G.R. No.

L-26379 December 27, 1969

WILLIAM C. REAGAN, ETC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner.
ffice of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special
Attorney Gamaliel H. Mantolino for respondent.
FERNANDO, J.:
A question novel in character, the answer to which has far-reaching
implications, is raised by petitioner William C. Reagan, at one time a
civilian employee of an American corporation providing technical
assistance to the United States Air Force in the Philippines. He would
dispute the payment of the income tax assessed on him by
respondent Commissioner of Internal Revenue on an amount
realized by him on a sale of his automobile to a member of the
United States Marine Corps, the transaction having taken place at
the Clark Field Air Base at Pampanga. It is his contention, seriously
and earnestly expressed, that in legal contemplation the sale was
made outside Philippine territory and therefore beyond our
jurisdictional power to tax.
Such a plea, far-fetched and implausible, on its face betraying no
kinship with reality, he would justify by invoking, mistakenly as will
hereafter be more fully shown an observation to that effect in a 1951
opinion, 1 petitioner ignoring that such utterance was made purely
as a flourish of rhetoric and by way of emphasizing the decision
reached, that the trading firm as purchaser of army goods must
respond for the sales taxes due from an importer, as the American
armed forces being exempt could not be taxed as such under the
National Internal Revenue Code.2 Such an assumption, inspired by
the commendable aim to render unavailing any attempt at tax
evasion on the part of such vendee, found expression anew in a
1962 decision,3 coupled with the reminder however, to render the

truth unmistakable, that "the areas covered by the United States

Military Bases are not foreign territories both in the political and
geographical sense."
As thus clarified, it is manifest that such a view amounts at most to a
legal fiction and is moreover obiter. It certainly cannot control the
resolution of the specific question that confronts us. We declare our
stand in an unequivocal manner. The sale having taken place on
what indisputably is Philippine territory, petitioner's liability for the
income tax due as a result thereof was unavoidable. As the Court of
Tax Appeals reached a similar conclusion, we sustain its decision now
before us on appeal.
In the decision appealed from, the Court of Tax Appeals, after
stating the nature of the case, started the recital of facts thus: "It
appears that petitioner, a citizen of the United States and an
employee of Bendix Radio, Division of Bendix Aviation Corporation,
which provides technical assistance to the United States Air Force,
was assigned at Clark Air Base, Philippines, on or about July 7,
1959 ... . Nine (9) months thereafter and before his tour of duty
expired, petitioner imported on April 22, 1960 a tax-free 1960
Cadillac car with accessories valued at $6,443.83, including freight,
insurance and other charges."4 Then came the following: "On July
11, 1960, more than two (2) months after the 1960 Cadillac car was
imported into the Philippines, petitioner requested the Base
Commander, Clark Air Base, for a permit to sell the car, which was
granted provided that the sale was made to a member of the United
States Armed Forces or a citizen of the United States employed in

the U.S. military bases in the Philippines. On the same date, July 11,
1960, petitioner sold his car for $6,600.00 to a certain Willie
Johnson, Jr. (Private first class), United States Marine Corps, Sangley
Point, Cavite, Philippines, as shown by a Bill of Sale . . . executed at
Clark Air Base. On the same date, Pfc. Willie (William) Johnson, Jr.
sold the car to Fred Meneses for P32,000.00 as evidenced by a deed
of sale executed in Manila."5
As a result of the transaction thus made, respondent Commissioner
of Internal Revenue, after deducting the landed cost of the car as
well as the personal exemption to which petitioner was entitled,
fixed as his net taxable income arising from such transaction the
amount of P17,912.34, rendering him liable for income tax in the
sum of P2,979.00. After paying the sum, he sought a refund from
respondent claiming that he was exempt, but pending action on his
request for refund, he filed the case with the Court of Tax Appeals
seeking recovery of the sum of P2,979.00 plus the legal rate of
interest.
As noted in the appealed decision: "The only issue submitted for our
resolution is whether or not the said income tax of P2,979.00 was
legally collected by respondent for petitioner."6 After discussing the

legal issues raised, primarily the contention that the Clark Air Base
"in legal contemplation, is a base outside the Philippines" the sale
therefore having taken place on "foreign soil", the Court of Tax
Appeals found nothing objectionable in the assessment and
thereafter the payment of P2,979.00 as income tax and denied the
refund on the same. Hence, this appeal predicated on a legal theory
we cannot accept. Petitioner cannot make out a case for reversal.
1. Resort to fundamentals is unavoidable to place things in their
proper perspective, petitioner apparently feeling justified in his
refusal to defer to basic postulates of constitutional and international
law, induced no doubt by the weight he would accord to the
observation made by this Court in the two opinions earlier referred
to. To repeat, scant comfort, if at all is to be derived from such an
obiter dictum, one which is likewise far from reflecting the fact as it
is.
Nothing is better settled than that the Philippines being
independent and sovereign, its authority may be exercised over its
entire domain. There is no portion thereof that is beyond its power.
Within its limits, its decrees are supreme, its commands paramount.
Its laws govern therein, and everyone to whom it applies must
submit to its terms. That is the extent of its jurisdiction, both
territorial and personal. Necessarily, likewise, it has to be exclusive. If
it were not thus, there is a diminution of its sovereignty.
It is to be admitted that any state may, by its consent, express or
implied, submit to a restriction of its sovereign rights. There may
thus be a curtailment of what otherwise is a power plenary in
character. That is the concept of sovereignty as auto-limitation,
which, in the succinct language of Jellinek, "is the property of a
state-force due to which it has the exclusive capacity of legal selfdetermination and self-restriction."7 A state then, if it chooses to,

may refrain from the exercise of what otherwise is illimitable

competence.
Its laws may as to some persons found within its territory no longer
control. Nor does the matter end there. It is not precluded from
allowing another power to participate in the exercise of jurisdictional
right over certain portions of its territory. If it does so, it by no means
follows that such areas become impressed with an alien character.
They retain their status as native soil. They are still subject to its
authority. Its jurisdiction may be diminished, but it does not

disappear. So it is with the bases under lease to the American armed

forces by virtue of the military bases agreement of 1947. They are
not and cannot be foreign territory.
Decisions coming from petitioner's native land, penned by jurists of
repute, speak to that effect with impressive unanimity. We start with
the citation from Chief Justice Marshall, announced in the leading
case of Schooner Exchange v. M'Faddon,8 an 1812 decision: "The

jurisdiction of the nation within its own territory is necessarily

exclusive and absolute. It is susceptible of no limitation not imposed
by itself. Any restriction upon it, deriving validity from an external
source, would imply a diminution of its sovereignty to the extent of
the restriction, and an investment of that sovereignty to the same
extent in that power which could impose such restriction." After
which came this paragraph: "All exceptions, therefore, to the full and
complete power of a nation within its own territories, must be traced
up to the consent of the nation itself. They can flow from no other
legitimate source."
Chief Justice Taney, in an 1857 decision,9 affirmed the fundamental
principle of everyone within the territorial domain of a state being
subject to its commands: "For undoubtedly every person who is
found within the limits of a government, whether the temporary
purposes or as a resident, is bound by its laws." It is no exaggeration
then for Justice Brewer to stress that the United States government
"is one having jurisdiction over every foot of soil within its territory,
and acting directly upon each [individual found therein]; . . ."10

Not too long ago, there was a reiteration of such a view, this time
from the pen of Justice Van Devanter. Thus: "It now is settled in the
United States and recognized elsewhere that the territory subject to
its jurisdiction includes the land areas under its dominion and control
the ports, harbors, bays, and other in closed arms of the sea along
its coast, and a marginal belt of the sea extending from the coast
line outward a marine league, or 3 geographic miles."11 He could
cite moreover, in addition to many American decisions, such eminent
treatise-writers as Kent, Moore, Hyde, Wilson, Westlake, Wheaton
and Oppenheim.
As a matter of fact, the eminent commentator Hyde in his threevolume work on International Law, as interpreted and applied by the
United States, made clear that not even the embassy premises of a
foreign power are to be considered outside the territorial domain of
the host state. Thus: "The ground occupied by an embassy is not in
fact the territory of the foreign State to which the premises belong
through possession or ownership. The lawfulness or unlawfulness of
acts there committed is determined by the territorial sovereign. If an
attache commits an offense within the precincts of an embassy, his
immunity from prosecution is not because he has not violated the
local law, but rather for the reason that the individual is exempt from
prosecution. If a person not so exempt, or whose immunity is
waived, similarly commits a crime therein, the territorial sovereign, if
it secures custody of the offender, may subject him to prosecution,
even though its criminal code normally does not contemplate the
punishment of one who commits an offense outside of the national
domain. It is not believed, therefore, that an ambassador himself
possesses the right to exercise jurisdiction, contrary to the will of the
State of his sojourn, even within his embassy with respect to acts
there committed. Nor is there apparent at the present time any
tendency on the part of States to acquiesce in his exercise of it."12
2. In the light of the above, the first and crucial error imputed to the
Court of Tax Appeals to the effect that it should have held that the

