204, and dismiss the
administrative charge for grave misconduct against the petitioner.
We annul and set aside the resolutions dated October 17, 2001 and March 14,
2002, as well as the order dated March 15, 2002, all issued by the
Sandiganbayan (Fifth Division) in Criminal Case No. 25802, and dismiss
Criminal Case No. 25802 as against the petitioner.
SO ORDERED.

G.R. No. L-4043             May 26, 1952
CENON S. CERVANTES, petitioner,
vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar
for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying
petitioner's claim for quarters allowance as manager of the National Abaca and
Other Fibers Corporation, otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary
of P15,000 a year. By a resolution of the Board of Directors of this corporation
approved on January 19 of that year, he was granted quarters allowance of not
exceeding P400 a month effective the first of that month. Submitted the
Control Committee of the Government Enterprises Council for approval, the
said resolution was on August 3, 1949, disapproved by the said Committee on
strenght of the recommendation of the NAFCO auditor, concurred in by the
Auditor General, (1) that quarters allowance constituted additional
compensation prohibited by the charter of the NAFCO, which fixes the salary
of the general manager thereof at the sum not to exceed P15,000 a year, and
(2) that the precarious financial condition of the corporation did not warrant the
granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider
its action and approve his claim for allowance for January to June 15, 1949,
amounting to P1,650. The claim was again referred by the Control Committee
to the auditor General for comment. The latter, in turn referred it to the NAFCO
auditor, who reaffirmed his previous recommendation and emphasized that the
fact that the corporation's finances had not improved. In view of this, the
auditor General also reiterated his previous opinion against the granting of the
petitioner's claim and so informed both the Control Committee and the
petitioner. But as the petitioner insisted on his claim the Auditor General
Informed him on June 19, 1950, of his refusal to modify his decision. Hence
this petition for review.
31
The NAFCO was created by the Commonwealth Act No. 332, approved on
June 18, 1939, with a capital stock of P20,000,000, 51 per cent of which was
to be able to be subscribed by the National Government and the remainder to
be offered to provincial, municipal, and the city governments and to the
general public. The management the corporation was vested in a board of
directors of not more than 5 members appointed by the president of the
Philippines with the consent of the Commission on Appointments. But the
corporation was made subject to the provisions of the corporation law in so far
as they were compatible with the provisions of its charter and the purposes of
which it was created and was to enjoy the general powers mentioned in the
corporation law in addition to those granted in its charter. The members of the
board were to receive each a per diem of not to exceed P30 for each day of
meeting actually attended, except the chairman of the board, who was to be at
the same time the general manager of the corporation and to receive a salary
not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the
President of the Philippines, among other things, to effect such reforms and
changes in government owned and controlled corporations for the purpose of
promoting simplicity, economy and efficiency in their operation Pursuant to this
authority, the President on October 4, 1947, promulgated Executive Order No.
93 creating the Government Enterprises Council to be composed of the
President of the Philippines as chairman, the Secretary of Commerce and
Industry as vice-chairman, the chairman of the board of directors and
managing heads of all such corporations as ex-officio members, and such
additional members as the President might appoint from time to time with the
consent of the Commission on Appointments. The council was to advise the
President in the excercise of his power of supervision and control over these
corporations and to formulate and adopt such policy and measures as might
be necessary to coordinate their functions and activities. The Executive Order
also provided that the council was to have a Control Committee composed of
the Secretary of Commerce and Industry as chairman, a member to be
designated by the President from among the members of the council as vice-
chairman and the secretary as ex-officio member, and with the power, among
others —
(1) To supervise, for and under the direction of the President, all the
corporations owned or controlled by the Government for the purpose of
insuring efficiency and economy in their operations;
(2) To pass upon the program of activities and the yearly budget of
expenditures approved by the respective Boards of Directors of the
said corporations; and
 (3) To carry out the policies and measures formulated by the
Government Enterprises Council with the approval of the President.
(Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of
appointing its directors vested in the President of the Philippines, there can be
no question that the NAFCO is Government controlled corporation subject to
the provisions of Republic Act No. 51 and the executive order (No. 93)
promulgated in accordance therewith. Consequently, it was also subject to the
powers of the Control Committee created in said executive order, among
which is the power of supervision for the purpose of insuring efficiency and
economy in the operations of the corporation and also the power to pass upon
the program of activities and the yearly budget of expenditures approved by
the board of directors. It can hardly be questioned that under these powers the
Control Committee had the right to pass upon, and consequently to approve or
disapprove, the resolution of the NAFCO board of directors granting quarters
allowance to the petitioners as such allowance necessarily constitute an item
of expenditure in the corporation's budget. That the Control Committee had
good grounds for disapproving the resolution is also clear, for, as pointed out
by the Auditor General and the NAFCO auditor, the granting of the allowance
amounted to an illegal increase of petitioner's salary beyond the limit fixed in
the corporate charter and was furthermore not justified by the precarious
financial condition of the corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only
because it is based on a law that is unconstitutional as an illegal delegation of
legislature power to executive, but also because it was promulgated beyond
the period of one year limited in said law.
The second ground ignores the rule that in the computation of the time for
doing an act, the first day is excluded and the last day included (Section 13
Rev. Ad. Code.) As the act was approved on October 4, 1946, and the
President was given a period of one year within which to promulgate his
executive order and that the order was in fact promulgated on October 4,
1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a
policy and a standard is established by the statute" there is no undue
delegation. (11 Am. Jur. 957). Republic Act No. 51 in authorizing the President
of the Philippines, among others, to make reforms and changes in
government-controlled corporations, lays down a standard and policy that the
purpose shall be to meet the exigencies attendant upon the establishment of
the free and independent government of the Philippines and to promote
simplicity, economy and efficiency in their operations. The standard was set
32
and the policy fixed. The President had to carry the mandate. This he did by
promulgating the executive order in question which, tested by the rule above
cited, does not constitute an undue delegation of legislative power.
It is also contended that the quarters allowance is not compensation and so
the granting of it to the petitioner by the NAFCO board of directors does not
contravene the provisions of the NAFCO charter that the salary of the
chairman of said board who is also to be general manager shall not exceed
P15,000 per anum. But regardless of whether quarters allowance should be
considered as compensation or not, the resolution of the board of the directors
authorizing payment thereof to the petitioner cannot be given effect since it
was disapproved by the Control Committee in the exercise of powers granted
to it by Executive Order No. 93. And in any event, petitioner's contention that
quarters allowance is not compensation, a proposition on which American
authorities appear divided, cannot be insisted on behalf of officers and
employees working for the Government of the Philippines and its
Instrumentalities, including, naturally, government-controlled corporations. This
is so because Executive Order No. 332 of 1941, which prohibits the payment
of additional compensation to those working for the Government and its
Instrumentalities, including government-controlled corporations, was in 1945
amended by Executive Order No. 77 by expressly exempting from the
prohibition the payment of quarters allowance "in favor of local government
officials and employees entitled to this under existing law." The amendment is
a clear indication that quarters allowance was meant to be included in the term
"additional compensation", for otherwise the amendment would not have
expressly excepted it from the prohibition. This being so, we hold that, for the
purpose of the executive order just mentioned, quarters allowance is
considered additional compensation and, therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY,
PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
DECISION
REYES, JR., J:
This petition for review on certiorari[1] under Rule 45 of the Rules of Court seeks to reverse
and set aside the Decision[2] dated August 29, 2012 and Resolution[3] dated February 12,
2013 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 797, which affirmed
the CTA First Division's dismissal of the case filed by herein petitioner Bases Conversion
and Development Authority (BCDA) on the ground that the latter failed to pay docket fees as
required under Rule 141 of the Rules of Court.
The Facts
The facts, as summarized by the CTA En Banc, read as follows:
On October 8, 2010, BCDA filed a petition for review with the CTA in order to preserve its
right to pursue its claim for refund of the Creditable Withholding Tax (CWT) in the amount of
Php122,079,442.53, which was paid under protest from March 19, 2008 to October 8, 2008.
