government entity within the purview of section 16, Rule 130 of the
LEOPOLDO T. BACANI and MATEO A. MATOTO, Plaintiffs-
Appellees, 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
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 (2) that the payments already made by
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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; and (3) chan roble svirtualawlibrary
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: constitute and
ministrant. The former are those which constitute the very bonds of
society and are compulsory in nature; the latter are those that are
chan roblesvirtualawlibrary
undertaken only by way of advancing the general interests of society,
and are merely optional. President Wilson enumerates the
constituent functions as follows:chanroble svirtuallawlibrary
“‘(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: the preservation of
chanroble svirtuallawlibrary
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: public works, chanroblesvirtuallawlibrary
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: (1) that a government should do for the public
chanroblesvirtuallawlibrary
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.)
chanroble svirtuallawlibrary
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 government-
owned 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: Does the fact that these
chanroble svirtuallawlibrary
corporation perform certain functions of government make them a
part of the Government of the Philippines?
The answer is simple: they do not acquire that status for the simple
chanroblesvirtuallawlibrary
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 . Unlike the
cralaw
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.
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, Parañaque to pay the real estate tax imposed by the City. MIAA
vs. then paid some of the real estate tax already due.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR
OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG On 28 June 2001, MIAA received Final Notices of Real Estate
PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY Tax Delinquency from the City of Parañaque for the taxable years
TREASURER OF PARAÑAQUE, respondents. 1992 to 2001. MIAA's real estate tax delinquency is broken down
as follows:
DECISION
TAX DECLARATION TAXABLE YEAR TAX DUE
CARPIO, J.:
E-016-01370 1992-2001 19,558,160.00
The Antecedents E-016-01374 1992-2001 111,689,424.90
E-016-01375 1992-2001 20,276,058.00
Petitioner Manila International Airport Authority (MIAA) operates
the Ninoy Aquino International Airport (NAIA) Complex in E-016-01376 1992-2001 58,144,028.00
Parañaque City under Executive Order No. 903, otherwise known E-016-01377 1992-2001 18,134,614.65
as the Revised Charter of the Manila International Airport E-016-01378 1992-2001 111,107,950.40
Authority ("MIAA Charter"). Executive Order No. 903 was issued
on 21 July 1983 by then President Ferdinand E. Marcos. E-016-01379 1992-2001 4,322,340.00
Subsequently, Executive Order Nos. 9091 and 2982 amended the E-016-01380 1992-2001 7,776,436.00
MIAA Charter.
*E-016-013-85 1998-2001 6,444,810.00
As operator of the international airport, MIAA administers the *E-016-01387 1998-2001 34,876,800.00
land, improvements and equipment within the NAIA Complex. *E-016-01396 1998-2001 75,240.00
The MIAA Charter transferred to MIAA approximately 600
hectares of land,3 including the runways and buildings ("Airport GRAND TOTAL P392,435,861.95
Lands and Buildings") then under the Bureau of Air
Transportation.4 The MIAA Charter further provides that no 1992-1997 RPT was paid on Dec. 24, 1997 as per
portion of the land transferred to MIAA shall be disposed of O.R.#9476102 for P4,207,028.75
through sale or any other mode unless specifically approved by
the President of the Philippines.5 #9476101 for P28,676,480.00

On 21 March 1997, the Office of the Government Corporate #9476103 for P49,115.006
Counsel (OGCC) issued Opinion No. 061. The OGCC opined that
the Local Government Code of 1991 withdrew the exemption
On 17 July 2001, the City of Parañaque, through its City
from real estate tax granted to MIAA under Section 21 of the
Treasurer, issued notices of levy and warrants of levy on the
MIAA Charter. Thus, MIAA negotiated with respondent City of
Airport Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency.
MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying
OGCC Opinion No. 061. The OGCC pointed out that Section 206
of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that
Section 21 of the MIAA Charter is the proof that MIAA is exempt
from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an
original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition
sought to restrain the City of Parañaque from imposing real
estate tax on, levying against, and auctioning for public sale the
Airport Lands and Buildings. The petition was docketed as CA-
G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition
because MIAA filed it beyond the 60-day reglementary period.
The Court of Appeals also denied on 27 September 2002 MIAA's
motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the
present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted
notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public
market of Barangay La Huerta; and in the main lobby of the
Parañaque City Hall. The City of Parañaque published the notices
in the 3 and 10 January 2003 issues of the Philippine Daily
Inquirer, a newspaper of general circulation in the Philippines.
The notices announced the public auction sale of the Airport
Lands and Buildings to the highest bidder on 7 February 2003,
10:00 a.m., at the Legislative Session Hall Building of Parañaque
City.
A day before the public auction, or on 6 February 2003, at 5:10
p.m., MIAA filed before this Court an Urgent Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents — the City of
Parañaque, City Mayor of Parañaque, Sangguniang
Panglungsod ng Parañaque, City Treasurer of Parañaque, and
the City Assessor of Parañaque ("respondents") — from
auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining
order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the
Airport Lands and Buildings. Respondents received the TRO on
the same day that the Court issued it. However, respondents
received the TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution
confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments.
In compliance with the directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor General
subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the
Airport Lands and Buildings in the name of MIAA. However, MIAA
points out that it cannot claim ownership over these properties
since the real owner of the Airport Lands and Buildings is the
Republic of the Philippines. The MIAA Charter mandates MIAA to
devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted
to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate
tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter
specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under
Section 234 of the Local Government Code because the Airport
Lands and Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the government
cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to
any public advantage, since in such a case the tax debtor is also
the tax creditor.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from
real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt
from real estate tax.

Respondents invoke Section 193 of the Local Government Code, 1. MIAA is Not a Government-Owned or Controlled
which expressly withdrew the tax exemption privileges of Corporation
"government-owned and-controlled corporations" upon the
effectivity of the Local Government Code. Respondents also
Respondents argue that MIAA, being a government-owned or
argue that a basic rule of statutory construction is that the
controlled corporation, is not exempt from real estate tax.
express mention of one person, thing, or act excludes all others.
Respondents claim that the deletion of the phrase "any
An international airport is not among the exceptions mentioned in
government-owned or controlled so exempt by its charter" in
Section 193 of the Local Government Code. Thus, respondents
Section 234(e) of the Local Government Code withdrew the real
assert that MIAA cannot claim that the Airport Lands and
estate tax exemption of government-owned or controlled
Buildings are exempt from real estate tax.
corporations. The deleted phrase appeared in Section 40(a) of
the 1974 Real Property Tax Code enumerating the entities
Respondents also cite the ruling of this Court in Mactan exempt from real estate tax.
International Airport v. Marcos8 where we held that the Local
Government Code has withdrawn the exemption from real estate
There is no dispute that a government-owned or controlled
tax granted to international airports. Respondents further argue
corporation is not exempt from real estate tax. However, MIAA is
that since MIAA has already paid some of the real estate tax
not a government-owned or controlled corporation. Section 2(13)
assessments, it is now estopped from claiming that the Airport
of the Introductory Provisions of the Administrative Code of 1987
Lands and Buildings are exempt from real estate tax.
defines a government-owned or controlled corporation as follows:
The Issue
SEC. 2. General Terms Defined. – x x x x
This petition raises the threshold issue of whether the Airport
(13) Government-owned or controlled corporation refers
Lands and Buildings of MIAA are exempt from real estate tax
to any agency organized as a stock or non-stock
under existing laws. If so exempt, then the real estate tax
corporation, vested with functions relating to public
assessments issued by the City of Parañaque, and all
needs whether governmental or proprietary in nature, and
proceedings taken pursuant to such assessments, are void. In
owned by the Government directly or through its
such event, the other issues raised in this petition become moot.
 instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10
of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be
contributed by the National Government shall be
increased from Two and One-half Billion
(P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
(a) The value of fixed assets including airport facilities,
runways and equipment and such other properties,
movable and immovable[,] which may be contributed by
the National Government or transferred by it from any of
its agencies, the valuation of which shall be determined
jointly with the Department of Budget and Management
and the Commission on Audit on the date of such
contribution or transfer after making due allowances for
depreciation and other deductions taking into account the
loans and other liabilities of the Authority at the time of the
takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31,
1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983
to 1986 to be remitted to the National Treasury as
provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be
provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that
is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation
as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares
dividends x x x." MIAA has capital but it is not divided into
shares of stock. MIAA has no stockholders or voting shares.
Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no
members. Section 87 of the Corporation Code defines a non-
stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A
non-stock corporation must have members. Even if we assume
that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non-stock
corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to
remit 20% of its annual gross operating income to the National
Treasury.11 This prevents MIAA from qualifying as a non-stock
corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA
does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate
powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the
Introductory Provisions of the Administrative Code defines a
government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.
Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and
charges.14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order."15
Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not
integrated with the department framework. The MIAA Charter
expressly states that transforming MIAA into a "separate and
autonomous body"16 will make its operation more "financially
viable."17
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these
government instrumentalities exercise corporate powers but they
are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are
sometimes loosely called government corporate entities.
However, they are not government-owned or controlled
corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
A government instrumentality like MIAA falls under Section
133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalitiesand
local government units.(Emphasis and underscoring
supplied)
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of
the powers of local governments, local governments may only
exercise such power "subject to such guidelines and limitations
as the Congress may provide."18
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable
is resolved against taxation. This rule applies with greater force
when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against
the taxpayer claiming the exemption. However, when Congress
grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor
of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of
exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that
has to be handled by government in the course of its
operations. For these reasons, provisions granting
exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception
is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services
for sound and compelling policy considerations. There must
be express language in the law empowering local governments to
tax national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. As this Court
held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or
otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws
enacted by Congress to carry into execution the
powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the
National Government over local governments.
"Justice Holmes, speaking for the Supreme Court,
made reference to the entire absence of power on
the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the
United States (Johnson v. Maryland, 254 US 51)
and it can be agreed that no state or political
subdivision can regulate a federal instrumentality
in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously
burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
 Otherwise, mere creatures of the State can defeat
National policies thru extermination of what local
authorities may perceive to be undesirable activities or
enterprise using the power to tax as "a tool for regulation"
(U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as
the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield
it. 20
2. Airport Lands and Buildings of MIAA are Owned by the
Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic
of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of
private ownership.
ARTICLE 420. The following things are property of
public dominion:
(1) Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of
similar character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)
ARTICLE 421. All other property of the State, which is not
of the character stated in the preceding article, is
patrimonial property.
ARTICLE 422. Property of public dominion, when no
longer intended for public use or for public service, shall
form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned
in Article 420 of the Civil Code, like "roads, canals, rivers,
torrents, ports and bridges constructed by the State," are
owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a
"port" constructed by the State. Under Article 420 of the Civil
Code, the MIAA Airport Lands and Buildings are properties of
public dominion and thus owned by the State or the Republic of
the Philippines.