Clark Air Force is foreign soil or territory for purposes of income tax
legislation is clearly without support in law. As thus correctly viewed,
petitioner's hope for the reversal of the decision completely fades
away. There is nothing in the Military Bases Agreement that lends
support to such an assertion. It has not become foreign soil or
territory. This country's jurisdictional rights therein, certainly not
excluding the power to tax, have been preserved. As to certain tax
matters, an appropriate exemption was provided for.
Petitioner could not have been unaware that to maintain the contrary
would be to defy reality and would be an affront to the law. While his
first assigned error is thus worded, he would seek to impart
plausibility to his claim by the ostensible invocation of the exemption
clause in the Agreement by virtue of which a "national of the United
States serving in or employed in the Philippines in connection with
the construction, maintenance, operation or defense of the bases
and residing in the Philippines only by reason of such employment"
is not to be taxed on his income unless "derived from Philippine
source or sources other than the United States sources."13 The
reliance, to repeat, is more apparent than real for as noted at the
outset of this opinion, petitioner places more faith not on the
language of the provision on exemption but on a sentiment given
expression in a 1951 opinion of this Court, which would be made to
yield such an unwarranted interpretation at war with the controlling
constitutional and international law principles. At any rate, even if
such a contention were more adequately pressed and insisted upon,
it is on its face devoid of merit as the source clearly was Philippine.
In Saura Import and Export Co. v. Meer,14 the case above referred
to, this Court affirmed a decision rendered about seven months
previously,15 holding liable as an importer, within the contemplation
of the National Internal Revenue Code provision, the trading firm
that purchased army goods from a United States government
agency in the Philippines. It is easily understandable why. If it were
not thus, tax evasion would have been facilitated. The United States
forces that brought in such equipment later disposed of as surplus,
when no longer needed for military purposes, was beyond the reach
of our tax statutes.
Justice Tuason, who spoke for the Court, adhered to such a
rationale, quoting extensively from the earlier opinion. He could
have stopped there. He chose not to do so. The transaction having
occurred in 1946, not so long after the liberation of the Philippines,
he proceeded to discuss the role of the American military contingent
in the Philippines as a belligerent occupant. In the course of such a
dissertion, drawing on his well-known gift for rhetoric and cognizant
that he was making an as if statement, he did say: "While in army
bases or installations within the Philippines those goods were in
contemplation of law on foreign soil."
It is thus evident that the first, and thereafter the controlling,
decision as to the liability for sales taxes as an importer by the
purchaser, could have been reached without any need for such
expression as that given utterance by Justice Tuason. Its value then
as an authoritative doctrine cannot be as much as petitioner would
mistakenly attach to it. It was clearly obiter not being necessary for
the resolution of the issue before this Court.16 It was an opinion
"uttered by the way."17 It could not then be controlling on the
question before us now, the liability of the petitioner for income tax
which, as announced at the opening of this opinion, is squarely
raised for the first time.18

On this point, Chief Justice Marshall could again be listened to with

profit. Thus: "It is a maxim, not to be disregarded, that general
expressions, in every opinion, are to be taken in connection with the
case in which those expressions are used. If they go beyond the
case, they may be respected, but ought not to control the judgment
in a subsequent suit when the very point is presented for
decision."19
Nor did the fact that such utterance of Justice Tuason was cited in
Co Po v. Collector of Internal Revenue,20 a 1962 decision relied

upon by petitioner, put a different complexion on the matter. Again,

it was by way of pure embellishment, there being no need to repeat
it, to reach the conclusion that it was the purchaser of army goods,
this time from military bases, that must respond for the advance
sales taxes as importer. Again, the purpose that animated the
reiteration of such a view was clearly to emphasize that through the
employment of such a fiction, tax evasion is precluded. What is
more, how far divorced from the truth was such statement was
emphasized by Justice Barrera, who penned the Co Po opinion,
thus: "It is true that the areas covered by the United States Military
Bases are not foreign territories both in the political and
geographical sense."21
Justice Tuason moreover made explicit that rather than
corresponding with reality, what was said by him was in the way of a
legal fiction. Note his stress on "in contemplation of law." To lend
further support to a conclusion already announced, being at that a
confirmation of what had been arrived at in the earlier case,
distinguished by its sound appreciation of the issue then before this
Court and to preclude any tax evasion, an observation certainly not
to be taken literally was thus given utterance.
This is not to say that it should have been ignored altogether
afterwards. It could be utilized again, as it undoubtedly was,
especially so for the purpose intended, namely to stigmatize as
without support in law any attempt on the part of a taxpayer to
escape an obligation incumbent upon him. So it was quoted with
that end in view in the Co Po case. It certainly does not justify any
effort to render futile the collection of a tax legally due, as here. That
was farthest from the thought of Justice Tuason.
What is more, the statement on its face is, to repeat, a legal fiction.
This is not to discount the uses of a fictio juris in the science of the
law. It was Cardozo who pointed out its value as a device "to
advance the ends of justice" although at times it could be "clumsy"
and even "offensive".22 Certainly, then, while far from objectionable
as thus enunciated, this observation of Justice Tuason could be
misused or misconstrued in a clumsy manner to reach an offensive
result. To repeat, properly used, a legal fiction could be relied upon
by the law, as Frankfurter noted, in the pursuit of legitimate ends.23

Petitioner then would be well-advised to take to heart such counsel

of care and circumspection before invoking not a legal fiction that
would avoid a mockery of the law by avoiding tax evasion but what
clearly is a misinterpretation thereof, leading to results that would
have shocked its originator.
The conclusion is thus irresistible that the crucial error assigned, the
only one that calls for discussion to the effect that for income tax
purposes the Clark Air Force Base is outside Philippine territory, is
utterly without merit. So we have said earlier.
3. To impute then to the statement of Justice Tuason the meaning
that petitioner would fasten on it is, to paraphrase Frankfurter, to be
guilty of succumbing to the vice of literalness. To so conclude is,

whether by design or inadvertence, to misread it. It certainly is not

susceptible of the mischievous consequences now sought to be
fastened on it by petitioner.
That it would be fraught with such peril to the enforcement of our
tax statutes on the military bases under lease to the American armed
forces could not have been within the contemplation of Justice
Tuason. To so attribute such a bizarre consequence is to be guilty of
a grave disservice to the memory of a great jurist. For his real and
genuine sentiment on the matter in consonance with the imperative
mandate of controlling constitutional and international law concepts
was categorically set forth by him, not as an obiter but as the
rationale of the decision, in People v. Acierto24 thus: "By the

[Military Bases] Agreement, it should be noted, the Philippine

Government merely consents that the United States exercise
jurisdiction in certain cases. The consent was given purely as a
matter of comity, courtesy, or expediency over the bases as part of
the Philippine territory or divested itself completely of jurisdiction
over offenses committed therein."
Nor did he stop there. He did stress further the full extent of our
territorial jurisdiction in words that do not admit of doubt. Thus:
"This provision is not and can not on principle or authority be
construed as a limitation upon the rights of the Philippine
Government. If anything, it is an emphatic recognition and
reaffirmation of Philippine sovereignty over the bases and of the
truth that all jurisdictional rights granted to the United States and not
exercised by the latter are reserved by the Philippines for itself."25
It is in the same spirit that we approach the specific question
confronting us in this litigation. We hold, as announced at the outset,
that petitioner was liable for the income tax arising from a sale of his
automobile in the Clark Field Air Base, which clearly is and cannot
otherwise be other than, within our territorial jurisdiction to tax.
4. With the mist thus lifted from the situation as it truly presents
itself, there is nothing that stands in the way of an affirmance of the
Court of Tax Appeals decision. No useful purpose would be served
by discussing the other assigned errors, petitioner himself being fully
aware that if the Clark Air Force Base is to be considered, as it ought
to be and as it is, Philippine soil or territory, his claim for exemption
from the income tax due was distinguished only by its futility.
There is further satisfaction in finding ourselves unable to indulge
petitioner in his plea for reversal. We thus manifest fealty to a
pronouncement made time and time again that the law does not
look with favor on tax exemptions and that he who would seek to be
thus privileged must justify it by words too plain to be mistaken and
too categorical to be misinterpreted.26 Petitioner had not done so.
Petitioner cannot do so.
WHEREFORE, the decision of the Court of Tax Appeals of May 12,
1966 denying the refund of P2,979.00 as the income tax paid by
petitioner is affirmed. With costs against petitioner.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and
Teehankee, JJ., concur.
Reyes, J.B.L., J., concurs in the result.
Barredo, J., took no part.

LEOPOLDO T. BACANI and MATEO A. MATOTO, PlaintiffsAppellees, vs. NATIONAL COCONUT CORPORATION, ET AL.,
Defendants, NATIONAL COCONUT CORPORATION and BOARD
OF LIQUIDATORS, Defendants-Appellants.


