THE VETERANS FEDERATION OF THE PHILIPPINES vs.

Hon. ANGELO T. REYES; and Hon. EDGARDO E. BATENGA

G. R. No. 155027, February 28, 2006

FACTS:

The Veterans Federation of the Philippines was created under Rep. Act No. 2640. The DND Secretary issued
the assailed DND Department Circular No. 04 entitled, "Further Implementing the Provisions of Sections 1 and 2 of
Republic Act No. 2640.

Pursuant to the assailed Circular, the DND sought to audit VFP. The VFP complained about the alleged
broadness of the scope of the management audit and requested its suspension. This was denied.

VFP argued that it is a private non-government organization. To support its argument, it contended: (1) that it
does not possess the elements of a public office, particularly the possession/delegation of a portion of sovereign power
of government; (2) that its funds are not public funds because it receives no government funds as its funds come from
membership dues, and the lease rentals; (3) that it retains its essential character as a private, civilian federation of
veterans voluntarily formed by the veterans themselves where membership is voluntary and is governed by the Labor
Code and SSS law; (4) that the Administrative Code of 1987 does not provide that the VFP is an attached agency; and
(5) that the DBM declared that the VFP is a non-government organization and issued a certificate that the VFP has not
been a direct recipient of any funds released by the DBM.

ISSUES:

Central Issue: Whether or not the Veterans Federation of the Philippines is a private corporation.

 Whether or not the challenged department circular passed in the valid exercise of the respondent Secretary’s
"control and supervision."
 Whether or not the challenged department circular validly lay standards classifying the VFP, an essentially
civilian organization, within the ambit of statutes only applying to government entities.
 Whether or not the department circular unduly encroached on the prerogatives of VFP’s governing body.

RULING:

The Court ruled the following: (1) assailed DND Department Circular No. 04 does not supplant nor modify and
is, on the contrary, perfectly in consonance with Rep. Act No. 2640; and (2) that VFP is a public corporation. As such,
it can be placed under the control and supervision of the Secretary of National Defense, who consequently has the
power to conduct an extensive management audit of VFP.

The functions of the VFP are executive functions

The delegation to the individual of some of the sovereign functions of government is "[t]he most important
characteristic" in determining whether a position is a public office or not.

In several cases, the Court has dealt with this issue which deals with activities not immediately apparent to be
sovereign functions. It upheld the public sovereign nature of operations needed either to promote social justice or to
stimulate patriotic sentiments and love of country.

In the case at bar, the functions of the VFP fall within the category of sovereign functions. The protection of the
interests of war veterans is not only meant to promote social justice, but is also intended to reward patriotism.

The functions of the VFP are executive functions to provide immediate and adequate care, benefits and other
forms of assistance to war veterans and veterans of military campaigns, their surviving spouses and orphans.

VFP funds are public funds

The fact that no budgetary appropriations have been released to the VFP by the DBM does not prove that it is
a private corporation. Assuming that the DBM believed that the VFP is a private corporation, it is an accepted principle
that the erroneous application of the law by public officers does not bar a subsequent correct application of the law.

The funds in the hands of the VFP from whatever source are public funds, and can be used only for public
purposes. As the Court ruled in Republic v. COCOFED, "(e)ven if the money is allocated for a special purpose and
raised by special means, it is still public in character." There is nothing wrong, whether legally or morally, from raising
revenues through non-traditional methods.

Membership of the VFP is not the individual

membership of the affiliate organizations

VFP claims that the Secretary of National Defense "historically did not indulge in the direct or
‘micromanagement’ of the VFP. This reliance of petitioner on what has "historically" been done is erroneous, since laws
are not repealed by disuse, custom, or practice to the contrary.

Neither is the civilian nature of VFP relevant because the Constitution does not contain any prohibition against
the grant of control and/or supervision to the Secretary of National Defense over a civilian organization.

The Administrative Code did not

repeal or modify RA 2640

The Administrative Code, by giving definitions of the various entities covered by it, acknowledges that its
enumeration is not exclusive. The Administrative Code could not be said to have repealed nor enormously modified RA
2640 by implication, as such repeal or enormous modification by implication is not favored in statutory construction.