The Airport Lands and Buildings are devoted to public use
because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA
collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as
properties for public use. The operation by the government of a
tollway does not change the character of the road as one for
public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The
tollway system is even a more efficient and equitable manner of
taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the
character of the property whether it is of public dominion or not.
Article 420 of the Civil Code defines property of public dominion
as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can
use the road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and other
conditions for the use of the road do not affect the public
character of the road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport
for public use. Such fees are often termed user's tax. This means
taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the
particular public facility. A user's tax is more equitable — a
principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls
the "principal airport of the Philippines for both international and
domestic air traffic,"22 are properties of public dominion because
they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the
Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of
Man
The Airport Lands and Buildings of MIAA are devoted to public
use and thus are properties of public dominion. As properties of
public dominion, the Airport Lands and Buildings are outside
the commerce of man. The Court has ruled repeatedly that
properties of public dominion are outside the commerce of man.
As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside
the commerce of man, thus:
According to article 344 of the Civil Code: "Property for
public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains,
and public waters, the promenades, and public works of
general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public
use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant
Hilaria Rojas. In leasing a portion of said plaza or public
place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it
could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything
which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside
of this commerce, as was decided by the supreme court
of Spain in its decision of February 12, 1895, which says:
"Communal things that cannot be sold because they
are by their very nature outside of commerce are
those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that
properties of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to
be devoted to public use and to be made available to the
public in general. They are outside the commerce of
man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied
temporarily by private individuals, as was done and as
was tolerated by the Municipality of Pozorrubio, when the
emergency has ceased, said temporary occupation or use
must also cease, and the town officials should see to it
that the town plazas should ever be kept open to the
 public and free from encumbrances or illegal private
constructions.24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an
auction sale.25
Properties of public dominion, being for public use, are not
subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale
of any property of public dominion is void for being contrary to
public policy. Essential public services will stop if properties of
public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can
foreclose and compel the auction sale of the 600-hectare runway
of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the
President must first withdraw from public usethe Airport Lands
and Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of
lands of the public domain other than timber and mineral
lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary
of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the
public domain as reservations for the use of the Republic
of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including
reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal
pastures or lequas communales, public parks, public
quarries, public fishponds, working men's village and
other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved
under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to
occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of
this Act or by proclamation of the President.
(Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties
remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to
levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership
remains with the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public
domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and
Private Domain of the Government. — (1) The President
shall have the power to reserve for settlement or
public use, and for specific public purposes, any of
the lands of the public domain, the use of which is
not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public
purpose indicated until otherwise provided by law or
proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in
trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to
hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. —
Whenever real property of the Government is authorized
by law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the name of the
Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the
Philippines but titled in the name of any political
subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands
and Buildings is clearer because even its executive head cannot
sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a
Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to
the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport
Authority. — x x x x
The land where the Airport is presently located as
well as the surrounding land area of approximately
six hundred hectares, are hereby transferred,
conveyed and assigned to the ownership and
administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate
government agencies shall undertake an actual survey of
the area transferred within one year from the
promulgation of this Executive Order and the
corresponding title to be issued in the name of the
Authority. Any portion thereof shall not be disposed
through sale or through any other mode unless
specifically approved by the President of the
Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible
Assets. — All existing public airport facilities, runways,
lands, buildings and other property, movable or
immovable, belonging to the Airport, and all assets,
powers, rights, interests and privileges belonging to the
Bureau of Air Transportation relating to airport works or
air operations, including all equipment which are
necessary for the operation of crash fire and rescue
facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport
as a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport
including the Manila Domestic Airport as a division under
the Bureau of Air Transportation is hereby abolished.
 x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to
MIAA without the Republic receiving cash, promissory notes or
even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale
for the transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the
principal airport of the Philippines for both international
and domestic air traffic, is required to provide standards of
airport accommodation and service comparable with the
best airports in the world;
WHEREAS, domestic and other terminals, general
aviation and other facilities, have to be upgraded to meet
the current and future air traffic and other demands of
aviation in Metro Manila;
WHEREAS, a management and organization study has
indicated that the objectives of providing high
standards of accommodation and service within the
context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as
amended by Presidential Decree No. 1772, the President
of the Philippines is given continuing authority to
reorganize the National Government, which authority
includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis
supplied)
The transfer of the Airport Lands and Buildings from the Bureau
of Air Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The
purpose was merely to reorganize a division in the Bureau of
Air Transportation into a separate and autonomous body.
The Republic remains the beneficial owner of the Airport Lands
and Buildings. MIAA itself is owned solely by the Republic. No
party claims any ownership rights over MIAA's assets adverse to
the Republic.
The MIAA Charter expressly provides that the Airport Lands and
Buildings "shall not be disposed through sale or through any
other mode unless specifically approved by the President of
the Philippines." This only means that the Republic retained the
beneficial ownership of the Airport Lands and Buildings because
under Article 428 of the Civil Code, only the "owner has the right
to x x x dispose of a thing." Since MIAA cannot dispose of the
Airport Lands and Buildings, MIAA does not own the Airport
Lands and Buildings.
At any time, the President can transfer back to the Republic title
to the Airport Lands and Buildings without the Republic paying
MIAA any consideration. Under Section 3 of the MIAA Charter,
the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms
that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real
estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
 when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of
the same Code, which prohibits local governments from imposing
"[t]axes, fees or charges of any kind on the National Government,
its agencies and instrumentalitiesx x x." The real properties
owned by the Republic are titled either in the name of the
Republic itself or in the name of agencies or instrumentalities of
the National Government. The Administrative Code allows real
property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such
real properties remain owned by the Republic and continue to be
exempt from real estate tax.
The Republic may grant the beneficial use of its real property to
an agency or instrumentality of the national government. This
happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the
real property. Such arrangement does not result in the loss of the
tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax
exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we assume
that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA
leases to private entities are not exempt from real estate tax. For
example, the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax. In such a case,
MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area
is subject to real estate tax. In Lung Center of the Philippines v.
Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased
to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt
from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate
tax because Section 193 of the Local Government Code of 1991
withdrew the tax exemption of "all persons, whether natural or
juridical" upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption
Privileges – Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations,
except local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions are hereby withdrawn upon
effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person.
The minority argues that since the Local Government Code
withdrew the tax exemption of all juridical persons, then MIAA is
not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local
Government Code that the withdrawn exemptions
from realty tax cover not just GOCCs, but all persons.
To repeat, the provisions lay down the explicit proposition
 that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is
only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes
of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural
person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in
the original)
The minority posits that the "determinative test" whether MIAA is
exempt from local taxation is its status — whether MIAA is a
juridical person or not. The minority also insists that "Sections 193
and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the
Local Government Code expressly withdrew the tax exemption of
all juridical persons "[u]nless otherwise provided in this Code."
Now, Section 133(o) of the Local Government Code expressly
provides otherwise, specifically prohibiting local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of
Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to
the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments
are devoid of power to tax the national government, its agencies
and instrumentalities. The taxing powers of local governments do
not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as
stated in the saving clause of Section 133. The saving clause
refers to Section 234(a) on the exception to the exemption from
real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section
193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons
exempt from local taxation are limited to the three classes of
entities specifically enumerated as exempt in Section 193. Thus,
the minority states:
x x x Under Section 193, the exemption is limited to (a)
local water districts; (b) cooperatives duly registered
under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be
belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis
supplied)
The minority's theory directly contradicts and completely negates
Section 133(o) of the Local Government Code. This theory will
result in gross absurdities. It will make the national government,
which itself is a juridical person, subject to tax by local
governments since the national government is not included in the
enumeration of exempt entities in Section 193. Under this theory,
local governments can impose any kind of local tax, and not only
real estate tax, on the national government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be subject to
any kind of local tax, and not only real estate tax. Some of the
national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice
Research Institute,31Laguna Lake
Development Authority,32 Fisheries Development
Authority,33 Bases Conversion Development Authority,34Philippine
Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando
Port Authority,37 Cebu Port Authority,38 and Philippine National
Railways.39
The minority's theory violates Section 133(o) of the Local
Government Code which expressly prohibits local governments
from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical
personalities. Where the law does not distinguish, courts should
not distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt
from local taxation is not whether MIAA is a juridical person, but
whether it is a national government instrumentality under Section
133(o) of the Local Government Code. Section 133(o) is the
specific provision of law prohibiting local governments from
imposing any kind of tax on the national government, its agencies
and instrumentalities.
Section 133 of the Local Government Code starts with the saving
clause "[u]nless otherwise provided in this Code." This means
that unless the Local Government Code grants an express
authorization, local governments have no power to tax the
national government, its agencies and instrumentalities. Clearly,
the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception
to this rule, local governments may tax the national government,
its agencies and instrumentalities only if the Local Government
Code expressly so provides.
The saving clause in Section 133 refers to the exception to the
exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is
exempt from real estate tax. The exception to this exemption is
when the government gives the beneficial use of the real property
to a taxable entity.
The exception to the exemption in Section 234(a) is the only
instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real
estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although
owned by the Republic, is not devoted to public use or public
service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section
193 and 234 of the Local Government Code, the later provisions
prevail over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes
Section 193 and 234. Following an accepted rule of
 construction, in case of conflict the subsequent provisions
should prevail. Therefore, MIAA, as a juridical person, is
subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the
Local Government Code being qualified by Sections 193
and 234 of the same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict
between Section 133 on one hand, and Sections 193 and 234 on
the other. No one has urged that there is such a conflict, much
less has any one presenteda persuasive argument that there is
such a conflict. The minority's assumption of an irreconcilable
conflict in the statutory provisions is an egregious error for two
reasons.
First, there is no conflict whatsoever between Sections 133 and
193 because Section 193 expressly admits its subordination to
other provisions of the Code when Section 193 states "[u]nless
otherwise provided in this Code." By its own words, Section 193
admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but
withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The
grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the
Taxing Powers of Local Government Units." Section 133 limits the
grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the
taxing powers of local governments "shall not extend to the levy"
of any kind of tax on the national government, its agencies and
instrumentalities. There is no clearer limitation on the taxing
power than this.
Since Section 133 prescribes the "common limitations" on the
taxing powers of local governments, Section 133 logically prevails
over Section 193 which grants local governments such taxing
powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise
of the taxing power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind of tax
on the national government, its agencies and instrumentalities —
a gross absurdity.
Local governments have no power to tax the national
government, its agencies and instrumentalities, except as
otherwise provided in the Local Government Code pursuant to
the saving clause in Section 133 stating "[u]nless otherwise
provided in this Code." This exception — which is an exception to
the exemption of the Republic from real estate tax imposed by
local governments — refers to Section 234(a) of the Code. The
exception to the exemption in Section 234(a) subjects real
property owned by the Republic, whether titled in the name of the
national government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to a
taxable entity.
The minority also claims that the definition in the Administrative
Code of the phrase "government-owned or controlled corporation"
is not controlling. The minority points out that Section 2 of the
Introductory Provisions of the Administrative Code admits that its
definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific
words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative
Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a
different meaning than that defined in the Administrative Code.