DECISION
BAUTISTA ANGELO, J.:
Plaintiffs herein are court stenographers assigned in Branch VI of the
Court of First Instance of Manila. During the pendency of Civil Case
No. 2293 of said court, entitled Francisco Sycip vs. National Coconut
Corporation, Assistant Corporate Counsel Federico Alikpala, counsel
for Defendant, requested said stenographers for copies of the
transcript of the stenographic notes taken by them during the
hearing. Plaintiffs complied with the request by delivering to Counsel
Alikpala the needed transcript containing 714 pages and thereafter
submitted to him their bills for the payment of their fees. The
National Coconut Corporation paid the amount of P564 to Leopoldo
T. Bacani and P150 to Mateo A. Matoto for said transcript at the rate
of P1 per page.
Upon inspecting the books of this corporation, the Auditor General
disallowed the payment of these fees and sought the recovery of the
amounts paid. On January 19, 1953, the Auditor General required
the Plaintiffs to reimburse said amounts on the strength of a circular
of the Department of Justice wherein the opinion was expressed that
the National Coconut Corporation, being a government entity, was
exempt from the payment of the fees in question. On February 6,
1954, the Auditor General issued an order directing the Cashier of
the Department of Justice to deduct from the salary of Leopoldo T.
Bacani the amount of P25 every payday and from the salary of
Mateo A. Matoto the amount of P10 every payday beginning March
30, 1954. To prevent deduction of these fees from their salaries and
secure a judicial ruling that the National Coconut Corporation is not
a government entity within the purview of section 16, Rule 130 of the
Rules of Court, this action was instituted in the Court of First Instance
of Manila.
Defendants set up as a defense that the National Coconut
Corporation is a government entity within the purview of section 2 of
the Revised Administrative Code of 1917 and, hence, it is exempt
from paying the stenographers fees under Rule 130 of the Rules of
Court. After trial, the court found for the Plaintiffs declaring (1) that
Defendant National Coconut Corporation is not a government entity
within the purview of section 16, Rule 130 of the Rules of Court; chan
roblesvirtualawlibrary(2) that the payments already made by said
Defendant to Plaintiffs herein and received by the latter from the
former in the total amount of P714, for copies of the stenographic
transcripts in question, are valid, just and legal; chan
roblesvirtualawlibraryand (3) that Plaintiffs are under no obligation
whatsoever to make a refund of these payments already received by
them. This is an appeal from said decision.
Under section 16, Rule 130 of the Rules of Court, the Government of
the Philippines is exempt from paying the legal fees provided for
therein, and among these fees are those which stenographers may
charge for the transcript of notes taken by them that may be
requested by any interested person (section 8). The fees in question
are for the transcript of notes taken during the hearing of a case in
which the National Coconut Corporation is interested, and the
transcript was requested by its assistant corporate counsel for the
use of said corporation.
On the other hand, section 2 of the Revised Administrative Code
defines the scope of the term Government of the Republic of the
Philippines as follows:chanroblesvirtuallawlibrary
The Government of the Philippine Islands is a term which refers to
the corporate governmental entity through which the functions of
government are exercised throughout the Philippine Islands,

including, save as the contrary appears from the context, the various
arms through which political authority is made effective in said
Islands, whether pertaining to the central Government or to the
provincial or municipal branches or other form of local government.
The question now to be determined is whether the National
Coconut Corporation may be considered as included in the term
Government of the Republic of the Philippines for the purposes of
the exemption of the legal fees provided for in Rule 130 of the Rules
of Court.
As may be noted, the term Government of the Republic of the
Philippines refers to a government entity through which the
functions of government are exercised, including the various arms
through which political authority is made effective in the Philippines,
whether pertaining to the central government or to the provincial or
municipal branches or other form of local government. This requires
a little digression on the nature and functions of our government as
instituted in our Constitution.
To begin with, we state that the term Government may be defined
as that institution or aggregate of institutions by which an
independent society makes and carries out those rules of action
which are necessary to enable men to live in a social state, or which
are imposed upon the people forming that society by those who
possess the power or authority of prescribing them (U.S. vs. Dorr, 2
Phil., 332). This institution, when referring to the national
government, has reference to what our Constitution has established
composed of three great departments, the legislative, executive,
and the judicial, through which the powers and functions of
government are exercised. These functions are
twofold:chanroblesvirtuallawlibrary constitute and ministrant. The
former are those which constitute the very bonds of society and are
compulsory in nature; chan roblesvirtualawlibrarythe latter are those
that are undertaken only by way of advancing the general interests
of society, and are merely optional. President Wilson enumerates the
constituent functions as follows:chanroblesvirtuallawlibrary
(1) The keeping of order and providing for the protection of
persons and property from violence and robbery.
(2) The fixing of the legal relations between man and wife and
between parents and children.
(3) The regulation of the holding, transmission, and interchange of
property, and the determination of its liabilities for debt or for crime.
(4) The determination of contract rights between individuals.
(5) The definition and punishment of crime.
(6) The administration of justice in civil cases.
(7) The determination of the political duties, privileges, and
relations of citizens.
( 8 )
Dealings of the state with foreign
powers:chanroblesvirtuallawlibrary the preservation of the state from
external danger or encroachment and the advancement of its
international interests. (Malcolm, The Government of the Philippine
Islands, p. 19.)
The most important of the ministrant functions
are:chanroblesvirtuallawlibrary public works, public education, public
charity, health and safety regulations, and regulations of trade and
industry. The principles deter mining whether or not a government
shall exercise certain of these optional functions
are:chanroblesvirtuallawlibrary (1) that a government should do for
the public welfare those things which private capital would not
naturally undertake and (2) that a government should do these
things which by its very nature it is better equipped to administer for
the public welfare than is any private individual or group of

individuals. (Malcolm, The Government of the Philippine Islands, pp.

19-20.)
From the above we may infer that, strictly speaking, there are
functions which our government is required to exercise to promote
its objectives as expressed in our Constitution and which are
exercised by it as an attribute of sovereignty, and those which it may
exercise to promote merely the welfare, progress and prosperity of
the people. To this latter class belongs the organization of those
corporations owned or controlled by the government to promote
certain aspects of the economic life of our people such as the
National Coconut Corporation. These are what we call governmentowned or controlled corporations which may take on the form of a
private enterprise or one organized with powers and formal
characteristics of a private corporations under the Corporation Law.
The question that now arises is:chanroblesvirtuallawlibrary Does the
fact that these corporation perform certain functions of government
make them a part of the Government of the Philippines?
The answer is simple:chanroblesvirtuallawlibrary they do not acquire
that status for the simple reason that they do not come under the
classification of municipal or public corporation. Take for instance the
National Coconut Corporation. While it was organized with the
purpose of adjusting the coconut industry to a position
independent of trade preferences in the United States and of
providing Facilities for the better curing of copra products and the
proper utilization of coconut by-products, a function which our
government has chosen to exercise to promote the coconut industry,
however, it was given a corporate power separate and distinct from
our government, for it was made subject to the provisions of our
Corporation Law in so far as its corporate existence and the powers
that it may exercise are concerned (sections 2 and 4, Commonwealth
Act No. 518). It may sue and be sued in the same manner as any
other private corporations, and in this sense it is an entity different
from our government. As this Court has aptly said, The mere fact
that the Government happens to be a majority stockholder does not
make it a public corporation (National Coal Co. vs. Collector of
Internal Revenue, 46 Phil., 586-587). By becoming a stockholder in
the National Coal Company, the Government divested itself of its
sovereign character so far as respects the transactions of the
corporation cralaw . Unlike the Government, the corporation may be
sued without its consent, and is subject to taxation. Yet the National
Coal Company remains an agency or instrumentality of
government. (Government of the Philippine Islands vs. Springer, 50
Phil., 288.)
To recapitulate, we may mention that the term Government of the
Republic of the Philippines used in section 2 of the Revised
Administrative Code refers only to that government entity through
which the functions of the government are exercised as an attribute
of sovereignty, and in this are included those arms through which
political authority is made effective whether they be provincial,
municipal or other form of local government. These are what we call
municipal corporations. They do not include government entities
which are given a corporate personality separate and distinct from
the government and which are governed by the Corporation Law.
Their powers, duties and liabilities have to be determined in the light
of that law and of their corporate charters. They do not therefore
come within the exemption clause prescribed in section 16, Rule 130
of our Rules of Court.
Public corporations are those formed or organized for the
government of a portion of the State. (Section 3, Republic Act No.
1459, Corporation Law).