DBM opinion is not persuasive

VFP’s claim that the supposed declaration of the DBM that petitioner is a non-government organization is not
persuasive, since DBM is not a quasi-judicial agency. The persuasiveness of the DBM opinion has, however, been
overcome by all the previous explanations we have laid so far.

The fate of Department Circular No. 04

The Court has defined the power of control as "the power of an officer to alter or modify or nullify or set aside
what a subordinate has done in the performance of his duties and to substitute the judgment of the former to that of the
latter." The power of supervision, on the other hand, means "overseeing, or the power or authority of an officer to see
that subordinate officers perform their duties."

Since the Court has also previously determined that VFP funds are public funds, there is likewise no reason to
declare this provision invalid. Having in their possession public funds, the officers of the VFP, especially its fiscal
officers, must indeed share in the fiscal responsibility to the greatest extent.
 Fontanilla vs Maliaman

FACTS: A pick up owned by the National Irrigation Administration and driven officially by its regular driver, Hugo Garcia,
bumped a bicycle ridden by Francisco Fontanilla, which resulted in the latter's death. The parents of Francisco filed a
suit for damages against Garcia and the NIA, as Garcia's employer. After trial, the court awarded actual, moral and
exemplary damages to Spouses Fontanilla. NIA appealed. The Solicitor General contends that the NIA does not perform
solely and primarily proprietary functions but is an agency of the government tasked with governmental functions, and
is therefore not liable for the tortious act of its driver Hugo Garcia, who was not its special agent.

ISSUE:

May NIA, a government agency, be held liable for the damages caused by the negligent act of its driver who was not its
special agent?

HELD:

Yes. NIA is a government agency with a juridical personality separate and distinct from the government. It is not a
mere agency of the government but a corporate body performing proprietary functions. Therefore, it may be held liable
for the damages caused by the negligent act of its driver who was not its special agent. (Fontanilla vs. Maliaman, G.R.
Nos. L-55963 & 61045, February 27, 1991)

RATIO:

■ Section 1 of RA No. 3601 tells us that NIA is a government agency invested with a corporate personality separate
and distinct from the government, thus is governed by the Corporation Law. Section 2, subsection f of PD 552
provides that NIA also has its own assets and liabilities and has corporate powers to be exercised by a Board of
Directors. Section 2, subsection b of PD 552 provides that NIA may sue and be sued in court.

■ Of equal importance is the case of National Waterworks and Sewerage Authority (NAWASA) vs. NWSA
Consolidated Unions, 11 SCRA 766, which propounds the thesis that "the NAWASA is not an agency performing
governmental functions; rather it performs proprietary functions . . . ." The functions of providing water supply and
sewerage service are regarded as mere optional functions of government even though the service rendered caters to
the community as a whole and the goal is for the general interest of society.

Like the NAWASA, the National Irrigation Administration was not created for purposes of local government. While it
may be true that the NIA was essentially a service agency of the government aimed at promoting public interest and
public welfare, such fact does not make the NIA essentially and purely a "government-function" corporation. NIA was
created for the purpose of "constructing, improving, rehabilitating, and administering all national irrigation systems in
the Philippines, including all communal and pump irrigation projects." Certainly, the state and the community as a
whole are largely benefited by the services the agency renders, but these functions are only incidental to the principal
aim of the agency, which is the irrigation of lands.

NOTES:

■ The liability of the State has two aspects. namely:

1. Its public or governmental aspects where it is liable for the tortious acts of special agents only.
2. Its private or business aspects (as when it engages in private enterprises) where it becomes liable as an ordinary
employer. Fontanilla vs. Maliaman, G.R. Nos. L-55963 & 61045, December 1, 1989)
BOY SCOUT OF THE PHILIPPINES VS COMMISSION ON AUDIT (651 SCRA 146)

Facts:
COA issued a Resolution No. 99-011 on August 19, 1999, with the subject “Defining the Commission’s Policy with
respect to the audit of the Boy Scout of the Philippines.” The BSP which was created as a public corporation, and that
in BSP vs. NLRC, the Supreme Court ruled that the BSP, as constituted under its charter, was a Government Owned
and Controlled Corporation within the meaning of Art. IX (B) (2) (1) of the Constitution, and that the BSP is regarded
as a government instrumentality under the Administrative Code. For the purposes of audit supervision, the BSP shall
be classified among the government corporations to be audited by employing the team audit approach. The BSP
sought reconsideration of the COA Resolution in a letter signed by then BSP National President Jejomar C. Binay,
saying that it is not subject to the COA’s jurisdiction.