The CWT which BCDA paid under protest was in connection with its sale of the BCDA-
allocated units as its share in the Serendra Project pursuant to the Joint Development
Agreement with Ayala Land, Inc.[4]
The petition for review was filed with a Request for Exemption from the Payment of Filing
Fees in the amount of Php1,209,457.90.[5]
On October 20, 2010, the CTA First Division denied BCDA's Request for Exemption and
ordered it to pay the filing fees within five days from notice.[6]
BCDA moved for reconsideration which was denied by the CTA First Division on February
8, 2011. BCDA was once again ordered to pay the filing fees within five days from notice,
otherwise, the petition for review will be dismissed.[7]
BCDA filed a petition for review with the CTA En Banc on February 25, 2011, which petition
was returned and not deemed filed without the payment of the correct legal fees. BCDA
once again emphasized its position that it is exempt from the payment of such fees.[8]
On March 28, 2011, the petition before the CTA First Division was dismissed. BCDA
attempted to tile its Motion for Reconsideration, however, the Officer-In-Charge of the First
Division refused to receive the checks for the payment of the filing fees, and the Motion for
Reconsideration. BCDA then filed its Motion for Reconsideration by registered mail.[9]
Subsequently, BCDA filed a manifestation stating the incidents relating to the tiling of its
Motion for Reconsideration. The CTA First Division, on April 26, 2011, issued its Resolution,
[10]
 the dispositive portion of which states:
WHEREFORE, finding no reason to deny receipt of the supposed Motion for
Reconsideration of the [BCDA] on the dismissal of its Petition for Review, the Executive
Clerk of Court III of this Division, Atty. Margarette Y. Guzman, is hereby DIRECTED to allow
petitioner BCDA to file the same, or to accept said pleading which was allegedly mailed
through registered mail, upon receipt thereof, and to commence the procedure in paying the
prescribed docket fees, subject to the caveat herein stated, should petitioner BCDA decide
to pursue its case.
SO ORDERED.[11]
On May 17, 2011, BCDA moved for reconsideration of the Resolution dated April 26, 2011
and prayed that it be allowed to pay the prescribed docket fees of Php1,209,457.90 without
qualification. On June 9, 2011, the CTA First Division denied both motions for
reconsideration.[12]
On June 28, 2011, BCDA filed a petition for review with the CTA En Banc but the same was
dismissed. In its assailed Decision[13] dated August 29, 2012, it adopted and affirmed the
findings of the First Division, to wit:
BCDA fails to raise any new and substantial arguments, and no cogent reason exists to
warrant a consideration of the Court's Resolution dated March 28, 2011 dismissing its
Petition for Review.
It must be emphasized that payment in full of docket fees within the prescribed period is
mandatory. It is an essential requirement without which the decision appealed from would
33
become final and executory as if no appeal had been filed. To repeat, in both original and
appellate cases, the court acquires jurisdiction over the case only upon the payment of the
prescribed docket fees.
In this case, due to BCDA's non-payment of the prescribed legal fees within the prescribed
period, this Court has not acquired jurisdiction over the case. Consequently, it is as if no
appeal was ever filed with this Court.[14]
Undeterred, BCDA filed a Motion[15] for Reconsideration but was likewise denied by the
CTA En Banc in the assailed Resolution[16] dated February 12, 2013.
Hence, this petition.
The Issues
I.
THE CTA EN BANC ERRED IN AFFIRMING THE CTA FIRST DIVISION'S RULING THAT
BCDA IS NOT A GOVERNMENT INSTRUMENTALITY, HENCE, NOT EXEMPT FROM
PAYMENT OF LEGAL FEES.
II.
THE CTA EN BANC ERRED IN AFFIRMING CTA FIRST DIVISION'S RESOLUTION
DISMISSING BCDA'S PETITION FOR REVIEW FOR NON-PAYMENT OF THE
PRESCRIBED LEGAL FEES WITHIN THE REGLEMENTARY PERIOD.
Ruling of the Court
The petition is impressed with merit.
BCDA is a government
instrumentality vested with corporate
powers. As such, it is exempt from
the payment of docket fees.
At the crux of the present pet1t1on is the issue of whether or not BCDA is a government
instrumentality or a government-owned and – controlled corporation (GOCC). [fit is an
instrumentality, it is exempt from the payment of docket fees. lf it is a GOCC, it is not
exempt and as such non-payment thereof would mean that the tax court did not acquire
jurisdiction over the case and properly dismissed it for BCDA's failure to settle the fees on
time.
BCDA is a government instrumentality vested with corporate powers. As such, it is exempt
from the payment of docket fees required under Section 21, Rule 141 of the Rules or Court,
to wit:
RULE 141
LEGAL FEES
SEC. 1. Payment of fees. – Upon the filing of the pleading or other application which
initiates an action or proceeding, the fees prescribed therefor shall be paid in full.
xxxx
SEC. 21. Government exempt. – The Republic of the Philippines, its agencies and
instrumentalities, are exempt from paying the legal fees provided in this rule. Local
governments and government-owned or controlled corporations with or without independent
charters are not exempt from paying such fees. (Emphasis Ours)
Section 2(10) and (13) of the Introductory Provisions of the Administrative Code of 1987
provides for the definition of a government "instrumentality" and a "GOCC", to wit:
SEC. 2. General Terms Defined. x x x x
(10) Instrumentality refers to any agency of the National Government. not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x.
xxxx
(13) Government-owned or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to
the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis Ours)
The grant of these corporate powers is likewise stated in Section 3 of Republic Act (R.A.)