The generally accepted definition of a municipal corporation would

only include organized cities and towns, and like organizations, with
political and legislative powers for the local, civil government and
police regulations of the inhabitants of the particular district included
in the boundaries of the corporation. Heller vs. Stremmel, 52 Mo.
309, 312.
In its more general sense the phrase municipal corporation may
include both towns and counties, and other public corporations
created by government for political purposes. In its more common
and limited signification, it embraces only incorporated villages,
towns and cities. Dunn vs. Court of County Revenues, 85 Ala. 144,
146, 4 So. 661. (McQuillin, Municipal Corporations, 2nd ed., Vol. 1,
p. 385.)
We may, therefore, define a municipal corporation in its historical
and strict sense to be the incorporation, by the authority of the
government, of the inhabitants of a particular place or district, and
authorizing them in their corporate capacity to exercise subordinate
specified powers of legislation and regulation with respect to their
local and internal concerns. This power of local government is the
distinctive purpose and the distinguishing feature of a municipal
corporation proper. (Dillon, Municipal Corporations, 5th ed., Vol. I,
p. 59.)
It is true that under section 8, Rule 130, stenographers may only
charge as fees P0.30 for each page of transcript of not less than 200
words before the appeal is taken and P0.15 for each page after the
filing of the appeal, but in this case the National Coconut
Corporation has agreed and in fact has paid P1.00 per page for the
services rendered by the Plaintiffs and has not raised any objection
to the amount paid until its propriety was disputed by the Auditor
General. The payment of the fees in question became therefore
contractual and as such is valid even if it goes beyond the limit
prescribed in section 8, Rule 130 of the Rules of Court.
As regards the question of procedure raised by Appellants, suffice it
to say that the same is insubstantial, considering that this case refers
not to a money claim disapproved by the Auditor General but to an
action of prohibition the purpose of which is to restrain the officials
concerned from deducting from Plaintiffs salaries the amount paid
to them as stenographers fees. This case does not come under
section 1, Rule 45 of the Rules of Court relative to appeals from a
decision of the Auditor General.
Wherefore, the decision appealed from is affirmed, without
pronouncement as to costs.

THE AGRICULTURAL CREDIT and COOPERATIVE FINANCING

ADMINISTRATION (ACCFA), petitioner,
vs.
ACCFA SUPERVISORS' ASSOCIATION, ACCFA WORKERS'
ASSOCIATION, and THE COURT OF INDUSTRIAL RELATIONS,
respondents.
Deogracias E. Lerma and Esmeraldo U. Guloy for petitioner
Agricultural Credit and Cooperative Financing Administration.
Office of the Agrarian Counsel, Department of Justice for petitioner
Agricultural Credit Administration
J. C. Espinas and Associates for respendents Confederation of
Unions in Government Corporations Offices, et al. Mariano B. Tuason
for respondent Court of Industrial Relations.
MAKALINTAL, J.:

These are two separate appeals by certiorari from the decision dated
March 25, 1963 (G.R. No. L-21484) and the order dated May 21,
1964 (G.R. No. L-23605) as affirmed by the resolutions en banc, of
the Court of Industrial Relations, in Cases Nos. 3450-ULP and 1327MC, respectively. The parties, except the Confederation of Unions in
Government Corporations and Offices (CUGCO), being practically
the same and the principal issues involved related, only one decision
is now rendered in these two cases.
The Agricultural Credit and Cooperative Financing Administration
(ACCFA) was a government agency created under Republic Act No.
821, as amended. Its administrative machinery was reorganized and
its name changed to Agricultural Credit Administration (ACA) under
the Land Reform Code (Republic Act No. 3844). On the other hand,
the ACCFA Supervisors' Association (ASA) and the ACCFA Workers'
Association (AWA), hereinafter referred to as the Unions, are labor
organizations composed of the supervisors and the rank-and-file
employees, respectively, in the ACCFA (now ACA).
G.R. No. L-21484
On September 4, 1961 a collective bargaining agreement, which was
to be effective for a period of one (1) year from July 1, 1961, was
entered into by and between the Unions and the ACCFA. A few
months thereafter, the Unions started protesting against alleged
violations and non-implementation of said agreement. Finally, on
October 25, 1962 the Unions declared a strike, which was ended
when the strikers voluntarily returned to work on November 26,
1962.
On October 30, 1962 the Unions, together with its mother union, the
Confederation of Unions in Government Corporations and Offices
(CUGCO), filed a complaint with the Court of Industrial Relations
against the ACCFA (Case No. 3450-ULP) for having allegedly
committed acts of unfair labor practice, namely: violation of the
collective bargaining agreement in order to discourage the members
of the Unions in the exercise of their right to self-organization,
discrimination against said members in the matter of promotions,
and refusal to bargain. The ACCFA denied the charges and
interposed as affirmative and special defenses lack of jurisdiction of
the CIR over the case, illegality of the bargaining contract, expiration
of said contract and lack of approval by the office of the President of
the fringe benefits provided for therein. Brushing aside the
foregoing defenses, the CIR in its decision dated March 25, 1963
ordered the ACCFA:
1. To cease and desist from committing further acts tending to
discourage the members of complainant unions in the exercise
of their right to self-organization;
2. To comply with and implement the provision of the collective
bargaining contract executed on September 4, 1961, including
the payment of P30.00 a month living allowance;
3. To bargain in good faith and expeditiously with the herein
complainants.
The ACCFA moved to reconsider but was turned down in a
resolution dated April 25, 1963 of the CIR en banc. Thereupon it
brought this appeal by certiorari.
The ACCFA raises the following issues in its petition, to wit:
1. Whether or not the respondent court has jurisdiction over this
case, which in turn depends on whether or not ACCFA exercised
governmental or proprietary functions.
2. Whether or not the collective bargaining agreement between
the petitioner and the respondent union is valid; if valid,
whether or not it has already lapsed; and if not, whether or not
its (sic) fringe benefits are already enforceable.

3. Whether or not there is a legal and/or factual basis for the

finding of the respondent court that the petitioner had
committed acts of unfair labor practice.
4. Whether or not it is within the competence of the court to
enforce the collective bargaining agreement between the
petitioner and the respondent unions, the same having already
expired.
G.R. No. L-23605
During the pendency of the above mentioned case (G.R. No.
L-21484), specifically on August 8, 1963, the President of the
Philippines signed into law the Agricultural Land Reform Code
(Republic Act No. 3844), which among other things required the
reorganization of the administrative machinery of the Agricultural
Credit and Cooperative Financing Administration (ACCFA) and
changed its name to Agricultural Credit Administration (ACA). On
March 17, 1964 the ACCFA Supervisors' Association and the ACCFA
Workers' Association filed a petition for certification election with the
Court of Industrial Relations (Case No. 1327-MC) praying that they
be certified as the exclusive bargaining agents for the supervisors
and rank-and-file employees, respectively, in the ACA. The trial
Court in its order dated March 30, 1964 directed the Manager or
Officer-in-Charge of the ACA to allow the posting of said order "for
the information of all employees and workers thereof," and to
answer the petition. In compliance therewith, the ACA, while
admitting most of the allegations in the petition, denied that the
Unions represented the majority of the supervisors and rank-and-file
workers, respectively, in the ACA. It further alleged that the petition
was premature, that the ACA was not the proper party to be notified
and to answer the petition, and that the employees and supervisors
could not lawfully become members of the Unions, nor be
represented by them. However, in a joint manifestation of the Unions
dated May 7, 1964, with the conformity of the ACA Administrator
and of the Agrarian Counsel in his capacity as such and as counsel
for the National Land Reform Council, it was agreed "that the union
petitioners in this case represent the majority of the employees in
their respective bargaining units" and that only the legal issues
raised would be submitted for the resolution of the trial Court.
Finding the remaining grounds for ACA's opposition to the petition
to be without merit, the trial Court in its order dated May 21, 1964
certified "the ACCFA Workers' Association and the ACCFA
Supervisors' Association as the sole and exclusive bargaining
representatives of the rank-and-file employees and supervisors,
respectively, of the Agricultural Credit Administration." Said order
was affirmed by the CIR en banc in its resolution dated August 24,
1964.
On October 2, 1964 the ACA filed in this Court a petition for
certiorari with urgent motion to stay the CIR order of May 21, 1964.
In a resolution dated October 6, 1964, this Court dismissed the
petition for "lack of adequate allegations," but the dismissal was
later reconsidered when the ACA complied with the formal
requirement stated in said resolution. As prayed for, this Court
ordered the CIR to stay the execution of its order of May 21, 1964.
In this appeal, the ACA in effect challenges the jurisdiction of the CIR
to entertain the petition of the Unions for certification election on
the ground that it (ACA) is engaged in governmental functions. The
Unions join the issue on this single point, contending that the ACA
forms proprietary functions.
Under Section 3 of the Agricultural Land Reform Code the ACA was
established, among other governmental agencies,1 to extend credit

