FILIPINAS COMPAÑIA DE SEGUROS, petitioner, vs. CHRISTERN HUENEFELD and CO., INC., respondent. G.R. No. L-2294 May 25, 1951FACTS:Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania de Seguros to cover merchandise contained in a building. During the Japanese military occupation, this same merchandise and the building were burned, so Huenefeld filed a claim under the policy.

However, Filipinas Compania de Seguros refused to pay alleging that the policy had ceased to be in force when the United States declared war against Germany. Filipinas Compania contended that although organized and created under Philippine laws, Huenefeld is a German subject, and hence, a public enemy, since majority of its stockholders are Germans. On the other hand, Filipinas Compania is under American jurisdiction.

The Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of that sum paid.

ISSUES:1. Whether or not Christern Huenefeld is a German subject.2. Whether the fire insurance policy is enforceable against an enemy state.

HELD:1. There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany.

2. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides

that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.

Wilson P. Gamboa v. Finance Secretary Margarito Teves, et al., G.R. No. 176579, June 28, 2011

CARPIO, J.:[Constitutional Law, Corporation]

The term “capital” does not refer to both preferred and common stocks treated as the same class of shares regardless of differences in voting rights and privileges.

Consistent with the constitutional mandate that the “State shall develop a self-reliant and independent national economy effectively controlled by Filipinos,” the term "capital" means the outstanding capital stock entitled to vote (voting stock), coupled with beneficial ownership, both of which results to "effective control."

"Mere legal title is insufficient to meet the

60 percent Filipino owned “capital” required in the Constitution for certain industries. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required." In this case, such twin requirements must apply uniformly and across the board to all classes of shares comprising the capital. Thus, "the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of shares, whether common, preferred non-voting, preferred voting or any other class of shares." This guarantees that the “controlling interest” in public utilities always lies in the hands of Filipino citizens.

I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-Agency Privatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder of the Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares (or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the this sale, First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to the petitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40%, thus:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

II. THE ISSUE

Does the term “capital” in Section 11, Article XII of the Constitution refer to the total common shares only, or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors of a public utility, i.e., to the total common shares in PLDT.]

Considering that common shares have voting rights which translate to control, as opposed to preferred shares

which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

To construe broadly the term

“capital” as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the “State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility.

Holders of PLDT preferred shares

are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of Incorporation expressly state that “the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders.” On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDT’s Articles of Incorporation state that “each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the

exclusive right to vote for the election of directors and for all other purposes.”

It must be stressed,

and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS), which is a document required to be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27% of the total number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

As shown in PLDT’s 2010 GIS, as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that “[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x.”

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

[Thus, the Respondent Chairperson of the Securities and Exchange Commission was DIRECTED by the Court to apply the foregoing definition of the term “capital” in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law.]

NARRA NICKEL MINING AND DEVELOPMENT CORP et. Al v. Redmont Consolidated Mines Corp.

FACTS:

respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan.

After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.

Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR).

Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur.2

Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan.

Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA application in favor of Narra.

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro.

On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.

In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

Grandfather test

ISSUE: in this case is centered on the issue of petitioners’ nationality, whether Filipino or foreign. In their previous petitions, they had been adamant in insisting that they were Filipino corporations, until they

submitted their Manifestation and Submission dated October 19, 2012 where they stated the alleged change of corporate ownership to reflect their Filipino ownership. Thus, there is a need to determine the nationality of petitioner corporations.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides:

Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens.

The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or

the liberal rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality," pertains to the stricter, more stringent grandfather rule.

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied)

After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%.43

The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said

word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Constitution.

Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used.

ABS-CBN BROADCASTING CORP v. CAFACTS:

In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo Santos-Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14 films produced by Viva. Pursuant to this request, a meeting was held between Viva’s representative (Vicente Del Rosario) and ABS-CBN’s Eugenio Lopez (General Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for P60 million. Later, Santos-Concio, in a letter to Del Rosario, proposed a counterproposal of 53 films (including the 14 films initially requested) for P35 million.

Del Rosario presented the counter offer to Viva’s Board of Directors but the Board rejected the counter offer. Several

negotiations were subsequently made but on April 29, 1992, Viva made an agreement with Republic Broadcasting Corporation (referred to as RBS – or GMA 7) which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially requested by ABS-CBN.

ABS-CBN now filed a complaint for specific performance against Viva as it alleged that there is already a perfected contract between Viva and ABS-CBN in the April 2, 1992 meeting. Lopez testified that Del Rosario agreed to the counterproposal and he (Lopez) even put the agreement in a napkin which was signed and given to Del Rosario. ABS-CBN also filed an injunction against RBS to enjoin the latter from airing the films. The injunction was granted. RBS now filed a countersuit with a prayer for moral damages as it claimed that its reputation was debased when they failed to air the shows that they promised to their viewers. RBS relied on the ruling in People vs Manero and Mambulao Lumber vs PNB which states that a corporation may recover moral damages if it “has a good reputation that is debased, resulting in social humiliation”. The trial court ruled in favor of Viva and RBS. The Court of Appeals affirmed the trial court.ISSUE:1. Whether or not a contract was perfected in the April 2, 1992 meeting between the representatives of the two corporations.2. Whether or not a corporation, like RBS, is entitled to an award of moral damages upon grounds of debased reputation.HELD:1. No. There is no proof that a contract was perfected in the said meeting. Lopez’ testimony about the contract being written in a napkin is not corroborated because the napkin was never produced in court. Further, there is no meeting of the minds because Del Rosario’s offer was of 104 films