No. 7227; also known as The Bases Conversion and Development Act of 1992 which
provides for BCDA's manner of creation, to wit:
Sec. 3. Creation of the Bases Conversion and Development Authority. - There is hereby
created a body corporate to be known as the Bases Conversion and Development
Authority, which shall have the attribute of perpetual succession and shall be vested with
the powers of a corporation. (Emphasis Ours)
From the foregoing, it is clear that a government instrumentality may be endowed with
corporate powers and at the same time retain its classification as a government
"instrumentality" for all other purposes.
In the 2006 case of Manila International Airport Authority v. CA,[17] the Court, speaking
through Associate Justice Antonio T. Carpio, explained in this wise:
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]. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but
they are not organized as stock or non-stock corporations as required by Section 2 (13) of
the Introductory Provisions of the Administrative Code. These government instrumentalities
arc sometimes loosely called government corporate entities. However, they are not
[GOCCs] in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship or status of government entities.[18]
Moreover, in the 2007 case of Philippine Fisheries Development Authority v. CA,[19] the
Court reiterated that a government instrumentality retains its classification as such albeit
having been endowed with some if not all corporate powers. The relevant portion of said
decision reads as follows:
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority
has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or
voting shares. Hence, it is not a stock corporation. Neither is it a non-stock corporation
because it has no members.
The Authority is actually a national government instrumentality which is define as an agency
of the national government, not integrated within the department framework, vested with
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds and enjoying operational autonomy, usually through a charter.
When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is organized as a
34
stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.[20]
As previously mentioned, in order to qualify as a GOCC, one must be organized either as a
stock or non-stock corporation. Section 3[21] of the Corporation Code defines a stock
corporation as one whose "capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x.''
Section 6 of R.A. No. 7227 provides for BCDA's capitalization, to wit:
Sec. 6. Capitalization. – The Conversion Authority shall have an authorized capital of One
hundred billion pesos (P100,000,000,000.00) which may be fully subscribed by the Republic
of the Philippines and shall either be paid up from the proceeds of the sales of its land
assets as provided for in Section 8 of this Act or by transferring to the Conversion Authority
properties valued in such amount.
An initial operating capital in the amount of seventy million pesos (P70,000,000.00) is
hereby authorized to be appropriated out of any funds in the National Treasury not
otherwise appropriated which shall be covered by preferred shares of the Conversion
Authority retireable within two (2) years.
Based on the foregoing, it is clear that BCDA has an authorized capital of Php100 Billion,
however, it is not divided into shares of stock. BCDA has no voting shares. There is likewise
no provision which authorizes the distribution of dividends and allotments of surplus and
profits to BCDA's stockholders. Hence, BCDA is not a stock corporation.
Section 8 of R.A. No. 7227 provides an enumeration of BCDA's purposes and their
corresponding percentage shares in the sales proceeds of BCDA. Section 8 likewise states
that after distribution of the proceeds acquired from BCDA's activities, the balance, if any,
shall accrue and be remitted to the National Treasury, to wit:
Sec. 8. Funding Scheme.—The capital of the Conversion Authority shall come from the
sales proceeds and/or transfers of certain Metro Manila military camps, including all lands
covered by Proclamation No. 423, series of 1957, commonly known as Fort Bonifacio and
Villamor (Nicholas) Air Base x x x.