and similar assistance to agriculture, in pursuance of the policy

enunciated in Section 2 as follows:
SEC. 2. Declaration of Policy. It is the policy of the State:
(1) To establish owner-cultivatorships and the economic family-size
farm as the basis of Philippine agriculture and, as a consequence,
divert landlord capital in agriculture to industrial development;
(2) To achieve a dignified existence for the small farmers free from
pernicious institutional restraints and practices;
(3) To create a truly viable social and economic structure in
agriculture conducive to greater productivity and higher farm
incomes;
(4) To apply all labor laws equally and without discrimination to both
industrial and agricultural wage earners;
(5) To provide a more vigorous and systematic land resettlement
program and public land distribution; and
(6) To make the small farmers more independent, self-reliant and
responsible citizens, and a source of genuine strength in our
democratic society.
The implementation of the policy thus enunciated, insofar as the role
of the ACA therein is concerned, is spelled out in Sections 110 to
118, inclusive, of the Land Reform Code. Section 110 provides that
"the administrative machinery of the ACCFA shall be reorganized to
enable it to align its activities with the requirements and objective of
this Code and shall be known as the Agricultural Credit
Administration." Under Section 112 the sum of P150,000,000 was
appropriated out of national funds to finance the additional credit
functions of the ACA as a result of the land reform program laid
down in the Code. Section 103 grants the ACA the privilege of
rediscounting with the Central Bank, the Development Bank of the
Philippines and the Philippine National Bank. Section 105 directs the
loaning activities of the ACA "to stimulate the development of
farmers' cooperatives," including those "relating to the production
and marketing of agricultural products and those formed to manage
and/or own, on a cooperative basis, services and facilities, such as
irrigation and transport systems, established to support production
and/or marketing of agricultural products." Section 106 deals with
the extension by ACA of credit to small farmers in order to stimulate
agricultural production. Sections 107 to 112 lay down certain
guidelines to be followed in connection with the granting of loans,
such as security, interest and supervision of credit. Sections 113 to
118, inclusive, invest the ACA with certain rights and powers not
accorded to non-governmental entities, thus:
SEC. 113. Auditing of Operations. For the effective supervision of
farmers' cooperatives, the head of the Agricultural Credit
Administration shall have the power to audit their operations,
records and books of account and to issue subpoena and subpoena
duces tecum to compel the attendance of witnesses and the
production of books, documents and records in the conduct of such
audit or of any inquiry into their affairs. Any person who, without
lawful cause, fails to obey such subpoena or subpoena duces tecum
shall, upon application of the head of Agricultural Credit
Administration with the proper court, be liable to punishment for
contempt in the manner provided by law and if he is an officer of the
Association, to suspension or removal from office.
SEC. 114. Prosecution of officials. The Agricultural Credit
Administration, through the appropriate provincial or city fiscal, shall
have the power to file and prosecute any and all actions which it may
have against any and all officials or employees of farmers'
cooperatives arising from misfeasance or malfeasance in office.

SEC. 115. Free Notarial Service. Any justice of the peace, in his
capacity as notary ex-officio, shall render service free of charge to
any person applying for a loan under this Code either in
administering the oath or in the acknowledgment of instruments
relating to such loan.
SEC. 116. Free Registration of Deeds. Any register of deeds shall
accept for registration, free of charge any instrument relative to a
loan made under this Code.
SEC. 117. Writing-off Unsecured and Outstanding Loans. Subject
to the approval of the President upon recommendation of the
Auditor General, the Agricultural Credit Administration may write-off
from its books, unsecured and outstanding loans and accounts
receivable which may become uncollectible by reason of the death
or disappearance of the debtor, should there be no visible means of
collecting the same in the foreseeable future, or where the debtor
has been verified to have no income or property whatsoever with
which to effect payment. In all cases, the writing-off shall be after five
years from the date the debtor defaults.
SEC. 118. Exemption from Duties, Taxes and Levies. The
Agricultural Credit Administration is hereby exempted from the
payment of all duties, taxes, levies, and fees, including docket and
sheriff's fees, of whatever nature or kind, in the performance of its
functions and in the exercise of its powers hereunder.
The power to audit the operations of farmers' cooperatives and
otherwise inquire into their affairs, as given by Section 113, is in the
nature of the visitorial power of the sovereign, which only a
government agency specially delegated to do so by the Congress
may legally exercise.
On March 19, 1964 Executive Order No. 75 was promulgated. It is
entitled: "Rendering in Full Force and Effect the Plan of
Reorganization Proposed by the Special Committee on
Reorganization of Agencies for Land Reform for the Administrative
Machinery of the Agricultural Land Reform Code," and contains the
following pertinent provisions:
Section 3. The Land Reform Project Administration2 shall be
considered a single organization and the personnel complement of
the member agencies including the legal officers of the Office of the
Agrarian Counsel which shall provide legal services to the LRPA shall
be regarded as one personnel pool from which the requirements of
the operations shall be drawn and subject only to the civil service
laws, rules and regulations, persons from one agency may be freely
assigned to positions in another agency within the LRPA when the
interest of the service so demands.
Section 4. The Land Reform Project Administration shall be
considered as one organization with respect to the standardization of
job descriptions position classification and wage and salary
structures to the end that positions involving the same or equivalent
qualifications and equal responsibilities and effort shall have the
same remuneration.
Section 5. The Civil Service laws, rules and regulations with respect
to promotions, particularly in the consideration of person next in
rank, shall be made applicable to the Land Reform Project
Administration as a single agency so that qualified individuals in one
member agency must be considered in considering promotion to
higher positions in another member agency.
The implementation of the land reform program of the government
according to Republic Act No. 3844 is most certainly a
governmental, not a proprietary, function; and for that purpose
Executive Order No. 75 has placed the ACA under the Land Reform
Project Administration together with the other member agencies, the

personnel complement of all of which are placed in one single pool

and made available for assignment from one agency to another,
subject only to Civil Service laws, rules and regulations, position
classification and wage structures.
The appointing authority in respect of the officials and employees of
the ACA is the President of the Philippines, as stated in a 1st
indorsement by his office to the Chairman of the National Reform
Council dated May 22, 1964, as follows:
Appointments of officials and employees of the National Land
Reform Council and its agencies may be made only by the President,
pursuant to the provisions of Section 79(D) of the Revised
Administrative Code. In accordance with the policy and practice,
such appointments should be prepared for the signature of the
Executive Secretary, "By Authority ofthe President".3
When the Agricultural Reform Code was being considered by the
Congress, the nature of the ACA was the subject of the following
exposition on the Senate floor:
Senator Tolentino: . . . . "The ACA is not going to be a profit making
institution. It is supposed to be a public service of the government to
the lessees and farmer-owners of the lands that may be bought after
expropriation from owners. It is the government here that is the
lender. The government should not exact a higher interest than what
we are telling a private landowner now in his relation to his tenants if
we give to their farmers a higher rate of interest . . . ." (pp. 17 & 18,
Senate Journal No. 16, July 3, 1963)
The reason is obvious, to pinpoint responsibility for many losses in
the government, in order to avoid irresponsible lending of
government money to pinpoint responsibility for many losses . . . .
Senator Manglapus: ". . . But assuming that hypothesis, that is the
reason why we are appropriating P150,000,000.00 for the
Agricultural Credit Administration which will go to intensified credit
operations on the barrio level . . ." (p. 3, Senate Journal No. 7).
That it is the reason why we are providing for the expansion of the
ACCFA and the weeding out of the cooperative activity of the
ACCFA and turning this over to the Agricultural Productivity
Commission, so that the Agricultural Credit Administration will
concentrate entirely on the facilitation of credit on the barrio level
with the massive support of 150 million provided by the
government. . . . (pp. 4 & 5 of Senate Journal No. 7, July 3, 1963)
. . . But by releasing them from this situation, we feel that we are
putting them in a much better condition than that in which they are
found by providing them with a business-like way of obtaining credit,
not depending on a paternalistic system but one which is businesslike that is to say, a government office, which on the barrio level
will provide them that credit directly . . . . (p. 40, Senate Journal No.
7, July 3, 1963) (emphasis supplied).
The considerations set forth above militate quite strongly against the
recognition of collective bargaining powers in the respondent
Unions within the context of Republic Act No. 875, and hence
against the grant of their basic petition for certification election as
proper bargaining units. The ACA is a government office or agency
engaged in governmental, not proprietary functions. These functions
may not be strictly what President Wilson described as "constituent"
(as distinguished from "ministrant"),4 such as those relating to the
maintenance of peace and the prevention of crime, those regulating
property and property rights, those relating to the administration of
justice and the determination of political duties of citizens, and those
relating to national defense and foreign relations. Under this
traditional classification, such constituent functions are exercised by
the State as attributes of sovereignty, and not merely to promote the