Issues:
Whether or not the Boy Scout of the Philippines is a government owned and controlled corporation?
Whether or not it is under the jurisdiction of the COA?

Held:
After looking at the legislative history of its amended charter and carefully studying the applicable laws and the
arguments of both parties, The SC finds that the BSP is a public corporation and its funds are subject to the COA’s
audit jurisdiction.

The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not
fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as
there exists another distinct class of corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or instrumentalities of the government which are not
subject to the tests of ownership or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative relationship to the government or
any of its Departments or Offices.

Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we
come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner
consistent with the provisions of the BSP Charter.
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS vs. COA. G.R. No. 169752
September 25, 2007

FACTS:

The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on
January 19, 1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of animal
aficionados and animal propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be to
enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and
generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote
their welfare.

At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in
existence. Act No. 1285 antedated both the Corporation Law and the constitution of the SEC.
For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals,
the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare laws. In
addition, the petitioner was to share 1/2 of the fines imposed and collected through its efforts for violations of the laws
related thereto.

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for
violation of animal-related laws were recalled by virtue of C.A. No. 148. Whereas, the cruel treatment of animals is
now an offense against the State, penalized under our statutes, which the Government is duty bound to enforce;
When the COA was to perform an audit on them they refuse to do so, by the reason that they are a private entity and
not under the said commission. It argued that COA covers only government entities. On the other hand the COA
decided that it is a government entity.

ISSUE: WON the said petitioner is a private entity.

RULING:

YES. First, the Court agrees with the petitioner that the “charter test” cannot be applied. Essentially, the “charter test”
provides that the test to determine whether a corporation is government owned or controlled, or private in nature is
simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the general
corporation law? Those with special charters are government corporations subject to its provisions, and its employees
are under the jurisdiction of the CSC, and are compulsory members of the GSIS.
And since the “charter test” had been introduced by the 1935 Constitution and not earlier, it follows that the test cannot
apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the
rule that laws in general have no retroactive effect, unless the contrary is provided. All statutes are to be construed as
having only a prospective operation, unless the purpose and intention of the legislature to give them a retrospective
effect is expressly declared or is necessarily implied from the language used. In case of doubt, the doubt must be
resolved against the retrospective effect.
Second, a reading of petitioner’s charter shows that it is not subject to control or supervision by any agency of the
State, unlike GOCCs. No government representative sits on the board of trustees of the petitioner. Like all private
corporations, the successors of its members are determined voluntarily and solely by the petitioner in accordance with
its by-laws, and may exercise those powers generally accorded to private corporations, such as the powers to hold
property, to sue and be sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the
petitioner shall be managed or operated by its officers “in accordance with its by-laws in force.”
Third. The employees of the petitioner are registered and covered by the SSS at the latter’s initiative, and not
through the GSIS, which should be the case if the employees are considered government employees. This is another
indication of petitioner’s nature as a private entity.
Fourth. The respondents contend that the petitioner is a “body politic” because its primary purpose is to secure
the protection and welfare of animals which, in turn, redounds to the public good. This argument, is not tenable. The
fact that a certain juridical entity is impressed with public interest does not, by that circumstance alone, make the entity
a public corporation, inasmuch as a corporation may be private although its charter contains provisions of a public
character, incorporated solely for the public good. This class of corporations may be considered quasi-public
corporations, which are private corporations that render public service, supply public wants, or pursue other
eleemosynary objectives. While purposely organized for the gain or benefit of its members, they are required by law
to discharge functions for the public benefit. Examples of these corporations are utility, railroad, warehouse,
telegraph, telephone, water supply corporations and transportation companies. It must be stressed that a quasi-public
corporation is a species of private corporations, but the qualifying factor is the type of service the former renders to the
public: if it performs a public service, then it becomes a quasi-public corporation.
Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is
that almost all corporations are nowadays created to promote the interest, good, or convenience of the public. A
bank, for example, is a private corporation; yet, it is created for a public benefit. Private schools and universities are
likewise private corporations; and yet, they are rendering public service. Private hospitals and wards are charged with
heavy social responsibilities. More so with all common carriers. On the other hand, there may exist a public
corporation even if it is endowed with gifts or donations from private individuals.
The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the
relation of the corporation to the State. If the corporation is created by the State as the latter’s own agency or
instrumentality to help it in carrying out its governmental functions, then that corporation is considered public;
otherwise, it is private. Applying the above test, provinces, chartered cities, and barangays can best exemplify public
corporations. They are created by the State as its own device and agency for the accomplishment of parts of its own
public works.
Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic reports
to the Civil Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government
instrumentality.
This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and powers
to the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public,
quasi-public, or private corporations—as creatures of the State, there is a reserved right in the legislature to
investigate the activities of a corporation to determine whether it acted within its powers. In other words, the
reportorial requirement is the principal means by which the State may see to it that its creature acted according to the
powers and functions conferred upon it.
 MARILAO WATER CONSUMERS ASSOC.
vs. IAC
G.R. No. 72807 September 9, 1991