for P60 million was not accepted. And that the alleged counter-offer made by Lopez on the same day was not also accepted because there’s no proof of such. The counter offer can only be deemed to have been made days after the April 2 meeting when Santos-Concio sent a letter to Del Rosario containing the counter-offer. Regardless, there was no showing that Del Rosario accepted. But even if he did accept, such acceptance will not bloom into a perfected contract because Del Rosario has no authority to do so.As a rule, corporate powers, such as the power; to enter into contracts; are exercised by the Board of Directors. But this power may be delegated to a corporate committee, a corporate officer or corporate manager. Such a delegation must be clear and specific. In the case at bar, there was no such delegation to Del Rosario. The fact that he has to present the counteroffer to the Board of Directors of Viva is proof that the contract must be accepted first by the Viva’s Board. Hence, even if Del Rosario accepted the counter-offer, it did not result to a contract because it will not bind Viva sans authorization.2. No. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. No moral damages can be awarded to a juridical person. The statement in the case of People vs Manero and Mambulao Lumber vs PNB is a mere obiter dictum hence it is not binding as a jurisprudence.

CIR vs. THE CLUB FILIPINO, INC. DE CEBU GR No. L-12719 | May 31, 1962 | Paredes, J. FACTS:

The Club Filipino, is a civic corporation organized under the laws of the Philippines with an original authorized capital stock of P22,000, which was subsequently increased to P200,000to operate and maintain a golf course, tennis, gymnasiums, bowling alleys, billiard tables and pools, and all sorts of games not prohibited by general laws and general ordinances, and develop and nurture sports of any kind and any denomination for recreation and healthy training of its members and shareholders. There is no provision either in the articles or in the by-laws relative to dividends and their distribution, although it is covenanted that upon its dissolution, the Club's remaining assets, after paying debts, shall be donated to a charitable Phil. Institution in Cebu(Art. 27, Estatutos del (Statutes of the) Club).The Club owns and operates a club house, a bowling alley, a golf course (on a lot leased from the government), and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their guests. The bar-restaurant was a necessary incident to the operation of the club and its golf-course. The club is operated mainly with funds derived from membership fees and dues.

Whatever profits it had, were used to defray its overhead expenses and to improve its golf-course. In 1951, as a result of a capital surplus, arising rom the re-valuation of its real properties, the value or price of which increased, the Club declared stock dividends; but no actual cash dividends were distributed to the stockholders .In 1952, a BIR agent discovered that the Club has never paid percentage tax on the gross receipts of its bar and restaurant, although it secured licenses. In a letter, the Collector assessed against and demanded from the Club P12,068.84 as fixed and percentage taxes, surcharge and compromise penalty. Also, the Collector denied the Club’s request to cancel the assessment On appeal, the CTA

reversed the Collector and ruled that the Club is not liable for the assessed tax liabilities of P12,068.84 allegedly due from it as a keeper of bar and restaurant as it is anon-stock corporation. Hence, the Collector filed the instant petition for review.

ISSUE: WON the Club is a stock corporation?HELD: NO. It is a non-stock corporation. The facts that the capital stock of the Club is divided into shares, does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose, as stated in its articles and by-laws. The actual purpose is not controlled by the corporate formor by the commercial aspect of the business prosecuted, but maybe shown by extrinsic evidence, including the by-laws and the method of operation. From the extrinsic evidence adduced, the CTA concluded that the Club is not engaged in the business as a barkeeper and restaurateur. For a stock corporation to exist, two requisites must be complied with:

1. a capital stock divided into shares 2. and. an authority to distribute to

the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held (sec. 3, Act No. 1459).Nowhere in its articles of incorporation or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot, therefore, be considered a stock corporation, within the contemplation of the corporation law.

REPUBLIC OF THE PHILIPPINES v. CITY OF PARANAQUE

G.R. No. 191109 | July 18, 2012MENDOZA, JFACTS: .This is a petition for review on certiorari assailing the Order of the Regional Trial Court, Branch 195, Paranaque City (RTC), which ruled that petitioner Philippine Reclamation Authority (PRA) is a government-owned and controlled corporation (GOCC), a taxable entity, and, therefore, not exempt from payment of real property taxes.

The Public Estates Authority (PEA) is a government corporation created by virtue of P.D. No. 1084 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.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of Manila Bay, including those located in Parañaque City. Parañaque City Treasurer issued Warrants of Levy on PRA’s reclaimed properties based on the assessment for delinquent real property for tax years 2001 and 2002. PRA asserted that:

It is not a GOCC under the Administrative Code, nor 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.