welfare, progress and prosperity of the people these letter

functions being ministrant he exercise of which is optional on the
part of the government.
The growing complexities of modern society, however, have
rendered this traditional classification of the functions of government
quite unrealistic, not to say obsolete. The areas which used to be left
to private enterprise and initiative and which the government was
called upon to enter optionally, and only "because it was better
equipped to administer for the public welfare than is any private
individual or group of individuals,"5 continue to lose their welldefined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times. Here as almost
everywhere else the tendency is undoubtedly towards a greater
socialization of economic forces. Here of course this development
was envisioned, indeed adopted as a national policy, by the
Constitution itself in its declaration of principle concerning the
promotion of social justice.
It was in furtherance of such policy that the Land Reform Code was
enacted and the various agencies, the ACA among them,
established to carry out its purposes. There can be no dispute as to
the fact that the land reform program contemplated in the said Code
is beyond the capabilities of any private enterprise to translate into
reality. It is a purely governmental function, no less than, say, the
establishment and maintenance of public schools and public
hospitals. And when, aside from the governmental objectives of the
ACA, geared as they are to the implementation of the land reform
program of the State, the law itself declares that the ACA is a
government office, with the formulation of policies, plans and
programs vested no longer in a Board of Governors, as in the case of
the ACCFA, but in the National Land Reform Council, itself a
government instrumentality; and that its personnel are subject to
Civil Service laws and to rules of standardization with respect to
positions and salaries, any vestige of doubt as to the governmental
character of its functions disappears.
In view of the foregoing premises, we hold that the respondent
Unions are not entitled to the certification election sought in the
Court below. Such certification is admittedly for purposes of
bargaining in behalf of the employees with respect to terms and
conditions of employment, including the right to strike as a coercive
economic weapon, as in fact the said unions did strike in 1962
against the ACCFA (G.R. No. L-21824).6 This is contrary to Section 11
of Republic Act No. 875, which provides:
SEC. 11. Prohibition Against Strike in the Government The terms
and conditions of employment in the Government, including any
political subdivision or instrumentality thereof, are governed by law
and it is declared to be the policy of this Act that employees therein
shall not strike for the purposes of securing changes or modification
in their terms and conditions of employment. Such employees may
belong to any labor organization which does not impose the
obligation to strike or to join in strike: Provided, However, that this
section shall apply only to employees employed in governmental
functions of the Government including but not limited to
governmental corporations.7
With the reorganization of the ACCFA and its conversion into the
ACA under the Land Reform Code and in view of our ruling as to the
governmental character of the functions of the ACA, the decision of
the respondent Court dated March 25, 1963, and the resolution en
banc affirming it, in the unfair labor practice case filed by the
ACCFA, which decision is the subject of the present review in G. R.

No. L-21484, has become moot and academic, particularly insofar as

the order to bargain collectively with the respondent Unions is
concerned.
What remains to be resolved is the question of fringe benefits
provided for in the collective bargaining contract of September 4,
1961. The position of the ACCFA in this regard is that the said fringe
benefits have not become enforceable because the condition that
they should first be approved by the Office of the President has not
been complied with. The Unions, on the other hand, contend that no
such condition existed in the bargaining contract, and the
respondent Court upheld this contention in its decision.
It is to be listed that under Section 3, Article XIV, of the agreement,
the same "shall not become effective unless and until the same is
duly ratified by the Board of Governors of the Administration." Such
approval was given even before the formal execution of the
agreement, by virtue of "Resolution No. 67, Regular Meeting No. 7,
FY 1960-61, held on August 17, 1961," but with the proviso that
"the fringe benefits contained therein shall take effect only if
approved by the office of the President." The condition is, therefore,
deemed to be incorporated into the agreement by reference.
On October 23, 1962 the Office of the President, in a letter signed
by the Executive Secretary, expressed its approval of the bargaining
contract "provided the salaries and benefits therein fixed are not in
conflict with applicable laws and regulations, are believed to be
reasonable considering the exigencies of the service and the welfare
of the employees, and are well within the financial ability of the
particular corporation to bear."
On July 1, 1963 the ACCFA management and the Unions entered
into an agreement for the implementation of the decision of the
respondent Court concerning the fringe benefits, thus:
In the meantime, only Cost of Living Adjustment, Longevity Pay, and
Night Differential Benefits accruing from July 1, 1961 to June 30,
1963 shall be paid to all employees entitled thereto, in the following
manner:
A) The sum of P180,000 shall be set aside for the payment of:
1) Night differential benefits for Security Guards.
2) Cost of Living Adjustment and Longevity Pay.
3) The unpaid balance due employees on Item A (1) and (2) this
paragraph shall be paid in monthly installments as finances permit
but not beyond December 20, 1963.
3. All benefits accruing after July 1, 1963, shall be allowed to
accumulate but payable only after all benefits accruing up to June
30, 1963, as per CIR decision hereinabove referred to shall have
been settled in full; provided, however, that commencing July 1,
1963 and for a period of only two (2) months thereafter (during which
period the ACCFA and the Unions shall negotiate a new Collective
Bargaining Agreement) the provisions of the September 4, 1961
Collective Bargaining Agreement shall be temporarily suspended,
except as to Cost of Living Adjustment and "political" or noneconomic privileges and benefits thereunder.
On July 24, 1963 the ACCFA Board of Governors ratified the
agreement thus entered into, pursuant to the provision thereof
requiring such ratification, but with the express qualification that the
same was "without prejudice to the pending appeal in the Supreme
Court . . . in Case No. 3450-ULP." The payment of the fringe benefits
agreed upon, to our mind, shows that the same were within the
financial capability of the ACCFA then, and hence justifies the
conclusion that this particular condition imposed by the Office of the
President in its approval of the bargaining contract was satisfied.

We hold, therefore, that insofar as the fringe benefits already paid

are concerned, there is no reason to set aside the decision of the
respondent Court, but that since the respondent Unions have no
right to the certification election sought by them nor, consequently,
to bargain collectively with the petitioner, no further fringe benefits
may be demanded on the basis of any collective bargaining
agreement.
The decisions and orders appealed from are set aside and/or
modified in accordance with the foregoing pronouncements. No
costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez, Castro, Teehankee
and Barredo, JJ., concur.
Zaldivar, J., concurs in the result.

Co Kim Chan v Valdez Tan Keh

Facts of the case:

Co Kim Chan had a pending civil case, initiated during the
Japanese occupation, with the Court of First Instance of Manila.
After the
Liberation of the Manila and the American occupation, Judge
ArsenioDizonrefused to continue hearings on the case, saying that
a proclamation issued by General Douglas MacArthur had
invalidated and
nullified all judicial proceedings and judgments of the courts of the
Philippines
and, without an enabling law, lower courts have no jurisdiction to
take
cognizance of and continue judicial proceedings pending in the
courts of the
defunct Republic of the Philippines (the Philippine government
under the
Japanese).
The court resolved three issues:
!1. Whether or not judicial proceedings and
decisions made during the Japanese occupation were valid and
remained
valid even after the American occupation;
!2. Whether or not the October 23,
1944 proclamation MacArthur issued in which he declared that all
laws,
regulations and processes of any other government in the
Philippines than
that of the said Commonwealth are null and void and without legal
effect in
areas of the Philippines free of enemy occupation and control
invalidated all
judgments and judicial acts and proceedings of the courts;!3. And
whether or
not if they were not invalidated by MacArthurs proclamation, those
courts
could continue hearing the cases pending before them.
Ratio: Political and international law recognizes that all acts and
proceedings
of a de facto government are good and valid. The Philippine
Executive
Commission and the Republic of the Philippines under the Japanese
occupation may be considered de facto governments, supported by
the

military force and deriving their authority from the laws of

war.!Municipal laws
and private laws, however, usually remain in force unless suspended
or
changed by the conqueror. Civil obedience is expected even during
war, for
the existence of a state of insurrection and war did not loosen the
bonds of
society, or do away with civil government or the regular
administration of the
laws. And if they were not valid, then it would not have been
necessary for
MacArthur to come out with a proclamation abrogating them.!The
second
question, the court said, hinges on the interpretation of the phrase
processes
of any other government and whether or not he intended it to annul
all other
judgments and judicial proceedings of courts during the Japanese
military
occupation.!IF, according to international law, non-political
judgments and
judicial proceedings of de facto governments are valid and remain
valid even
after the occupied territory has been liberated, then it could not
have been
MacArthurs intention to refer to judicial processes, which would be
in violation
of international law.!A well-known rule of statutory construction is:
A statute
ought never to be construed to violate the law of nations if any other
possible
construction remains.!Another is that where great inconvenience
will result
from a particular construction, or great mischief done, such
construction is to
be avoided, or the court ought to presume that such construction
was not
intended by the makers of the law, unless required by clear and
unequivocal
words.!Annulling judgments of courts made during the Japanese
occupation
would clog the dockets and violate international law, therefore what
MacArthur
said should not be construed to mean that judicial proceedings are
included in
the phrase processes of any other governments.!In the case of US
vs
Reiter, the court said that if such laws and institutions are continued
in use by
the occupant, they become his and derive their force from him. The
laws and
courts of the Philippines did not become, by being continued as
required by
the law of nations, laws and courts of Japan.!It is a legal maxim
that,
excepting of a political nature, law once established continues until
changed