FACTS:
Pursuant to the provisions of P.D. 168 (Provincial Water Utilities Act of 1973), Marilao Water District (MWD) was
formed by Resolution of the Sangguniang Bayan of the Municipality of Marilao dated September 18, 1982, which
resolution was thereafter forwarded to the LWUA and "duly filed" by it on October 4, 1982 after ascertaining that it
conformed to the requirements of the law.

Marilao Waters Consumers Association, Inc. (MWCA), a non-stock, non-profit corporation, filed a petition before the
RTC of Malolos, Bulacan claiming that the creation of the water district is defective and illegal. Impleaded as respondents
were the Marilao Water District, as well as the Municipality of Marilao, Bulacan; its Sangguniang Bayan; and Mayor
Nicanor V. GUILLERMO. The petition prayed for the dissolution of the water district.

MWD filed its Answer with an affirmative defences that the RTC lacked jurisdiction over the subject matter since the
water district’s dissolution fell under the original and exclusive jurisdiction of the SEC.

MWCA countered thatsince the Marilao Water District had not been organized under the Corporation Code, the SEC
had no jurisdiction over a proceeding for its dissolution and that under Section 45 of PD 198, the proceeding to determine
if the dissolution of the water district is for the best interest of the people, is within the competence of a regular court of
justice.

RTC dismissed the MWCA’s suit ruling that it is the SEC which has exclusive and original jurisdiction over the case.

ISSUE:
Which triburial has jurisdiction over the dissolution of a water district organized and operating as a quasi-public
corporation under the provisions of Presidential Decree No. 198, as amended: the Regional Trial Court, or the Securities
& Exchange Commission.

RULING:
The present case does not fall within the limited jurisdiction of the SEC, but within the general jurisdiction of RTCs.

PD 198 authorizes the formation, lays down the powers and functions, and governs the operation of water districts
throughout the country; it is "the source of authorization and power to form and maintain a (water) district." Once formed,
it says, a district is subject to its provisions and is not under the jurisdiction of any political subdivision.

The juridical entities thus created and organized under PD 198 are considered quasi-public corporations, performing
public services and supplying public wants.

The juridical entities known as water districts created by PD 198, although considered as quasi-public corporations and
authorized to exercise the powers, rights and privileges given to private corporations under existing laws are entirely
distinct from corporations organized under the Corporation Code, PD 902-A, as amended.

The Corporation Code has nothing whatever to do with their formation and organization, all the terms and conditions for
their organization and operation being particularly spelled out in PD 198.

The resolutions creating them, their charters, in other words, are filed not with the Securities and Exchange Commission
but with the LWUA. It is these resolutions qua charters, and not articles of incorporation drawn up under the Corporation
Code, which set forth the name of the water districts, the number of their directors, the manner of their selection and
replacement, their powers, etc.