It is a government instrumentality vested with corporate powers and performing an essential public service. Although it has a capital stock divided into shares, it may not be classified as a stock corporation because it lacks the second requisite of a stock corporation: to distribute dividends and

allotment of surplus and profits to its stockholders.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.

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. City of Parañaque (respondent) argued 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.

It 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.ISSUE:

Whether or not 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.HELD: Yes it is a Government Instrumentality. However, it is not a GOCC. 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.

Introductory Provisions of the Administrative Code of 1987 defines a GOCC as 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.

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. Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a GOCC.

The fundamental provision above authorizes Congress to create GOCCs through special charters on two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet the test of economic viability. In this case, PRA may have passed the first condition of common good but failed the second one - economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic or commercial activities.

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. Further, 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.

Dante Liban, et al. v. Richard Gordon, G.R. No. 175352, January 18, 2011

R E S O L U T I O N

LEONARDO-DE CASTRO, J.:

I. THE FACTS

Petitioners Liban, et al., who were officers of the Board of Directors of the Quezon City Red Cross Chapter, filed with the Supreme Court what they styled as “Petition to Declare Richard J. Gordon as Having Forfeited His Seat in the Senate” against respondent Gordon, who was elected Chairman of the Philippine National Red Cross (PNRC) Board of Governors during his incumbency as Senator.

Petitioners alleged that by accepting the chairmanship of the PNRC Board of Governors, respondent Gordon ceased to be a member of the Senate pursuant to Sec. 13, Article VI of the Constitution, which provides that “[n]o Senator . . . may hold any other office or employment in the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled corporations or their subsidiaries, during his term without forfeiting his seat.” Petitioners cited the case of Camporedondo vs. NLRC, G.R. No. 129049, decided August 6, 1999, which held that the PNRC is a GOCC, in supporting their argument that respondent Gordon automatically forfeited his seat in the Senate when he accepted and held the position of Chairman of the PNRC Board of Governors.

Formerly, in its Decision dated July 15, 2009, the Court, voting 7-5,[1] held that the office of the PNRC Chairman is NOT a government office or an office in a GOCC for purposes of the prohibition in Sec. 13, Article VI of the 1987 Constitution. The PNRC Chairman is elected by the PNRC Board of Governors; he is not appointed by the President or by any subordinate government official. Moreover, the PNRC is NOT a GOCC because it is a privately-owned, privately-funded, and privately-run

charitable organization and because it is controlled by a Board of Governors four-fifths of which are private sector individuals. Therefore, respondent Gordon did not forfeit his legislative seat when he was elected as PNRC Chairman during his incumbency as Senator.

The Court however held further that the PNRC Charter, R.A. 95, as amended by PD 1264 and 1643, is void insofar as it creates the PNRC as a private corporation since Section 7, Article XIV of the 1935 Constitution states that “[t]he Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.” The Court thus directed the PNRC to incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation. The fallo of the Decision read:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers.

Respondent Gordon filed a Motion for Clarification and/or for Reconsideration of the Decision. The PNRC likewise moved to intervene and filed its own Motion for Partial Reconsideration. They basically questioned the second part of the Decision with regard to the pronouncement on

the nature of the PNRC and the constitutionality of some provisions of the PNRC Charter.

II. THE ISSUE

Was it correct for the Court to have passed upon and decided on the issue of the constitutionality of the PNRC charter? Corollarily: What is the nature of the PNRC?

III. THE RULING

[The Court GRANTED reconsideration and MODIFIED the dispositive portion of the Decision by deleting the second sentence thereof.]

NO, it was not correct for the Court to have decided on the constitutional issue because it was not the very lis mota of the case. The PNRC is sui generis in nature; it is neither strictly a GOCC nor a private corporation. The issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when the Court will consider the issue of constitutionality in Alvarez v. PICOP Resources, Inc., thus:

This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the court may [rest] its judgment, that course will be adopted and the constitutional question will be left for consideration until such question will be unavoidable.

[T]his Court should not have declared void certain sections of . . . the PNRC Charter. Instead, the Court should have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of existence in this country.

Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRC’s corporate existence notwithstanding the effectivity of the constitutional proscription on the creation of private corporations by law is a recognition that the PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it[,] not just in terms of structure, but also in terms of history, public service and official status accorded to it by the State and the international community. There is merit in PNRC’s contention that its structure is sui generis. It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case before the Court now.

[T]his Court [must] recognize the country’s adherence to the Geneva Convention and respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law. Under the Constitution, the Philippines adopts the generally accepted principles of international law as part of the law of the land. This constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of July 15, 2009 lost sight of the PNRC’s special status under international humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions. The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither “be classified as an instrumentality of the State, so as not to lose its character of neutrality” as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State.

Although [the PNRC] is neither a subdivision, agency, or instrumentality of the government, nor a GOCC or a subsidiary thereof . . . so much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that the PNRC is a “private corporation” within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. [T]he sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis.

In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a substantial portion of the country’s blood requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the international community. The sections of the PNRC Charter that were declared void must therefore stay.

[Thus, R.A. No. 95 remains valid and constitutional in its entirety. The Court MODIFIED the dispositive portion of the Decision by deleting the second sentence, to now read as follows:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution.]