10

by some competent legislative power. IT IS NOT CHANGED

MERELY BY
CHANGE OF SOVEREIGNTY. Until, of course, the new sovereign by
legislative act creates a change.!Therefore, even assuming that
Japan
legally acquired sovereignty over the Philippines, and the laws and
courts of
the Philippines had become courts of Japan, as the said courts and
laws
creating and conferring jurisdiction upon them have continued in
force until
now, it follows that the same courts may continue exercising the
same
jurisdiction over cases pending therein before the restoration of the
Commonwealth Government, until abolished or the laws creating
and
conferring jurisdiction upon them are repealed by the said
government.!DECISION: Writ of mandamus issued to the judge of
the Court
of First Instance of Manila, ordering him to take cognizance of and
continue to
final judgment the proceedings in civil case no. 3012.
Summary of ratio:!1. International law says the acts of a de facto
government
are valid and civil laws continue even during occupation unless
repealed.!2.
MacArthur annulled proceedings of other governments, but this
cannot be
applied on judicial proceedings because such a construction would
violate the
law of nations.!3. Since the laws remain valid, the court must
continue
hearing the case pending before it.!***3 kinds of de facto
government: one
established through rebellion (govt gets possession and control
through force
or the voice of the majority and maintains itself against the will of the
rightful
government)!through occupation (established and maintained by
military
forces who invade and occupy a territory of the enemy in the course
of war;
denoted as a government of paramount force)!through insurrection
[G.R. No. 73748, May 22, 1986]
LAWYERS LEAGUE FOR A BETTER PHILIPPINES AND/OR
OLIVER A. LOZANO VS. PRESIDENT CORAZON C. AQUINO, ET
AL.
SIRS/MESDAMES:
Quoted hereunder, for your information, is a resolution of this Court
MAY 22, 1986.
In G.R. No. 73748, Lawyers League for a Better Philippines vs.
President Corazon C. Aquino, et al.; G.R. No. 73972, People's
Crusade for Supremacy of the Constitution vs. Mrs. Cory Aquino, et
al., and G.R. No. 73990, Councilor Clifton U. Ganay vs. Corazon C.
Aquino, et al., the legitimacy of the government of President Aquino

is questioned. It is claimed that her government is illegal because it

was not established pursuant to the 1973 Constitution.
As early as April 10, 1986, this Court* had already voted to
dismiss the petitions for the reasons to be stated below. On
April 17, 1986, Atty. Lozano as counsel for the petitioners in
G.R. Nos. 73748 and 73972 withdrew the petitions and
manifested that they would pursue the question by extra-judicial
methods. The withdrawal is functus oficio.
The three petitions obviously are not impressed with merit.
Petitioners have no personality to sue and their petitions state no
cause of action. For the legitimacy of the Aquino government is not
a justiciable matter. It belongs to the realm of politics where only the
people of the Philippines are the judge. And the people have made
the judgment; they have accepted the government of President
Corazon C. Aquino which is in effective control of the entire country
so that it is not merely a de factogovernment but is in fact and law a
de jure government. Moreover, the community of nations has
recognized the legitimacy of the present government. All the eleven
members of this Court, as reorganized, have sworn to uphold the
fundamental law of the Republic under her government.
In view of the foregoing, the petitions are hereby dismissed.

Very truly yours,

(Sgd.) GLORIA C. PARAS
Clerk of Court

* The Court was then composed of Teehankee, C.J. and Abad

Santos., Melencio-Herrera, Plana, Escolin, Gutierrez, Jr., Cuevas,
Alampay and Patajo, JJ.-----------------------------------------DIGEST
FACTS:
On February 25, 1986, President Corazon Aquino issued
Proclamation No. 1 announcing that she and Vice President Laurel
were taking power.
On March 25, 1986, proclamation No.3 was issued providing the
basis of the Aquino government assumption of power by stating that
the "new government was installed through a direct exercise of the
power of the Filipino people assisted by units of the New Armed
Forces of the Philippines."
ISSUE:
Whether or not the government of Corazon Aquino is legitimate.
HELD:
Yes. The legitimacy of the Aquino government is not a justiciable
matter but belongs to the realm of politics where only the people
are the judge.
The Court further held that:
The people have accepted the Aquino government which is in
effective control of the entire country;
It is not merely a de facto government but in fact and law a de jure
government; and

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The community of nations has recognized the legitimacy of the new

government.

G.R. No. 76180 October 24, 1986

IN RE: SATURNINO V. BERMUDEZ, petitioner.
R E S O L U T IO N

PER CURIAM:
In a petition for declaratory relief impleading no respondents,
petitioner, as a lawyer, quotes the first paragraph of Section 5 (not
Section 7 as erroneously stated) of Article XVIII of the proposed 1986
Constitution, which provides in full as follows:
Sec. 5. The six-year term of the incumbent President and VicePresident elected in the February 7, 1986 election is, for purposes of
synchronization of elections, hereby extended to noon of June 30,
1992.
The first regular elections for the President and Vice-President under
this Constitution shall be held on the second Monday of May, 1992.
Claiming that the said provision "is not clear" as to whom it refers,
he then asks the Court "to declare and answer the question of the
construction and definiteness as to who, among the present
incumbent President Corazon Aquino and Vice-President Salvador
Laurel and the elected President Ferdinand E. Marcos and VicePresident Arturo M. Tolentino being referred to under the said
Section 7 (sic) of ARTICLE XVIII of the TRANSITORY PROVISIONS of
the proposed 1986 Constitution refers to, . ...
The petition is dismissed outright for lack of jurisdiction and for lack
for cause of action.
Prescinding from petitioner's lack of personality to sue or to bring
this action, (Tan vs. Macapagal, 43 SCRA 677), it is elementary that
this Court assumes no jurisdiction over petitions for declaratory
relief. More importantly, the petition amounts in effect to a suit
against the incumbent President of the Republic, President Corazon
C. Aquino, and it is equally elementary that incumbent Presidents
are immune from suit or from being brought to court during the
period of their incumbency and tenure.
The petition furthermore states no cause of action. Petitioner's
allegation of ambiguity or vagueness of the aforequoted provision is
manifestly gratuitous, it being a matter of public record and common
public knowledge that the Constitutional Commission refers therein
to incumbent President Corazon C. Aquino and Vice-President
Salvador H. Laurel, and to no other persons, and provides for the
extension of their term to noon of June 30, 1992 for purposes of
synchronization of elections. Hence, the second paragraph of the
cited section provides for the holding on the second Monday of May,
1992 of the first regular elections for the President and VicePresident under said 1986 Constitution. In previous cases, the
legitimacy of the government of President Corazon C. Aquino was
likewise sought to be questioned with the claim that it was not
established pursuant to the 1973 Constitution. The said cases were
dismissed outright by this court which held that:
Petitioners have no personality to sue and their petitions state no
cause of action. For the legitimacy of the Aquino government is not
a justiciable matter. It belongs to the realm of politics where only the
people of the Philippines are the judge. And the people have made
the judgment; they have accepted the government of President
Corazon C. Aquino which is in effective control of the entire country
so that it is not merely a de facto government but in fact and law a
de jure government. Moreover, the community of nations has

recognized the legitimacy of tlie present government. All the eleven

members of this Court, as reorganized, have sworn to uphold the
fundamental law of the Republic under her government. (Joint
Resolution of May 22, 1986 in G.R. No. 73748 [Lawyers League for a
Better Philippines, etc. vs. President Corazon C. Aquino, et al.]; G.R.
No. 73972 [People's Crusade for Supremacy of the Constitution. etc.
vs. Mrs. Cory Aquino, et al.]; and G.R. No. 73990 [Councilor Clifton
U. Ganay vs. Corazon C. Aquino, et al.])
For the above-quoted reason, which are fully applicable to the
petition at bar, mutatis mutandis, there can be no question that
President Corazon C. Aquino and Vice-President Salvador H. Laurel
are the incumbent and legitimate President and Vice-President of
the Republic of the Philippines.or the above-quoted reasons, which
are fully applicable to the petition at bar,
ACCORDINGLY, the petition is hereby dismissed.
Teehankee, C.J., Feria, Yap, Fernan, Narvasa, Alampay and Paras,
JJ., concur.
MELENCIO-HERRERA, J., concurring:
GUTIERREZ, Jr., J., concurring:
FELICIANO, JJ., concurring.
The petitioner asks the Court to declare who are "the incumbent
President and Vice President elected in the February 7, 1986
elections" as stated in Article XVIII, Section 5 of the Draft
Constitution adopted by the Constitutional Commission of 1986.
We agree that the petition deserves outright dismissal as this Court
has no original jurisdiction over petitions for declaratory relief.
As to lack of cause of action, the petitioner's prayer for a declaration
as to who were elected President and Vice President in the February
7, 1986 elections should be addressed not to this Court but to other
departments of government constitutionally burdened with the task
of making that declaration.
The 1935 Constitution, the 1913 Constitution as amended, and the
1986 Draft Constitution uniformly provide 'that boards of canvassers
in each province and city shall certified who were elected President
and Vice President in their respective areas. The certified returns are
transmitted to the legislature which proclaims, through the
designated Presiding Head, who were duty elected.
Copies of the certified returns from the provincial and city boards of
canvassers have not been furnished this Court nor is there any need
to do so. In the absence of a legislature, we cannot assume the
function of stating, and neither do we have any factual or legal
capacity to officially declare, who were elected President and Vice
President in the February 7, 1986 elections.
As to who are the incumbent President and Vice President referred
to in the 1212
# # 1986 Draft Constitution, we agree that there is no
doubt the 1986 Constitutional Commission referred to President
Corazon C. Aquino and Vice President Salvador H. Laurel.
Finally, we agree with the Resolution of the Court in G.R. Nos.
73748, 73972, and 73990.
For the foregoing reasons, we vote to DISMISS the instant petition.
CRUZ, J., concurring:
I vote to dismiss this petition on the ground that the Constitution we
are asked to interpret has not yet been ratified and is therefore not
yet effective. I see here no actual conflict of legal rights susceptible
of judicial determination at this time. (Aetna Life Insurance Co. vs.
Haworth, 300 U.S. 227; PACU vs. Secretary of Education, 97 Phil.
806.)
In re: Letter of Associate Justice Reynato S. Puno
Wednesday, April 30, 2014