However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government
Code. Section 2 of the Administrative Code clearly states that
"unless the specific words x x x of a particular statute shall require
a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local
Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the
Administrative Code. Indeed, there is none. The Local
Government Code is silent on the definition of the phrase
"government-owned or controlled corporation." The Administrative
Code, however, expressly defines the phrase "government-
owned or controlled corporation." The inescapable conclusion is
that the Administrative Code definition of the phrase
"government-owned or controlled corporation" applies to the
Local Government Code.
The third whereas clause of the Administrative Code states that
the Code "incorporates in a unified document the major structural,
functional and procedural principles and rules of governance."
Thus, the Administrative Code is the governing law defining the
status and relationship of government departments, bureaus,
offices, agencies and instrumentalities. Unless a statute expressly
provides for a different status and relationship for a specific
government unit or entity, the provisions of the Administrative
Code prevail.
The minority also contends that the phrase "government-owned
or controlled corporation" should apply only to corporations
organized under the Corporation Code, the general incorporation
law, and not to corporations created by special charters. The
minority sees no reason why government corporations with
special charters should have a capital stock. Thus, the minority
declares:
I submit that the definition of "government-owned or
controlled corporations" under the Administrative Code
refer to those corporations owned by the government or
its instrumentalities which are created not by legislative
enactment, but formed and organized under the
Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs
without original charters.
xxxx
It might as well be worth pointing out that there is no point
in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic.
Such GOCCs are not empowered to declare dividends or
alienate their capital shares.
The contention of the minority is seriously flawed. It is not in
accord with the Constitution and existing legislations. It will also
result in gross absurdities.
First, the Administrative Code definition of the phrase
"government-owned or controlled corporation" does not
distinguish between one incorporated under the Corporation
Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special charters several
government-owned corporations organized as stock corporations.
Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the
Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of
the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par
value of ten pesos each, which shall be fully subscribed
by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each,
which shall be issued in accordance with the provisions of
Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the
Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The
capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of
P100 per share. These shares are available for
subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall
subscribe to Twenty-Five Million common shares of stock
worth Two Billion Five Hundred Million which shall be
deemed paid for by the Government with the net asset
values of the Bank remaining after the transfer of assets
and liabilities as provided in Section 30 hereof. (Emphasis
supplied)
Other government-owned corporations organized as stock
corporations under their special charters are the Philippine Crop
Insurance Corporation,42 Philippine International Trading
Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code.
All these government-owned corporations organized under
special charters as stock corporations are subject to real estate
tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are
not registered with the Securities and Exchange Commission
would remove them from the reach of Section 234 of the Local
Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation
must be established for the common good. The second condition
is that the government-owned or controlled corporation must
meet the test of economic viability. Section 16, Article XII of the
1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of
private corporations. Government-owned or controlled
corporations may be created or established by special
charters in the interest of the common good and subject
to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other
words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are
made to comply with the two conditions of common good and
economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for
the common good — meaning for economic development
purposes — these government-owned or controlled corporations
with special charters are usually organized as stock corporations
just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities
perform essential public services for the common good, services
that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate
powers but performing essential governmental or public functions.
Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public
services. However, when the legislature creates through special
charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic
viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-
owned or controlled corporations, which derive their income to
meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution
is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the purpose
of this test, as follows:
MR. OPLE: Madam President, the reason for this concern
is really that when the government creates a corporation,
there is a sense in which this corporation becomes
exempt from the test of economic performance. We know
what happened in the past. If a government corporation
loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and
what is always invoked is the common good. That is the
reason why this year, out of a budget of P115 billion for
the entire government, about P28 billion of this will go into
equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could
have been relocated to agrarian reform, to social services
like health and education, to augment the salaries of
grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase "ECONOMIC
VIABILITY" together with the "common good," this
becomes a restraint on future enthusiasts for state
capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And
so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the
standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of
the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986
Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common
good and subject to the test of economic viability." The
addition includes the ideas that they must show capacity
to function efficiently in business and that they should not
go into activities which the private sector can do better.
Moreover, economic viability is more than financial
 viability but also includes capability to make profit and
generate benefits not quantifiable in financial
terms.46(Emphasis supplied)
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and performing
essential public services. The State is obligated to render
essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering
such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with
special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that
are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-
owned or controlled corporations, along with government-owned
or controlled corporations organized under the Corporation Code,
that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because
the legislature did not create MIAA to compete in the market
place. MIAA does not compete in the market place because there
is no competing international airport operated by the private
sector. MIAA performs an essential public service as the primary
domestic and international airport of the Philippines. The
operation of an international airport requires the presence of
personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to
document the arrival and departure of passengers,
screening out those without visas or travel documents, or
those with hold departure orders;
2. The Bureau of Customs, to collect import duties or
enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to
enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures
against the spread of plant and animal diseases into the
country;
5. The Aviation Security Command of the Philippine
National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport
premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of
Transportation and Communications, to authorize aircraft
to enter or leave Philippine airspace, as well as to land
on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as
runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport
operations.
All these agencies of government perform government functions
essential to the operation of an international airport.
MIAA performs an essential public service that every modern
State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes
on passengers and airlines. The terminal fees that MIAA charges
every passenger are regulatory or administrative fees47 and not
income from commercial transactions.
MIAA falls under the definition of a government instrumentality
under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate powers does
not make MIAA a government-owned or controlled corporation.
Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More
importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is
outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of
the phrase "government-owned or controlled corporation" as
merely "clarificatory or illustrative." This is fatal. The 1987
Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The
Administrative Code defines what constitutes a "government-
owned or controlled corporation." To belittle this phrase as
"clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of
the Administrative Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because
MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. (Emphasis
supplied)
The term "ports x x x constructed by the State" includes airports
and seaports. The Airport Lands and Buildings of MIAA are
intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As
properties of public dominion, the Airport Lands and Buildings are We DECLARE the Airport Lands and Buildings of the Manila
owned by the Republic and thus exempt from real estate tax International Airport Authority EXEMPT from the real estate tax
under Section 234(a) of the Local Government Code. imposed by the City of Parañaque. We declare VOID all the real
estate tax assessments, including the final notices of real estate
4. Conclusion tax delinquencies, issued by the City of Parañaque on the Airport
Lands and Buildings of the Manila International Airport Authority,
Under Section 2(10) and (13) of the Introductory Provisions of the except for the portions that the Manila International Airport
Administrative Code, which governs the legal relation and status Authority has leased to private parties. We also declare VOID the
of government units, agencies and offices within the entire assailed auction sale, and all its effects, of the Airport Lands and
government machinery, MIAA is a government instrumentality Buildings of the Manila International Airport Authority.
and not a government-owned or controlled corporation. Under
Section 133(o) of the Local Government Code, MIAA as a No costs.
government instrumentality is not a taxable person because it is
not subject to "[t]axes, fees or charges of any kind" by local SO ORDERED.
governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax by the
City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of
the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and
seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject
to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the

assailed Resolutions of the Court of Appeals of 5 October 2001
and 27 September 2002 in CA-G.R. SP No. 66878.
REPUBLIC OF THE PHILIPPINES, represented by the
PHILIPPINE RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, on pure questions of law, assailing
the January 8, 2010 Order1 of the Regional Trial Court, Branch
195, Parafiaque City (RTC), which ruled that petitioner Philippine
Reclamation Authority (PRA) is a government-owned and
controlled corporation (GOCC), a taxable entity, and, therefore, .
not exempt from payment of real property taxes. The pertinent
portion of the said order reads:
In view of the finding of this court that petitioner is not exempt
from payment of real property taxes, respondent Parañaque City
Treasurer Liberato M. Carabeo did not act xxx without or in
excess of jurisdiction, or with grave abuse of discretion amounting
to lack or in excess of jurisdiction in issuing the warrants of levy
on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for
Leave to File and Admit Attached Supplemental Petition is denied
and the supplemental petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation
created by virtue of Presidential Decree (P.D.) No. 1084 (Creating
the Public Estates Authority, Defining its Powers and Functions,
Providing Funds Therefor and For Other Purposes) which took
effect on February 4,
1977 to provide a coordinated, economical and efficient
reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by, the government
with the object of maximizing their utilization and hastening their
development consistent with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No.
525 issued by then President Ferdinand Marcos, PEA was
designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on
behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo
issued E.O. No. 380 transforming PEA into PRA, which shall
perform all the powers and functions of the PEA relating to
reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the
foreshore and offshore areas of Manila Bay, including those
located in Parañaque City, and was issued Original Certificates of
Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and
Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309,
7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato
M. Carabeo (Carabeo) issued Warrants of Levy on PRA’s
reclaimed properties (Central Business Park and Barangay San
Dionisio) located in Parañaque City based on the assessment for
delinquent real property taxes made by then Parañaque City
Assessor Soledad Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer
for temporary restraining order (TRO) and/or writ of preliminary
injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order
denying PRA’s petition for the issuance of a temporary restraining
order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the
latter not to proceed with the public auction of the subject
reclaimed properties on April 7, 2003. In response, Carabeo sent
a letter stating that the public auction could not be deferred
because the RTC had already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance
of a writ of preliminary injunction for being moot and academic
considering that the auction sale of the subject properties on April
7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and
the failure of both parties to arrive at a compromise agreement,
PRA filed a Motion for Leave to File and Admit Attached
Supplemental Petition which sought to declare as null and void
the assessment for real property taxes, the levy based on the
said assessment, the public auction sale conducted on April 7,
2003, and the Certificates of Sale issued pursuant to the auction
sale.
On January 8, 2010, the RTC rendered its decision dismissing
PRA’s petition. In ruling that PRA was not exempt from payment
of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock
corporation because it had an authorized capital stock divided
into no par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its name
as shown by the certificates of title. Therefore, as a GOCC, local
tax exemption is withdrawn by virtue of Section 193 of Republic
Act (R.A.) No. 7160 Local Government Code (LGC) which was
the prevailing law in 2001 and 2002 with respect to real property
taxation. The RTC also ruled that the tax exemption claimed by
PRA under E.O. No. 654 had already been expressly repealed by
R.A. No. 7160 and that PRA failed to comply with the procedural
requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the
January 8, 2010 RTC Order based on the following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT
PETITIONER IS LIABLE TO PAY REAL PROPERTY TAX ON
THE SUBJECT RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED
INSTRUMENTALITY OF THE NATIONAL GOVERNMENT AND
IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL
PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF
REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE
VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO
CONSIDER THAT RECLAIMED LANDS ARE PART OF THE
PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the
Introductory Provisions of the Administrative Code. Neither is it a
GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability.
Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into
shares, it is not authorized to distribute dividends and allotment of
surplus and profits to its stockholders. Therefore, it may not be
classified as a stock corporation because it lacks the second
requisite of a stock corporation which is the distribution of
dividends and allotment of surplus and profits to the stockholders.