xxxx
The President is hereby authorized to sell the above lands, in whole or in part, which are
hereby declared alienable and disposable pursuant to the provisions of existing laws and
regulations governing sales of government properties: provided, that no sale or disposition
of such lands will be undertaken until a development plan embodying projects for
conversion shall be approved by the President in accordance with paragraph (b), Sec. 4, of
this Act. However, six (6) months after approval of this Act, the President shall authorize the
Conversion Authority to dispose of certain areas in Fort Bonifacio and Villamor as the latter
so determines. The Conversion Authority shall provide the President a report on any such
disposition or plan for disposition within one (1) month from such disposition or preparation
of such plan. The proceeds from any sale, after deducting all expenses related to the sale,
of portions of Metro Manila military camps as authorized under this Act, shall be used for
the following purposes with their corresponding percent shares of proceeds:
(1) Thirty-two and five-tenths percent (35.5%) — To finance the transfer of the AFP military
camps and the construction of new camps, the self-reliance and modernization program of
the AFP, the concessional and long-term housing loan assistance and livelihood assistance
to AFP officers and enlisted men and their families, and the rehabilitation and expansion of
the AFP's medical facilities;
(2) Fifty percent (50%) — To finance the conversion and the commercial uses of the Clark (g) To plan, program and undertake the readjustment, relocation, or resettlement of
and subic military reservations and their extentions; population within the Clark and Subic military reservations and their extensions as
(3) Five Percent (5%) — To finance the concessional and long-term housing loan may be deemed necessary and beneficial by the Conversion Authority, in coordination with
assistance for the homeless of Metro Manila, Olongapo City, Angeles City and other the appropriate government agencies and local government units. (Emphases Ours)
affected municipalities contiguous to the base areas as mandated herein: and From the foregoing, it is clear that BCDA is neither a stock nor a non-stock corporation.
(4) The balance shall accrue and be remitted to the National Treasury to be BCDA is a government instrumentality vested with corporate powers. Under Section 21,
appropriated thereafter by Congress for the sole purpose of financing programs and [22]
 Rule 141 of the Rules of Court, agencies and instrumentalities of the Republic of the
projects vital for the economic upliftment of the Filipino people. (Emphasis Ours) Philippines are exempt from paying legal or docket fees. Hence, BCDA is exempt from the
The remaining balance, if any, from the proceeds of BCDA's activities shall be remitted to payment of docket fees.
the National Treasury. The National Treasury is not a stockholder of BCDA Hence, none of WHEREFORE, premises considered, the present petition is GRANTED. The Decision dated
the proceeds from BCDA's activities will be allotted to its stockholders. August 29, 2012 and Resolution dated February 12, 2013 of the CTA En Banc are
BCDA also does not qualify as a non-stock corporation because it is not organized for any hereby REVERSED and SET ASIDE.
of the purposes mentioned under Section 88 of the Corporation Code, to wit: Let this case be remanded to the Court of Tax Appeals for further proceedings regarding
Sec. 88. Purposes. – Non-stock corporations may be formed or organized tor charitable, Bases conversion and Development Authority's claim for refund of the Creditable
religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, Withholding Tax (CWT) in the amount of P122,079,442.53 which the latter paid under
or similar purposes, like trade industry, agricultural and like chambers, or any combination protest from March 19, 2008 to October 8, 2008.
thereof: subject to the special provisions of this Title governing particular classes of non- SO ORDERED.
stock corporations.
A cursory reading of Section 4 of R.A. No. 7227 shows that BCDA is organized for a specific
purpose - to own, hold and/or administer the military reservations in the country and
implement its conversion to other productive uses, to wit:
Sec. 4. Purposes of the Conversion Authority. — The Conversion Authority shall have the
following purposes:
(a) To own, hold and/or administer the military reservations of John Hay Air Station,
Wallace Air Station, O'Donnell Transmitter Station, San Miguel Naval Communications
Station. Mt. Sta. Rita Station (Hermosa, Bataan) and those portions of Metro Manila military
camps which may be transferred to it by the President:
(b) To adopt, prepare and implement a comprehensive and detailed development plan
embodying a list of projects including but not limited to those provided in the Legislative-
Executive Bases Council (LEBC) framework plan for the sound and balanced conversion
of the Clark and Subic military reservations and their extensions consistent with
ecological and environmental standards, into other productive uses to promote the
economic and social development of Central Luzon in particular and the country in general;
(c) To encourage the active participation of the private sector in transforming the
Clark and Subic military reservations and their extensions into other productive uses;
(d) To serve as the holding company of subsidiary companies created pursuant to
Section 16 of this Act and to invest in Special Economic Zones declared under Sections 12
and 15 of this Act;
(e) To manage and operate through private sector companies developmental projects
outside the jurisdiction of subsidiary companies and Special Economic Zones declared by
presidential proclamations and established under this Act;
(f) To establish a mechanism in coordination with the appropriate local government
units to effect meaningful consultation regarding the plans, programs and projects
within the regions where such plans, programs and/or project development are part of the
conversion of the Clark and Subic military reservations and their extensions and the
surrounding communities as envisioned in this Act; and

35