The SEC which is charged with enforcement of the Corporation Code as regards corporations, partnerships and
associations formed or operating under its provisions, has no power of supervision or control over the activities of water
districts.

The "Provincial Water Utilities Act of 1973" has a specific provision governing dissolution of water districts created
thereunder This is Section 45 of PD 198. Under this provision, it is the LWUA which is the administrative body involved
in the voluntary dissolution of a water district; it is with it that the resolution of dissolution is filed, not the Securities and
Exchange Commission. And this provision is evidently quite distinct and different from those on dissolution of
corporations "formed or organized under the provisions of the Corporation Code under which dissolution may be
voluntary (by vote of the stockholders or members), generally effected by the filing of the corresponding resolution with
the Securities and Exchange Commission, or involuntary, commenced by the filing of a verified complaint also with the
SEC.

Although described as quasi-public corporations, and granted the same powers as private corporations, water districts
are not really corporations. They have no incorporators, stockholders or members, who have the right to vote for
directors, or amend the articles of incorporation or by-laws, or pass resolutions, or otherwise perform such other acts
as are authorized to stockholders or members of corporations by the Corporation Code. In a word, there can be no such
thing as a relation of corporation and stockholders or members in a water district for the simple reason that in the latter
there are no stockholders or members. Between the water district and those who are recipients of its water services
there exists not the relationship of corporation-and-stockholder, but that of a service agency and users or customers.

There can therefore be no such thing in a water district as "intra-corporate or partnership relations, between and
among stockholders, members or associates (or) between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively," within the contemplation of Section
5 of the Corporation Code so as to bring controversies involving them within the competence and cognizance of the
SEC.
Emmanuel Pelaez vs Auditor General

The then Vice President, Emmanuel Pelaez, as a taxpayer, filed a special civil action to prohibit the auditor general
from disbursing funds to be appropriated for the said municipalities. Pelaez claims that the EOs were unconstitutional.
He said that Section 68 of the RAC had been impliedly repealed by Section 3 of RA 2370 which provides that barrios
may “not be created or their boundaries altered nor their names changed” except by Act of Congress. Pelaez argues:
“If the President, under this new law, cannot even create a barrio, how can he create a municipality which is composed
of several barrios, since barrios are units of municipalities?”
The Auditor General countered that there was no repeal and that only barrios were barred from being created by the
President. Municipalities are exempt from the bar and that a municipality can be created without creating barrios. He
further maintains that through Sec. 68 of the RAC, Congress has delegated such power to create municipalities to the
President.
ISSUE: Whether or not Congress has delegated the power to create barrios to the President by virtue of Sec. 68 of the
RAC.
HELD: No. There was no delegation here. Although Congress may delegate to another branch of the government the
power to fill in the details in the execution, enforcement or administration of a law, it is essential, to forestall a violation
of the principle of separation of powers, that said law: (a) be complete in itself — it must set forth therein the policy to
be executed, carried out or implemented by the delegate — and (b) fix a standard — the limits of which are sufficiently
determinate or determinable — to which the delegate must conform in the performance of his functions. In this case,
Sec. 68 lacked any such standard. Indeed, without a statutory declaration of policy, the delegate would, in effect, make
or formulate such policy, which is the essence of every law; and, without the aforementioned standard, there would be
no means to determine, with reasonable certainty, whether the delegate has acted within or beyond the scope of his
authority.
Further, although Sec. 68 provides the qualifying clause “as the public welfare may require” – which would mean that
the President may exercise such power as the public welfare may require – is present, still, such will not replace the
standard needed for a proper delegation of power. In the first place, what the phrase “as the public welfare may require”
qualifies is the text which immediately precedes hence, the proper interpretation is “the President may change the seat
of government within any subdivision to such place therein as the public welfare may require.” Only the seat of
government may be changed by the President when public welfare so requires and NOT the creation of municipality.
The Supreme Court declared that the power to create municipalities is essentially and eminently legislative in character
not administrative (not executive).