It insists that it may not be classified as a non-stock corporation
because it has no members and it is not organized for charitable,
religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers as
provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in
the market place as there was no competing reclamation
company operated by the private sector. Also, while PRA is
vested with corporate powers under P.D. No. 1084, such
circumstance does not make it a corporation but merely an
incorporated instrumentality and that the mere fact that an
incorporated instrumentality of the National Government holds
title to real property does not make said instrumentality a GOCC.
Section 48, Chapter 12, Book I of the Administrative Code of
1987 recognizes a scenario where a piece of land owned by the
Republic is titled in the name of a department, agency or
instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the
National Government, it is exempt from payment of real property
tax except when the beneficial use of the real property is granted
to a taxable person. PRA claims that based on Section 133(o) of
the LGC, local governments cannot tax the national government
which delegate to local governments the power to tax.
It explains that reclaimed lands are part of the public domain,
owned by the State, thus, exempt from the payment of real estate
taxes. Reclaimed lands retain their inherent potential as areas for
public use or public service. While the subject reclaimed lands
are still in its hands, these lands remain public lands and form
part of the public domain. Hence, the assessment of real property
taxes made on said lands, as well as the levy thereon, and the
public sale thereof on April 7, 2003, including the issuance of the
certificates of sale in favor of the respondent Parañaque City, are
invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues
that PRA since its creation consistently represented itself to be a
GOCC. PRA’s very own charter (P.D. No. 1084) declared it to be
a GOCC and that it has entered into several thousands of
contracts where it represented itself to be a GOCC. In fact, PRA
admitted in its original and amended petitions and pre-trial brief
filed with the RTC of Parañaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with
an authorized capital stock divided into 3 million no par value
shares, out of which 2 million shares have been subscribed and
fully paid up. Section 193 of the LGC of 1991 has withdrawn tax
exemption privileges granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment
of real property tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative
Code of 1987 defines a GOCC as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of
the Administrative Code defines a government "instrumentality"
as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter. x x x
From the above definitions, it is clear that a GOCC must be
"organized as a stock or non-stock corporation" while an
instrumentality is vested by law with corporate powers. Likewise,
when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National
Government machinery although not integrated with the
department framework.
When the law vests in a government instrumentality corporate
powers, the instrumentality does not necessarily become a
corporation. Unless the government instrumentality is organized
as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also
corporate powers.
Many government instrumentalities are vested with corporate
powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan
International Airport Authority, the Philippine Ports Authority, the
University of the Philippines, and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers
but they are not organized as stock or non-stock corporations as
required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are
sometimes loosely called government corporate entities. They are
not, however, GOCCs in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal
relationship and status of government entities.2
Correlatively, Section 3 of the Corporation Code defines a stock
corporation as one whose "capital stock is divided into shares and
x x x authorized to distribute to the holders of such shares
dividends x x x." Section 87 thereof defines a non-stock
corporation as "one where no part of its income is distributable as
dividends to its members, trustees or officers." Further, Section
88 provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or
similar purposes, like trade, industry, agriculture and like
chambers."
Two requisites must concur before one may be classified as a
stock corporation, namely: (1) that it has capital stock divided into
shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one
requisite is present, it cannot be properly classified as a stock
corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to said
members.3
In the case at bench, PRA is not a GOCC because it is neither a
stock nor a non-stock corporation. It cannot be considered as a
stock corporation because although it has a capital stock divided
into no par value shares as provided in Section 74 of P.D. No.
1084, it is not authorized to distribute dividends, surplus
allotments or profits to stockholders. There is no provision
whatsoever in P.D. No. 1084 or in any of the subsequent
executive issuances pertaining to PRA, particularly, E.O. No.
525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to
distribute dividends, surplus allotments or profits to its
stockholders.
PRA cannot be considered a non-stock corporation either
because it does not have members. A non-stock corporation must
have members.8 Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code.
Specifically, it was created to manage all government reclamation
projects.
Furthermore, there is another reason why the PRA cannot be
classified as a GOCC. Section 16, Article XII of the 1987
Constitution provides as follows:
Section 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create
GOCCs through special charters on two conditions: 1) the GOCC
must be established for the common good; and 2) the GOCC
must meet the test of economic viability. In this case, PRA may
have passed the first condition of common good but failed the
second one - economic viability. Undoubtedly, the purpose
behind the creation of PRA was not for economic or commercial
activities. Neither was it created to compete in the market place
considering that there were no other competing reclamation
companies being operated by the private sector. As mentioned
earlier, PRA was created essentially to perform a public service
considering that it was primarily responsible for a coordinated,
economical and efficient reclamation, administration and
operation of lands belonging to the government with the object of
maximizing their utilization and hastening their development
consistent with the public interest. Sections 2 and 4 of P.D. No.
1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the
State to provide for a coordinated, economical and efficient
reclamation of lands, and the administration and operation of
lands belonging to, managed and/or operated by the government,
with the object of maximizing their utilization and hastening their
development consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the
following purposes:
(a) To reclaim land, including foreshore and submerged
areas, by dredging, filling or other means, or to acquire
reclaimed land;
(b) To develop, improve, acquire, administer, deal in,
subdivide, dispose, lease and sell any and all kinds of
lands, buildings, estates and other forms of real property,
owned, managed, controlled and/or operated by the
government.
(c) To provide for, operate or administer such services as
may be necessary for the efficient, economical and
beneficial utilization of the above properties.
The twin requirement of common good and economic viability
was lengthily discussed in the case of Manila International Airport
Authority v. Court of Appeals,9 the pertinent portion of which
reads:
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled
corporation must be established for the common good. The
second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16,
Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other
words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are
made to comply with the two conditions of common good and
economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the
market place. Being essentially economic vehicles of the State for
the common good — meaning for economic development
purposes — these government-owned or controlled corporations
with special charters are usually organized as stock corporations
just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities
perform essential public services for the common good, services
that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the
government may even subsidize their entire operations. These
instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate
powers but performing essential governmental or public functions.
Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public
services. However, when the legislature creates through special
charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or
controlled corporations" — must meet the test of economic
viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-
owned or controlled corporations, which derive their incometo
meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution
is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place
and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the purpose
of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is
really that when the government creates a corporation, there is a
sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a
government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the
government and what is always invoked is the common good.
That is the reason why this year, out of a budget of P115 billion
for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions.
And this is all taxpayers' money which could have been relocated
to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And
yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on
future enthusiasts for state capitalism to excuse themselves from
the responsibility of meeting the market test so that they become
viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the
common good. 1âwphi 1
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of
the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in
the interest of the common good and subject to the test of
economic viability." The addition includes the ideas that they must
show capacity to function efficiently in business and that they
should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability
but also includes capability to make profit and generate benefits
not quantifiable in financial terms.
Clearly, the test of economic viability does not apply to
government entities vested with corporate powers and performing
essential public services. The State is obligated to render
essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering
such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with
special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that
are usually organized under their special charters as stock
corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-
owned or controlled corporations, along with government-owned
or controlled corporations organized under the Corporation Code,
that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code.
[Emphases supplied]
This Court is convinced that PRA is not a GOCC either under
Section 2(3) of the Introductory Provisions of the Administrative
Code or under Section 16, Article XII of the 1987 Constitution.
The facts, the evidence on record and jurisprudence on the issue
support the position that PRA was not organized either as a stock
or a non-stock corporation. Neither was it created by Congress to
operate commercially and compete in the private market. Instead,
PRA is a government instrumentality vested with corporate
powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative
Code. Being an incorporated government instrumentality, it is
exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the
subject reclaimed lands managed by PRA. On the other hand,
Section 234(a) of the LGC, in relation to its Section 133(o),
exempts PRA from paying realty taxes and protects it from the
taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax – The following
are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National
Government, its agencies and instrumentalities, and local
government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the
Republic of the Philippines (the Republic) is exempt from real
property tax unless the beneficial use thereof has been granted to
a taxable person. In this case, there is no proof that PRA granted
the beneficial use of the subject reclaimed lands to a taxable
entity. There is no showing on record either that PRA leased the
subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the
same Code, which prohibits local governments from imposing
"taxes, fees or charges of any kind on the National Government,
its agencies and instrumentalities x x x." The Administrative Code
allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and continue
to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property
to an agency or instrumentality of the national government. This
happens when the title of the real property is transferred to an
agency or instrumentality even as the Republic remains the
owner of the real property. Such arrangement does not result in
the loss of the tax exemption, unless "the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person."10
The rationale behind Section 133(o) has also been explained in
the case of the Manila International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of
the powers of local governments, local governments may only
exercise such power "subject to such guidelines and limitations
as the Congress may provide."
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable
is resolved against taxation. This rule applies with greater force
when local governments seek to tax national government
instrumentalities.
Another rule is that a tax exemption is strictly construed against
the taxpayer claiming the exemption. However, when Congress
grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor
of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In
such case the practical effect of an exemption is merely to reduce
the amount of money that has to be handled by government in
the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments
taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception
is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be
express language in the law empowering local governments to
tax national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that
"unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. As this Court
held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the States
to touch, in that way (taxation) at least, the instrumentalities of the
United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may perceive
to be undesirable activities or enterprise using the power to tax as
"a tool for regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the
"power to destroy" (McCulloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are
still part of the public domain, owned by the State and, therefore,
exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as
follows:
Section 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations
at least 60 per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years,
and under such terms and conditions as may provided by law. In
cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of waterpower,
beneficial use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties
belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
 State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for
public use, and are intended for some public service or for
the development of the national wealth. [Emphases
supplied]
Here, the subject lands are reclaimed lands, specifically portions
of the foreshore and offshore areas of Manila Bay. As such, these
lands remain public lands and form part of the public domain. In
the case of Chavez v. Public Estates Authority and AMARI
Coastal Development Corporation,12 the Court held that foreshore
and submerged areas irrefutably belonged to the public domain
and were inalienable unless reclaimed, classified as alienable
lands open to disposition and further declared no longer needed
for public service. The fact that alienable lands of the public
domain were transferred to the PEA (now PRA) and issued land
patents or certificates of title in PEA’s name did not automatically
make such lands private. This Court also held therein that
reclaimed lands retained their inherent potential as areas for
public use or public service.
As the central implementing agency tasked to undertake
reclamation projects nationwide, with authority to sell reclaimed
lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public
domain. The reclaimed lands being leased or sold by PEA are not
private lands, in the same manner that DENR, when it disposes
of other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private
parties acquire these lands will the lands become private lands. In
the hands of the government agency tasked and authorized to
dispose of alienable of disposable lands of the public domain,
these lands are still public, not private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold
lands of the public domain" as well as "any and all kinds of lands."
PEA can hold both lands of the public domain and private lands.
Thus, the mere fact that alienable lands of the public domain like
the Freedom Islands are transferred to PEA and issued land
patents or certificates of title in PEA's name does not
automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I,
Book III of the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private
Dominion of the Government.-
(1)The President shall have the power to reserve for settlement or
public use, and for specific public purposes, any of the lands of
the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law
or proclamation.