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Facts:
- The petitioner, Reynato S. Puno, was first appointed as Associate
Justice of the Court of Appeals on 1980.
- On 1983, the Court of Appeals was reorganized and became the
Intermediate Appellate Court pursuant to BP Blg. 129.
- On 1984, petitioner was appointed to be Deputy Minister of
Justice in the Ministry of Justice. Thus, he ceased to be a member of
the Judiciary.
- After February 1986 EDSA Revolution, there was a reorganization
of the entire government, including the Judiciary.
-A Screening Committee for the reorganization of the Intermediate
Appelate Court and lower courts recommended the return of
petitioner as Associate Justice of the new court of Appeals and
assigned him the rank of number 11 in the roster of appellate court
justices.
-When the appointments were signed by Pres. Aquino, petitioner's
seniority ranking changes from number 11 to 26.
- Then, petitioner alleged that the change in seniority ranking was
due to "inadvertence" of the President, otherwise, it would run
counter to the provisions of Section 2 of E.O. No. 33.
- Petitioner Justice Reynato S. Puno wrote a letter to the Court
seeking the correction of his seniority ranking in the Court of
Appeals.
-The Court en banc granted Justice Puno's request.
- A motion for reconsideration was later filed by Associate Justices
Campos Jr. and Javellana who are affected by the ordered
correction.
- They alleged that petitioner could not claim reappointment
because the courts where he had previously been appointed ceased
to exist at the date of his last appointment.
Issue: WON the present Court of Appeals is merely a continuation of
the old Court of Appeals and Intermediate Appellate Court existing
before the promulgation of E.O. No. 33.
Held:
The Court held that the Court of Appeals and Intermediate
Appellate Court existing prior to E.O. No. 33 phased out as part of
the legal system abolished by the 1987 Revolution. The Court of
Appeals that was established under E.O. No. 33 is considered as an
entirely new court.
The present Court of Appeals is a new entity, different and distinct
from the courts existing before E.O. No. 33. It was created in the
wake of the massive reorganization launched by the revolutionary
government of Corazon Aquino in the aftermath of the people
power in 1986.
Revolution is defined as "the complete overthrow of the established
government in any country or state by those who were previously
subject to it." or "as sudden. radical and fundamental change in the
government or political system, usually effected with violence or at
least some acts of violence."

Estrada v Desierto
GR Nos. 146710-15, March 2, 2001 Ponente : Puno, J.

Facts :
1. In 1998, Joseph Estrada was elected President of the Philippines,
while Gloria Macapagal- Arroyo was elected Vice-President. The
president was accused with corruption, culminating in Ilocos Sur
Governor ChavitSingsons accusations that the president received
millions of pesos from jueteng lords.
2. The Senate and the House of Representatives began early
investigations regarding the accusation, while key socio-political
figures like Cardinal Sin, former Presidents Aquino and Ramos, the
vice president, senior advisers and cabinet members called on the
president to resign, and resigned from their cabinet posts
themselves.
3. The impeachment trial began on 7 December 2000, with 21
senator-judges presided over by Chief Justice HilarioDavide. At a
point when 11 senator-judges ruled against opening a second
envelope of evidence showing the presidents P3.3 billion bank
account under the name Jose Velarde, the public prosecutors
resigned and a mass demonstration at EDSA began.
4. CJ Davide granted Senator Raul Rocos motion to postpone the
impeachment trial until the House of Representatives resolved the
lack of public prosecutors.
5. With the defection of more officials and of the army and police
from the Estrada administration, the president attempted to appease
public sentiment by announcing a snap election and by allowing the
second envelope to be opened. The measures failed, and the calls
for resignation strengthened.
6. On 20 January 2001, the president negotiated with
representatives of the vice-president. News broke out that Chief
Justice HilarioDavide would administer the oath of presidency to the
vice president at EDSA Shrine. Estrada issued two statements - one
stating reservations on the constitutionality of Arroyos presidency,
and another stating that he is incapable of dispensing his
responsibilities as president, thus allowing Arroyo to be the acting
president.
7. The Arroyo administration was met with acceptance by the
different branches of government, by majority of the public, and by
the international community. The impeachment trial was closed,
despite sentiments such as those of Senator Defensor- Santiago that
the impeachment court had failed to resolve the case, leaving open
questions regarding Estradas qualifications to run for other elected
posts.
8. The Office of the Ombudsman proceeded to file a series of cases
regarding the corruption of Estrada. Estrada filed a motion
compelling the Ombudsman to refrain from further proceedings until
his term as president was over. He also filed a petition to be
confirmed as the lawful and incumbent president, temporarily unable
to fulfill his duties, thus making Arroyo an acting president only.
9. The Supreme Court ruled a) to inform the parties that they did not
declare the Office of the President vacant on 20 January 2001, b) to
prohibit either party from discussing in

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public the merits of the case while in its pendency, c) to enjoin the
Ombudsman from resolving pending criminal cases against Estrada
for 30 days.
Issues:
I. Whether the petitions present a justiciable controversy.
II. Assuming that the petitions present a justiciable controversy,
whether petitioner Estrada is a President on leave while respondent
Arroyo is an Acting President.
III. Whether conviction in the impeachment proceedings is a
condition precedent for the criminal prosecution of petitioner
Estrada. In the negative and on the assumption that petitioner is still
president, whether he is immune from criminal prosecution.
IV. Whether the prosecution of petitioner Estrada should be enjoined
on the ground of prejudicial publicity
Ruling:
I. The petitions present a justiciable controversy because the cases at
bar pose legal, and not political, questions. Hence, the cases are
within the jurisdiction of the Court to decide.
Definition of political questions: ...those questions
which, under the Constitution, are to be decided by the
people in their sovereign capacity, or in regard to which
full discretionary authority has been delegated to the
legislative or executive branch of government. --Former
CJ Roberto Concepcion
Arroyos government is NOT revolutionary in character,
since her oath was taken under the 1987 Constitution.
EDSA II is an exercise of people power of freedom of
speech and the right to assembly. It is intra constitutional
in this regard (within the scope of the Constitution). The
resignation of Estrada that it caused and the subsequent
succession of of Arroyo are subject to judicial review.
II. Estrada is NOT a President on leave while Arroyo is
Acting President.
Under Section 11 Article VII, Estrada says that only
Congress has the ultimate
authority to determine whether the President is incapable
of performing his
functions in the manner provided by said provision.
Hence, Arroyo has no power to judge Estradas inability to
do his job as President.
However, both houses of Congress expressed their
recognition and support of Arroyo
as the new President, and it is implicitly clear in this
recognition that Estradas inability is no longer temporary.
Thus, Congress has rejected Estradas claim of inability.
Furthermore, Court cannot exercise its judicial power to

revise decision of Congress in recognizing Arroyo. To do so

would be to transgress principle of separation of powers,
since this is a political issue.
III. Estrada contends that he has not been convicted in the
impeachment case and that he enjoys immunity from all
kinds of suit.
#

Executive immunity provision of 1973 Constitution was no

longer included in the 1986 Constitution. This is in
accordance with SC ruling in In Re: Saturnino Bermudez
that incumbent Presidents are immune from suit or from
being brought to court during the period of their
incumbency and tenure but not beyond.
When the president has resigned, then proper criminal
and civil cases may already be filed against him

IV. Estrada argued that respondent Ombudsman should be

stopped from conducting the investigation of the cases
filed against him because of prejudicial publicity on his
guilt, and that respondent has also developed bias.
In People v Teehankee, Jr. and Larranaga v Court of
Appeals it was laid down that the right of an accused to a
fair trial is not incompatible to a free press. Responsible
press.
Our judges are smart enough to know the law and to
disregard camera drama and off-court evidence. Their
exposure to media does not affect their impartiality.

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