Reclaimed lands such as the subject lands in issue are reserved
lands for public use. They are properties of public dominion. The
ownership of such lands remains with the State unless they are
withdrawn by law or presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the
foreshore and submerged areas of Manila Bay are part of the
"lands of the public domain, waters x x x and other natural
resources" and consequently "owned by the State." As such,
foreshore and submerged areas "shall not be alienated," unless
they are classified as "agricultural lands" of the public domain.
The mere reclamation of these areas by PEA does not convert
these inalienable natural resources of the State into alienable or
disposable lands of the public domain. There must be a law or
presidential proclamation officially classifying these reclaimed
lands as alienable or disposable and open to disposition or
concession. Moreover, these reclaimed lands cannot be classified
as alienable or disposable if the law has reserved them for some
public or quasi-public use.

As the Court has repeatedly ruled, properties of public dominion

are not subject to execution or foreclosure sale.14Thus, the
assessment, levy and foreclosure made on the subject reclaimed
lands by respondent, as well as the issuances of certificates of
title in favor of respondent, are without basis.

WHEREFORE, the petition is GRANTED. The January 8, 2010

Order of the Regional Trial Court, Branch 195, Parañaque City, is
REVERSED and SET ASIDE. All reclaimed properties owned by
the Philippine Reclamation Authority are hereby declared
EXEMPT from real estate taxes. All real estate tax assessments,
including the final notices of real estate tax delinquencies, issued
by the City of Parañaque on the subject reclaimed properties; the
assailed auction sale, dated April 7, 2003; and the Certificates of
Sale subsequently issued by the Parañaque City Treasurer in
favor of the City of Parañaque, are all declared VOID.

SO ORDERED.
DENNIS A.B. FUNA, Petitioner,
vs.
MANILA ECONOMIC AND CULTURAL OFFICE and the
COMMISSION ON AUDIT, Respondents.
DECISION
PEREZ, J.:
This is a petition for mandamus1 to compel:
1.) the Commission on Audit (COA) to audit and examine
the funds of the Manila Economic and Cultural Office
(MECO), and
2.) the MECO to submit to such audit and examination.
The antecedents:
Prelude
The aftermath of the Chinese civil war2 left the country of China
with two (2) governments in a stalemate espousing competing
assertions of sovereignty.3 On one hand is the communist
People’s Republic of China (PROC) which controls the mainland
territories, and on the other hand is the nationalist Republic of
China (ROC) which controls the island of Taiwan. For a better
part of the past century, both the PROC and ROC adhered to a
policy of "One China" i.e., the view that there is only one
legitimate government in China, but differed in their respective
interpretation as to which that government is.4
With the existence of two governments having conflicting claims
of sovereignty over one country, came the question as to which of
the two is deserving of recognition as that country’s legitimate
government. Even after its relocation to Taiwan, the ROC used to
enjoy diplomatic recognition from a majority of the world’s states,
partly due to being a founding member of the United Nations
(UN).5 The number of states partial to the PROC’s version of the
One China policy, however, gradually increased in the 1960s and
70s, most notably after the UN General Assembly adopted the
monumental Resolution 2758 in 1971.6 Since then, almost all of
the states that had erstwhile recognized the ROC as the
legitimate government of China, terminated their official relations
with the said government, in favor of establishing diplomatic
relations with the PROC.7 The Philippines is one of such states.
The Philippines formally ended its official diplomatic relations with
the government in Taiwan on 9 June 1975, when the country and
the PROC expressed mutual recognition thru the Joint
Communiqué of the Government of the Republic of the
Philippines and the Government of the People’s Republic of
China (Joint Communiqué).8
Under the Joint Communiqué, the Philippines categorically stated
its adherence to the One China policy of the PROC. The pertinent
portion of the Joint Communiqué reads:9
The Philippine Government recognizes the Government of the
People’s Republic of China as the sole legal government of
China, fully understands and respects the position of the Chinese
Government that there is but one China and that Taiwan is an
integral part of Chinese territory, and decides to remove all its
official representations from Taiwan within one month from the
date of signature of this communiqué. (Emphasis supplied)
The Philippines’ commitment to the One China policy of the
PROC, however, did not preclude the country from keeping
unofficial relations with Taiwan on a "people-to-people"
basis.10 Maintaining ties with Taiwan that is permissible by the
terms of the Joint Communiqué, however, necessarily required
the Philippines, and Taiwan, to course any such relations thru
offices outside of the official or governmental organs.
Hence, despite ending their diplomatic ties, the people of Taiwan
and of the Philippines maintained an unofficial relationship
facilitated by the offices of the Taipei Economic and Cultural
Office, for the former, and the MECO, for the latter.11
The MECO12 was organized on 16 December 1997 as a non-
stock, non-profit corporation under Batas Pambansa Blg. 68 or
the Corporation Code.13 The purposes underlying the
incorporation of MECO, as stated in its articles of
incorporation,14 are as follows:
1. To establish and develop the commercial and industrial
interests of Filipino nationals here and abroad, and assist
on all measures designed to promote and maintain the
trade relations of the country with the citizens of other
foreign countries;
2. To receive and accept grants and subsidies that are
reasonably necessary in carrying out the corporate
purposes provided they are not subject to conditions
defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title
real and personal properties as may be necessary for the
use and need of the corporation, and to dispose of the
same in like manner when they are no longer needed or
useful; and
4. To do and perform any and all acts which are deemed
reasonably necessary to carry out the purposes.
(Emphasis supplied)
From the moment it was incorporated, the MECO became the
corporate entity "entrusted" by the Philippine government with the
responsibility of fostering "friendly" and "unofficial" relations with
the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational
exchanges.15To enable it to carry out such responsibility, the
MECO was "authorized" by the government to perform certain
"consular and other functions" that relates to the promotion,
protection and facilitation of Philippine interests in Taiwan.16
At present, it is the MECO that oversees the rights and interests
of Overseas Filipino Workers (OFWs) in Taiwan; promotes the
Philippines as a tourist and investment destination for the
Taiwanese; and facilitates the travel of Filipinos and Taiwanese
from Taiwan to the Philippines, and vice versa.17
Facts Leading to the Mandamus Petition
On 23 August 2010, petitioner sent a letter18 to the COA
requesting for a "copy of the latest financial and audit report" of
the MECO invoking, for that purpose, his "constitutional right to
information on matters of public concern." The petitioner made
the request on the belief that the MECO, being under the
"operational supervision" of the Department of Trade and Industry
(DTI), is a government owned and controlled corporation (GOCC)
and thus subject to the audit jurisdiction of the COA.19
Petitioner’s letter was received by COA Assistant Commissioner
Jaime P. Naranjo, the following day.
On 25 August 2010, Assistant Commissioner Naranjo issued a
memorandum20 referring the petitioner’s request to COA Assistant
Commissioner Emma M. Espina for "further disposition." In this
memorandum, however, Assistant Commissioner Naranjo
revealed that the MECO was "not among the agencies audited by
any of the three Clusters of the Corporate Government Sector."21
On 7 September 2010, petitioner learned about the 25 August
2010 memorandum and its contents.
Mandamus Petition
Taking the 25 August 2010 memorandum as an admission that
the COA had never audited and examined the accounts of the
MECO, the petitioner filed the instant petition for mandamus on 8
September 2010. Petitioner filed the suit in his capacities as
"taxpayer, concerned citizen, a member of the Philippine Bar and
law book author."22 He impleaded both the COA and the MECO.
Petitioner posits that by failing to audit the accounts of the MECO,
the COA is neglecting its duty under Section 2(1), Article IX-D of
the Constitution to audit the accounts of an otherwise bona fide
GOCC or government instrumentality. It is the adamant claim of
the petitioner that the MECO is a GOCC without an original
charter or, at least, a government instrumentality, the funds of
which partake the nature of public funds.23
According to petitioner, the MECO possesses all the essential
characteristics of a GOCC and an instrumentality under the
Executive Order No. (EO) 292, s. 1987 or the Administrative
Code: it is a non-stock corporation vested with governmental
functions relating to public needs; it is controlled by the
government thru a board of directors appointed by the President
of the Philippines; and while not integrated within the executive
departmental framework, it is nonetheless under the operational
and policy supervision of the DTI.24 As petitioner substantiates:
1. The MECO is vested with government functions. It
performs functions that are equivalent to those of an
embassy or a consulate of the Philippine government.25 A
reading of the authorized functions of the MECO as found
in EO No. 15, s. 2001, reveals that they are substantially
the same functions performed by the Department of
Foreign Affairs (DFA), through its diplomatic and consular
missions, per the Administrative Code.26
2. The MECO is controlled by the government. It is the
President of the Philippines that actually appoints the
directors of the MECO, albeit indirectly, by way of "desire
letters" addressed to the MECO’s board of directors.27 An
illustration of this exercise is the assumption by Mr.
Antonio Basilio as chairman of the board of directors of
the MECO in 2001, which was accomplished when former
President Gloria Macapagal-Arroyo, through a
memorandum28 dated 20 February 2001, expressed her
"desire" to the board of directors of the MECO for the
election of Mr. Basilio as chairman.29
3. The MECO is under the operational and policy
supervision of the DTI. The MECO was placed under the
operational supervision of the DTI by EO No. 328, s. of
2004, and again under the policy supervision of the same
department by EO No. 426, s. 2005.30
To further bolster his position that the accounts of the MECO
ought to be audited by the COA, the petitioner calls attention to
the practice, allegedly prevailing in the United States of America,
wherein the American Institute in Taiwan (AIT)—the counterpart
entity of the MECO in the United States—is supposedly audited
by that country’s Comptroller General.31 Petitioner claims that this
practice had been confirmed in a decision of the United States
Court of Appeals for the District of Columbia Circuit, in the case of
Wood, Jr., ex rel. United States of America v. The American
Institute in Taiwan, et al.32
The Position of the MECO
The MECO prays for the dismissal of the mandamus petition on
procedural and substantial grounds.
On procedure, the MECO argues that the mandamus petition was
prematurely filed.33
The MECO posits that a cause of action for mandamus to compel
the performance of a ministerial duty required by law only ripens
once there has been a refusal by the tribunal, board or officer
concerned to perform such a duty.34The MECO claims that there
was, in this case, no such refusal either on its part or on the
COA’s because the petitioner never made any demand for it to
submit to an audit by the COA or for the COA to perform such an
audit, prior to filing the instant mandamus petition.35 The MECO
further points out that the only "demand" that the petitioner made
was his request to the COA for a copy of the MECO’s latest
financial and audit report— which request was not even finally
disposed of by the time the instant petition was filed.36
On the petition’s merits, the MECO denies the petitioner’s claim
that it is a GOCC or a government instrumentality.37While
performing public functions, the MECO maintains that it is not
owned or controlled by the government, and its funds are private
funds.38 The MECO explains:
1. It is not owned or controlled by the government.
Contrary to the allegations of the petitioner, the President
of the Philippines does not appoint its board of
directors.39 The "desire letter" that the President transmits
is merely recommendatory and not binding on the
corporation.40 As a corporation organized under the
Corporation Code, matters relating to the election of its
directors and officers, as well as its membership, are
governed by the appropriate provisions of the said code,
its articles of incorporation and its by-laws.41 Thus, it is the
directors who elect the corporation’s officers; the
members who elect the directors; and the directors who
admit the members by way of a unanimous resolution. All
of its officers, directors, and members are private
individuals and are not government officials.42
2. The government merely has policy supervision over it.
Policy supervision is a lesser form of supervision wherein
the government’s oversight is limited only to ensuring that
the corporation’s activities are in tune with the country’s
commitments under the One China policy of the
PROC.43 The day-to-day operations of the corporation,
however, remain to be controlled by its duly elected board
of directors.44
The MECO emphasizes that categorizing it as a GOCC or a
government instrumentality can potentially violate the country’s
commitment to the One China policy of the PROC.45 Thus, the
MECO cautions against applying to the present mandamus
petition the pronouncement in the Wood decision regarding the
alleged auditability of the AIT in the United States.46
The Position of the COA
The COA, on the other hand, advances that the mandamus
petition ought to be dismissed on procedural grounds and on the
ground of mootness.
The COA argues that the mandamus petition suffers from the
following procedural defects:
1. The petitioner lacks locus standi to bring the suit. The
COA claims that the petitioner has not shown, at least in a
concrete manner, that he had been aggrieved or
prejudiced by its failure to audit the accounts of the
MECO.47
2. The petition was filed in violation of the doctrine of
hierarchy of courts. The COA faults the filing of the instant
mandamus petition directly with this Court, when such
petition could have very well been presented, at the first
instance, before the Court of Appeals or any Regional
Trial Court.48 The COA claims that the petitioner was not
able to provide compelling reasons to justify a direct
resort to the Supreme Court.49
At any rate, the COA argues that the instant petition already
became moot when COA Chairperson Maria Gracia M. Pulido-
Tan (Pulido-Tan) issued Office Order No. 2011-69850 on 6
October 2011.51 The COA notes that under Office Order No. 2011-
698, Chairperson Pulido-Tan already directed a team of auditors
to proceed to Taiwan, specifically for the purpose of auditing the
accounts of, among other government agencies based therein,
the MECO.52
In conceding that it has audit jurisdiction over the accounts of the
MECO, however, the COA clarifies that it does not consider the
former as a GOCC or a government instrumentality. On the
contrary, the COA maintains that the MECO is a non-
governmental entity.53
The COA argues that, despite being a non-governmental entity,
the MECO may still be audited with respect to the "verification
fees" for overseas employment documents that it collects from
Taiwanese employers on behalf of the DOLE.54 The COA claims
that, under Joint Circular No. 3-99,55 the MECO is mandated to
remit to the Department of Labor and Employment (DOLE) a
portion of such "verification fees."56 The COA, therefore, classifies
the MECO as a non-governmental entity "required to pay xxx
government share" subject to a partial audit of its accounts under
Section 26 of the Presidential Decree No. 1445 or the State Audit
Code of the Philippines (Audit Code).57
OUR RULING
We grant the petition in part. We declare that the MECO is a non-
governmental entity. However, under existing laws, the accounts
of the MECO pertaining to the "verification fees" it collects on
behalf of the DOLE as well as the fees it was authorized to collect
under Section 2(6) of EO No. 15, s. 2001, are subject to the audit
jurisdiction of the COA. Such fees pertain to the government and
should be audited by the COA.
I In this case, We find that the issuance by the COA of Office Order
We begin with the preliminary issues.
Mootness of Petition
The first preliminary issue relates to the alleged mootness of the
instant mandamus petition, occasioned by the COA’s issuance of
Office Order No. 2011-698. The COA claims that by issuing
Office Order No. 2011-698, it had already conceded its
jurisdiction over the accounts of the MECO and so fulfilled the
objective of the instant petition.58 The COA thus urges that the
instant petition be dismissed for being moot and academic.59
We decline to dismiss the mandamus petition on the ground of
mootness.
A case is deemed moot and academic when, by reason of the
occurrence of a supervening event, it ceases to present any
justiciable controversy.60 Since they lack an actual controversy
otherwise cognizable by courts, moot cases are, as a rule,
dismissible.61
The rule that requires dismissal of moot cases, however, is not
absolute. It is subject to exceptions. In David v. Macapagal-
Arroyo,62 this Court comprehensively captured these exceptions
scattered throughout our jurisprudence:
The "moot and academic" principle is not a magical formula that
can automatically dissuade the courts in resolving a case. Courts
will decide cases, otherwise moot and academic, if: first, there is
a grave violation of the Constitution;63second, the exceptional
character of the situation and the paramount public interest is
involved;64 third, when constitutional issue raised requires
formulation of controlling principles to guide the bench, the bar,
and the public;65and fourth, the case is capable of repetition yet
evading review.66
No. 2011-698 indeed qualifies as a supervening event that
effectively renders moot and academic the main prayer of the
instant mandamus petition. A writ of mandamus to compel the
COA to audit the accounts of the MECO would certainly be a
mere superfluity, when the former had already obliged itself to do
the same.
Be that as it may, this Court refrains from dismissing outright the
petition. We believe that the mandamus petition was able to craft
substantial issues presupposing the commission of a grave
violation of the Constitution and involving paramount public
interest, which need to be resolved nonetheless:
First. The petition makes a serious allegation that the COA had
been remiss in its constitutional or legal duty to audit and
examine the accounts of an otherwise auditable entity in the
MECO.
Second. There is paramount public interest in the resolution of
the issue concerning the failure of the COA to audit the accounts
of the MECO. The propriety or impropriety of such a refusal is
determinative of whether the COA was able to faithfully fulfill its
constitutional role as the guardian of the public treasury, in which
any citizen has an interest.
Third. There is also paramount public interest in the resolution of
the issue regarding the legal status of the MECO; a novelty
insofar as our jurisprudence is concerned. We find that the status
of the MECO—whether it may be considered as a government
agency or not—has a direct bearing on the country’s commitment
to the One China policy of the PROC.67
An allegation as serious as a violation of a constitutional or legal
duty, coupled with the pressing public interest in the resolution of
all related issues, prompts this Court to pursue a definitive ruling
thereon, if not for the proper guidance of the government or
agency concerned, then for the formulation of controlling
principles for the education of the bench, bar and the public in
general.68 For this purpose, the Court invokes its symbolic
function.69
If the foregoing reasons are not enough to convince, We still add
another:
Assuming that the allegations of neglect on the part of the COA
were true, Office Order No. 2011-698 does not offer the strongest
certainty that they would not be replicated in the future. In the first
place, Office Order No. 2011-698 did not state any legal
justification as to why, after decades of not auditing the accounts
of the MECO, the COA suddenly decided to do so. Neither does it
state any determination regarding the true status of the MECO.
The justifications provided by the COA, in fact, only appears in
the memorandum70 it submitted to this Court for purposes of this
case.
Thus, the inclusion of the MECO in Office Order No. 2011-698
appears to be entirely dependent upon the judgment of the
incumbent chairperson of the COA; susceptible of being undone,
with or without reason, by her or even her successor. Hence, the
case now before this Court is dangerously capable of being
repeated yet evading review.
Verily, this Court should not dismiss the mandamus petition on
the ground of mootness.
Standing of Petitioner
The second preliminary issue is concerned with the standing of
the petitioner to file the instant mandamus petition. The COA
claims that petitioner has none, for the latter was not able to
concretely establish that he had been aggrieved or prejudiced by
its failure to audit the accounts of the MECO.71
Related to the issue of lack of standing is the MECO’s contention
that petitioner has no cause of action to file the instant mandamus
petition. The MECO faults petitioner for not making any demand
for it to submit to an audit by the COA or for the COA to perform
such an audit, prior to filing the instant petition.72
We sustain petitioner’s standing, as a concerned citizen, to file
the instant petition.
The rules regarding legal standing in bringing public suits, or
locus standi, are already well-defined in our case law. Again, We
cite David, which summarizes jurisprudence on this point:73
By way of summary, the following rules may be culled from the
cases decided by this Court. Taxpayers, voters, concerned
1a\^ /phi1
citizens, and legislators may be accorded standing to sue,
provided that the following requirements are met:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal
disbursement of public funds or that the tax measure is
unconstitutional;
(3) for voters, there must be a showing of obvious interest
in the validity of the election law in question;
(4) for concerned citizens, there must be a showing that
the issues raised are of transcendental importance which
must be settled early; and
(5) for legislators, there must be a claim that the official
action complained of infringes upon their prerogatives as
legislators.
We rule that the instant petition raises issues of transcendental
importance, involved as they are with the performance of a
constitutional duty, allegedly neglected, by the COA. Hence, We
hold that the petitioner, as a concerned citizen, has the requisite
legal standing to file the instant mandamus petition.
To be sure, petitioner does not need to make any prior demand
on the MECO or the COA in order to maintain the instant petition.
The duty of the COA sought to be compelled by mandamus,
emanates from the Constitution and law, which explicitly require,
or "demand," that it perform the said duty. To the mind of this
Court, petitioner already established his cause of action against
the COA when he alleged that the COA had neglected its duty in
violation of the Constitution and the law.
Principle of Hierarchy of Courts
The last preliminary issue is concerned with the petition’s non-
observance of the principle of hierarchy of courts. The COA
assails the filing of the instant mandamus petition directly with this
Court, when such petition could have very well been presented,
at the first instance, before the Court of Appeals or any Regional
Trial Court.74 The COA claims that the petitioner was not able to
provide compelling reasons to justify a direct resort to the
Supreme Court.75
In view of the transcendental importance of the issues raised in
the mandamus petition, as earlier mentioned, this Court waives
this last procedural issue in favor of a resolution on the merits.76
II
To the merits of this petition, then.
The single most crucial question asked by this case is whether
the COA is, under prevailing law, mandated to audit the accounts
of the MECO. Conversely, are the accounts of the MECO subject
to the audit jurisdiction of the COA?
Law, of course, identifies which accounts of what entities are
subject to the audit jurisdiction of the COA.
Under Section 2(1) of Article IX-D of the Constitution,77 the COA
was vested with the "power, authority and duty" to "examine,
audit and settle" the "accounts" of the following entities:
1. The government, or any of its subdivisions, agencies
and instrumentalities;
2. GOCCs with original charters;
3. GOCCs without original charters;
4. Constitutional bodies, commissions and offices that
have been granted fiscal autonomy under the
Constitution; and
5. Non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government,
which are required by law or the granting institution to
submit to the COA for audit as a condition of subsidy or
equity.78
The term "accounts" mentioned in the subject constitutional
provision pertains to the "revenue," "receipts," "expenditures" and
"uses of funds and property" of the foregoing entities.79
Complementing the constitutional power of the COA to audit
accounts of "non-governmental entities receiving subsidy or
equity xxx from or through the government" is Section 29(1)80 of
the Audit Code, which grants the COA visitorial authority over the
following non-governmental entities:
1. Non-governmental entities "subsidized by the
government";
2. Non-governmental entities "required to pay levy or
government share";
3. Non-governmental entities that have "received
counterpart funds from the government"; and
4. Non-governmental entities "partly funded by donations
through the government."
Section 29(1) of the Audit Code, however, limits the audit of the
foregoing non-governmental entities only to "funds xxx coming
from or through the government."81 This section of the Audit Code
is, in turn, substantially reproduced in Section 14(1), Book V of
the Administrative Code.82
In addition to the foregoing, the Administrative Code also
empowers the COA to examine and audit "the books, records and
accounts" of public utilities "in connection with the fixing of rates
of every nature, or in relation to the proceedings of the proper
regulatory agencies, for purposes of determining franchise tax."83
Both petitioner and the COA claim that the accounts of the MECO
are within the audit jurisdiction of the COA, but vary on the extent
of the audit and on what type of auditable entity the MECO is.
The petitioner posits that all accounts of the MECO are auditable
as the latter is a bona fide GOCC or government
instrumentality.84 On the other hand, the COA argues that only the
accounts of the MECO that pertain to the "verification fees" it
collects on behalf of the DOLE are auditable because the former
is merely a non-governmental entity "required to pay xxx
government share" per the Audit Code.85
We examine both contentions.
The MECO Is Not a GOCC or
Government Instrumentality
We start with the petitioner’s contention.
Petitioner claims that the accounts of the MECO ought to be
audited by the COA because the former is a GOCC or
government instrumentality. Petitioner points out that the MECO
is a non-stock corporation "vested with governmental functions
relating to public needs"; it is "controlled by the government thru a
board of directors appointed by the President of the Philippines";
and it operates "outside of the departmental framework," subject
only to the "operational and policy supervision of the DTI."86 The
MECO thus possesses, petitioner argues, the essential
characteristics of a bona fide GOCC and government
instrumentality.87
We take exception to petitioner’s characterization of the MECO
as a GOCC or government instrumentality. The MECO is not a
GOCC or government instrumentality.
Government instrumentalities are agencies of the national
government that, by reason of some "special function or
jurisdiction" they perform or exercise, are allotted "operational
autonomy" and are "not integrated within the department
framework."88 Subsumed under the rubric "government
instrumentality" are the following entities:89
1. regulatory agencies,
2. chartered institutions,
3. government corporate entities or government
instrumentalities with corporate powers
(GCE/GICP),90 and
4. GOCCs
The Administrative Code defines a GOCC:91
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested
with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as
in the case of stock corporations, to the extent of at least fifty-one
(51) per cent of its capital stock: x x x.
The above definition is, in turn, replicated in the more recent
Republic Act No. 10149 or the GOCC Governance Act of 2011, to
wit:92
(o) Government-Owned or -Controlled Corporation (GOCC) refers
to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the
Government of the Republic of the Philippines directly or through
its instrumentalities either wholly or, where applicable as in the
case of stock corporations, to the extent of at least a majority of
its outstanding capital stock: x x x.
GOCCs, therefore, are "stock or non-stock" corporations "vested
with functions relating to public needs" that are "owned by the
Government directly or through its instrumentalities."93 By
definition, three attributes thus make an entity a GOCC: first, its
organization as stock or non-stock corporation;94 second, the
public character of its function; and third, government ownership
over the same.
Possession of all three attributes is necessary to deem an entity a
GOCC.
In this case, there is not much dispute that the MECO possesses
the first and second attributes. It is the third attribute, which the
MECO lacks.
The MECO Is Organized as a Non-Stock Corporation
The organization of the MECO as a non-stock corporation cannot
at all be denied. Records disclose that the MECO was
incorporated as a non-stock corporation under the Corporation
Code on 16 December 1977.95 The incorporators of the MECO
were Simeon R. Roxas, Florencio C. Guzon, Manuel K. Dayrit,
Pio K. Luz and Eduardo B. Ledesma, who also served as the
corporation’s original members and directors.96
The purposes for which the MECO was organized also
establishes its non-profit character, to wit:97
1. To establish and develop the commercial and industrial
interests of Filipino nationals here and abroad and assist
on all measures designed to promote and maintain the
trade relations of the country with the citizens of other
foreign countries;
2. To receive and accept grants and subsidies that are
reasonably necessary in carrying out the corporate
purposes provided they are not subject to conditions
defeatist for or incompatible with said purpose;
3. To acquire by purchase, lease or by any gratuitous title
real and personal properties as may be necessary for the
use and need of the corporation, and in like manner when
they are
4. To do and perform any and all acts which are deemed
reasonably necessary to carry out the purposes.
(Emphasis supplied)
The purposes for which the MECO was organized are somewhat
analogous to those of a trade, business or industry chamber,98 but
only on a much larger scale i.e., instead of furthering the interests
of a particular line of business or industry within a local sphere,
the MECO seeks to promote the general interests of the Filipino
people in a foreign land.
Finally, it is not disputed that none of the income derived by the
MECO is distributable as dividends to any of its members,
directors or officers.
Verily, the MECO is organized as a non-stock corporation.
The MECO Performs Functions with a Public Aspect.
The public character of the functions vested in the MECO cannot
be doubted either. Indeed, to a certain degree, the functions of
the MECO can even be said to partake of the nature of
governmental functions. As earlier intimated, it is the MECO that,
on behalf of the people of the Philippines, currently facilitates
unofficial relations with the people in Taiwan.
Consistent with its corporate purposes, the MECO was
"authorized" by the Philippine government to perform certain
"consular and other functions" relating to the promotion,
protection and facilitation of Philippine interests in Taiwan.99The
full extent of such authorized functions are presently detailed in
Sections 1 and 2 of EO No. 15, s. 2001:
SECTION 1. Consistent with its corporate purposes and subject
to the conditions stated in Section 3 hereof, MECO is hereby
authorized to assist in the performance of the following functions:
1. Formulation and implementation of a program to attract
and promote investments from Taiwan to Philippine
industries and businesses, especially in manufacturing,
tourism, construction and other preferred areas of
investments;
2. Promotion of the export of Philippine products and
Filipino manpower services, including Philippine
management services, to Taiwan;
 3. Negotiation and/or assistance in the negotiation and
conclusion of agreements or other arrangements
concerning trade, investment, economic cooperation,
technology transfer, banking and finance, scientific,
cultural, educational and other modes of cooperative
endeavors between the Philippines and Taiwan, on a
people-to-people basis, in accordance with established
rules and regulations;
4. Reporting on, and identification of, employment and
business opportunities in Taiwan for the promotion of
Philippine exports, manpower and management services,
and tourism;
5. Dissemination in Taiwan of information on the
Philippines, especially in the fields of trade, tourism, labor,
economic cooperation, and cultural, educational and
scientific endeavors;
6. Conduct of periodic assessment of market conditions in
Taiwan, including submission of trade statistics and
commercial reports for use of Philippine industries and
businesses; and
7. Facilitation, fostering and cultivation of cultural, sports,
social, and educational exchanges between the peoples
of the Philippines and Taiwan.
SECTION 2. In addition to the above-mentioned authority and
subject to the conditions stated in Section 3 hereof, MECO,
through its branch offices in Taiwan, is hereby authorized to
perform the following functions:
1. Issuance of temporary visitors’ visas and transit and
crew list visas, and such other visa services as may be
authorized by the Department of Foreign Affairs;
2. Issuance, renewal, extension or amendment of
passports of Filipino citizens in accordance with existing
regulations, and provision of such other passport services
as may be required under the circumstances;
3. Certification or affirmation of the authenticity of
documents submitted for authentication;
4. Providing translation services;
5. Assistance and protection to Filipino nationals and
other legal/juridical persons working or residing in Taiwan,
including making representations to the extent allowed by
local and international law on their behalf before civil and
juridical authorities of Taiwan; and
6. Collection of reasonable fees on the first four (4)
functions enumerated above to defray the cost of its
operations.
A perusal of the above functions of the MECO reveals its
uncanny similarity to some of the functions typically performed by
the DFA itself, through the latter’s diplomatic and consular
missions.100 The functions of the MECO, in other words, are of the
kind that would otherwise be performed by the Philippines’ own
diplomatic and consular organs, if not only for the government’s
acquiescence that they instead be exercised by the MECO.
Evidently, the functions vested in the MECO are impressed with a
public aspect.
The MECO Is Not Owned or Controlled by the Government
Organization as a non-stock corporation and the mere
performance of functions with a public aspect, however, are not
by themselves sufficient to consider the MECO as a GOCC. In
order to qualify as a GOCC, a corporation must also, if not more
importantly, be owned by the government.
The government owns a stock or non-stock corporation if it has
controlling interest in the corporation. In a stock corporation, the
controlling interest of the government is assured by its ownership
of at least fifty-one percent (51%) of the corporate capital
stock.101 In a non-stock corporation, like the MECO, jurisprudence
teaches that the controlling interest of the government is affirmed
when "at least majority of the members are government officials
holding such membership by appointment or designation"102 or
there is otherwise "substantial participation of the government in
the selection" of the corporation’s governing board.103
In this case, the petitioner argues that the government has
controlling interest in the MECO because it is the President of the
Philippines that indirectly appoints the directors of the
corporation.104 The petitioner claims that the President appoints
directors of the MECO thru "desire letters" addressed to the
corporation’s board.105 As evidence, the petitioner cites the
assumption of one Mr. Antonio Basilio as chairman of the board
of directors of the MECO in 2001, which was allegedly
accomplished when former President Macapagal-Arroyo, through
a memorandum dated 20 February 2001, expressed her "desire"
to the board of directors of the MECO for the election of Mr.
Basilio as chairman.106
The MECO, however, counters that the "desire letters" that the
President transmits are merely recommendatory and not binding
on it.107 The MECO maintains that, as a corporation organized
under the Corporation Code, matters relating to the election of its
directors and officers, as well as its membership, are ultimately
governed by the appropriate provisions of the said code, its
articles of incorporation and its by-laws.108
As between the contrasting arguments, We find the contention of
the MECO to be the one more consistent with the law.
The fact of the incorporation of the MECO under the Corporation
Code is key. The MECO was correct in postulating that, as a
corporation organized under the Corporation Code, it is governed
by the appropriate provisions of the said code, its articles of
incorporation and its by-laws. In this case, it is the by-laws109 of
the MECO that stipulates that its directors are elected by its
members; its officers are elected by its directors; and its
members, other than the original incorporators, are admitted by
way of a unanimous board resolution, to wit:
SECTION II. MEMBERSHIP
Article 2. Members shall be classified as (a) Regular and (b)
Honorary.
(a) Regular members – shall consist of the original
incorporators and such other members who, upon
application for membership, are unanimously admitted by
the Board of Directors.
(b) Honorary member – A person of distinction in
business who as sympathizer of the objectives of the
corporation, is invited by the Board to be an honorary
member.
SECTION III. BOARD OF DIRECTORS
Article 3. At the first meeting of the regular members, they shall
organize and constitute themselves as a Board composed of five
(5) members, including its Chairman, each of whom as to serve
until such time as his own successor shall have been elected by
the regular members in an election called for the purpose. The
number of members of the Board shall be increased to seven (7)
when circumstances so warrant and by means of a majority vote
of the Board members and appropriate application to and
approval by the Securities and Exchange Commission. Unless
otherwise provided herein or by law, a majority vote of all Board
members present shall be necessary to carry out all Board
resolutions.
During the same meeting, the Board shall also elect its own
officers, including the designation of the principal officer who shall
be the Chairman. In line with this, the Chairman shall also carry
the title Chief Executive Officer. The officer who shall head the
branch or office for the agency that may be established abroad
shall have the title of Director and Resident Representative. He
will also be the Vice-Chairman. All other members of the Board
shall have the title of Director.
xxxx
SECTION IV. EXECUTIVE COMMITTEE
Article 5. There shall be established an Executive Committee
composed of at least three (3) members of the Board. The
members of the Executive Committee shall be elected by the
members of the Board among themselves.
xxxx
SECTION VI. OFFICERS: DUTIES, COMPENSATION
Article 8. The officers of the corporation shall consist of a
Chairman of the Board, Vice-Chairman, Chief Finance Officer,
and a Secretary. Except for the Secretary, who is appointed by
the Chairman of the Board, other officers and employees of the
corporation shall be appointed by the Board.
The Deputy Representative and other officials and employees of
a branch office or agency abroad are appointed solely by the Vice
Chairman and Resident Representative concerned. All such
appointments however are subject to ratification by the Board.
It is significant to note that none of the original incorporators of
the MECO were shown to be government officials at the time of
the corporation’s organization. Indeed, none of the members,
officers or board of directors of the MECO, from its incorporation
up to the present day, were established as government
appointees or public officers designated by reason of their office.
There is, in fact, no law or executive order that authorizes such
an appointment or designation. Hence, from a strictly legal
perspective, it appears that the presidential "desire letters"
pointed out by petitioner—if such letters even exist outside of the
case of Mr. Basilio—are, no matter how strong its persuasive
effect may be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui
Generis Entity.
The categorical exclusion of the MECO from a GOCC makes it
easier to exclude the same from any other class of government
instrumentality. The other government instrumentalities i.e., the
regulatory agencies, chartered institutions and GCE/GICP are all,
by explicit or implicit definition, creatures of the law.110 The MECO
cannot be any other instrumentality because it was, as mentioned
earlier, merely incorporated under the Corporation Code.
Hence, unless its legality is questioned, and in this case it was
not, the fact that the MECO is operating under the policy
supervision of the DTI is no longer a relevant issue to be
reckoned with for purposes of this case.
For whatever it is worth, however, and without justifying anything,
it is easy enough for this Court to understand the rationale, or
necessity even, of the executive branch placing the MECO under
the policy supervision of one of its agencies.
It is evident, from the peculiar circumstances surrounding its
incorporation, that the MECO was not intended to operate as any
other ordinary corporation. And it is not. Despite its private
origins, and perhaps deliberately so, the MECO was
"entrusted"111 by the government with the "delicate and
precarious"112 responsibility of pursuing "unofficial"113 relations with
the people of a foreign land whose government the Philippines is
bound not to recognize. The intricacy involved in such
undertaking is the possibility that, at any given time in fulfilling the
purposes for which it was incorporated, the MECO may find itself
engaged in dealings or activities that can directly contradict the
Philippines’ commitment to the One China policy of the PROC.
Such a scenario can only truly be avoided if the executive
department exercises some form of oversight, no matter how
limited, over the operations of this otherwise private entity.
Indeed, from hindsight, it is clear that the MECO is uniquely
situated as compared with other private corporations. From its
over-reaching corporate objectives, its special duty and authority
to exercise certain consular functions, up to the oversight by the
executive department over its operations—all the while
maintaining its legal status as a non-governmental entity—the
MECO is, for all intents and purposes, sui generis.
Certain Accounts of the MECO May
Be Audited By the COA.
We now come to the COA’s contention.
The COA argues that, despite being a non-governmental entity,
the MECO may still be audited with respect to the "verification
fees" for overseas employment documents that the latter collects
from Taiwanese employers on behalf of the DOLE.114 The COA
claims that, under Joint Circular No. 3-99, the MECO is mandated
to remit to the national government a portion of such "verification
fees."115 The COA, therefore, classifies the MECO as a non-
governmental entity "required to pay xxx government share" per
the Audit Code.116
We agree that the accounts of the MECO pertaining to its
collection of "verification fees" is subject to the audit jurisdiction of
the COA. However, We digress from the view that such accounts
are the only ones that ought to be audited by the COA. Upon
careful evaluation of the information made available by the
records vis-à-vis the spirit and the letter of the laws and executive
issuances applicable, We find that the accounts of the MECO
pertaining to the fees it was authorized to collect under Section
2(6) of EO No. 15, s. 2001, are likewise subject to the audit
jurisdiction of the COA.
Verification Fees Collected by the MECO
In its comment,117 the MECO admitted that roughly 9% of its
income is derived from its share in the "verification fees" for
overseas employment documents it collects on behalf of the
DOLE.
The "verification fees" mentioned here refers to the "service fee
for the verification of overseas employment contracts, recruitment
agreement or special powers of attorney" that the DOLE was
authorized to collect under Section 7 of EO No. 1022,118 which
was issued by President Ferdinand E. Marcos on 1 May 1985.
These fees are supposed to be collected by the DOLE from the
foreign employers of OFWs and are intended to be used for "the
promotion of overseas employment and for welfare services to
Filipino workers within the area of jurisdiction of [concerned]
foreign missions under the administration of the [DOLE]."119
Joint Circular 3-99 was issued by the DOLE, DFA, the
Department of Budget Management, the Department of Finance
and the COA in an effort to implement Section 7 of Executive
Order No. 1022.120 Thus, under Joint Circular 3-99, the following
officials have been tasked to be the "Verification Fee Collecting
Officer" on behalf of the DOLE:121
1. The labor attaché or duly authorized overseas labor
officer at a given foreign post, as duly designated by the
DOLE Secretary;
2. In foreign posts where there is no labor attaché or duly
authorized overseas labor officer, the finance officer or
 collecting officer of the DFA duly deputized by the DOLE
Secretary as approved by the DFA Secretary;
3. In the absence of such finance officer or collecting
officer, the alternate duly designated by the head of the
foreign post.
Since the Philippines does not maintain an official post in Taiwan,
however, the DOLE entered into a "series" of Memorandum of
Agreements with the MECO, which made the latter the former’s
collecting agent with respect to the "verification fees" that may be
due from Taiwanese employers of OFWs.122 Under the 27
February 2004 Memorandum of Agreement between DOLE and
the MECO, the "verification fees" to be collected by the latter are
to be allocated as follows: (a) US$ 10 to be retained by the
MECO as administrative fee, (b) US $10 to be remitted to the
DOLE, and (c) US$ 10 to be constituted as a common fund of the
MECO and DOLE.123
Evidently, the entire "verification fees" being collected by the
MECO are receivables of the DOLE.124 Such receipts pertain to
the DOLE by virtue of Section 7 of EO No. 1022.
Consular Fees Collected by the MECO
Aside from the DOLE "verification fees," however, the MECO also
collects "consular fees," or fees it collects from the exercise of its
delegated consular functions.
The authority behind "consular fees" is Section 2(6) of EO No. 15,
s. 2001. The said section authorizes the MECO to collect
"reasonable fees" for its performance of the following consular
functions:
1. Issuance of temporary visitors’ visas and transit and
crew list visas, and such other visa services as may be
authorized by the DFA;
2. Issuance, renewal, extension or amendment of
passports of Filipino citizens in accordance with existing
regulations, and provision of such other passport services
as may be required under the circumstances;
3. Certification or affirmation of the authenticity of
documents submitted for authentication; and
4. Providing translation services.
Evidently, and just like the peculiarity that attends the DOLE
"verification fees," there is no consular office for the collection of
the "consular fees." Thus, the authority for the MECO to collect
the "reasonable fees," vested unto it by the executive order.
The "consular fees," although held and expended by the MECO
by virtue of EO No. 15, s. 2001, are, without question, derived
from the exercise by the MECO of consular functions—functions
it performs by and only through special authority from the
government. There was never any doubt that the visas, passports
and other documents that the MECO issues pursuant to its
authorized functions still emanate from the Philippine government
itself.
Such fees, therefore, are received by the MECO to be used
strictly for the purpose set out under EO No. 15, s. 2001. They
must be reasonable as the authorization requires. It is the
government that has ultimate control over the disposition of the
"consular fees," which control the government did exercise when
it provided in Section 2(6) of EO No. 15, s. 2001 that such funds
may be kept by the MECO "to defray the cost of its operations."
The Accounts of the MECO Pertaining to the Verification Fees
and Consular Fees May Be Audited by the COA.
Section 14(1), Book V of the Administrative Code authorizes the
COA to audit accounts of non-governmental entities "required to
pay xxx or have government share" but only with respect to
"funds xxx coming from or through the government." This
provision of law perfectly fits the MECO:
First. The MECO receives the "verification fees" by reason of
being the collection agent of the DOLE—a government agency.
Out of its collections, the MECO is required, by agreement, to
remit a portion thereof to the DOLE. Hence, the MECO is
accountable to the government for its collections of such
"verification fees" and, for that purpose, may be audited by the
COA.
Second. Like the "verification fees," the "consular fees" are also
received by the MECO through the government, having been
derived from the exercise of consular functions entrusted to the
MECO by the government. Hence, the MECO remains
accountable to the government for its collections of "consular
fees" and, for that purpose, may be audited by the COA.
MECO pertaining to its collection of such "verification fees" and
"consular fees" should be audited by the COA.
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Manila Economic and Cultural Office is hereby
declared a non-governmental entity. However, the accounts of
the Manila Economic and Cultural Office pertaining to: the
verification fees contemplated by Section 7 of Executive Order
No. 1022 issued 1 May 1985, that the former collects on behalf of
the Department of Labor and Employment, and the fees it was
authorized to collect under Section 2(6) of Executive Order No.
15 issued 16 May 2001, are subject to the audit jurisdiction of the
COA.
No costs.
SO ORDERED.

Tersely put, the 27 February 2008 Memorandum of Agreement

between the DOLE and the MECO and Section 2(6) of EO No.
15, s. 2001, vis-à-vis, respectively, the "verification fees" and the
"consular fees," grant and at the same time limit the authority of
the MECO to collect such fees. That grant and limit require the
audit by the COA of the collections thereby generated.

Conclusion

The MECO is not a GOCC or government instrumentality. It is a

sui generis private entity especially entrusted by the government
with the facilitation of unofficial relations with the people in Taiwan
without jeopardizing the country’s faithful commitment to the One
China policy of the PROC. However, despite its non-
governmental character, the MECO handles government funds in
the form of the "verification fees" it collects on behalf of the DOLE
and the "consular fees" it collects under Section 2(6) of EO No.
15, s. 2001. Hence, under existing laws, the accounts of the