MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.

COURT OF
APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,
SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF
PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents.

DECISION

CARPIO, J : p

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and
298 2 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately
600 hectares of land, 3 including the runways and buildings ("Airport Lands and Buildings")
then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode
unless specifically approved by the President of the Philippines. 5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the
exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus,
MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by
the City. MIAA then paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City
of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is
broken down as follows:

TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49

E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00

E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00

E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24

E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

 E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00

*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50

*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00

*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00

GRAND TOTAL P392,435,861.95 P232,070,863.47 P624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R. #9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00 6

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy
and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque
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 Paraaque 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 Paraaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public
market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City
of Paraaque 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 Paraaque 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 Paraaque, City
Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque,
and the City Assessor of Paraaque ("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.DTSaIc

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 Paraaque, 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.

Respondents invoke Section 193 of the Local Government Code, which expressly
withdrew the tax exemption privileges of "government-owned and-controlled
corporations" upon the effectivity of the Local Government Code. Respondents also argue
that a basic rule of statutory construction is that the express mention of one person, thing,
or act excludes all others. An international airport is not among the exceptions mentioned
in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot
claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos 8 where we held that the Local Government Code has withdrawn the exemption
from real estate tax granted to international airports. Respondents further argue that since
MIAA has already paid some of the real estate tax assessments, it is now estopped from
claiming that the Airport Lands and Buildings are exempt from real estate tax.

The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA
are exempt from real estate tax under existing laws. If so exempt, then the real estate tax
assessments issued by the City of Paraaque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by
local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of

the National Government and thus exempt from local taxation. Second, the real properties
of MIAA are owned by the Republic of the Philippines and thus exempt from real estate
tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not

exempt from real estate tax. Respondents claim that the deletion of the phrase "any
government-owned or controlled so exempt by its charter" in Section 234(e) of the Local
Government Code withdrew the real estate tax exemption of government-owned or
controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real
Property Tax Code enumerating the entities exempt from real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from

real estate tax. However, MIAA is not a government-owned or controlled corporation.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. . . .

(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: . . . . (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 Charter 9provides:

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 Code 10 defines a stock corporation as one whose "capital
stock is divided into shares and . . . authorized to distribute to the holders of such
shares dividends . . . ." 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. . . .

 (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. . . .
(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 authority 13 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:

xxx xxx xxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis and underscoring
supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers of
 local governments, local governments may only exercise such power "subject to such
guidelines and limitations as the Congress may provide." 18

When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality. As this Court declared inMaceda 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).TAScID

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:

. . . 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 Paraaque can
foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-
payment of real estate tax.

Before MIAA can encumber 26 the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of
the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing
general law governing the classification and disposition of lands of the public domain other
than timber and mineral lands," 27 provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural
Resources, the President may designate by proclamation any tract or tracts of land
of the public domain as reservations for the use of the Republic of the Philippines or
of any of its branches, or of the inhabitants thereof, in accordance with regulations
prescribed for this purposes, or for quasi-public uses or purposes when the public
interest requires it, including reservations for highways, rights of way for railroads,
hydraulic power sites, irrigation systems, communal pastures or lequas
 communales, public parks, public quarries, public fishponds, working men's village
and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation,
entry, sale, lease, or other disposition until again declared alienable under the
provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and
are inalienable. Since the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport 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;

xxx xxx xxx. (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. DSAICa

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. . . .

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.

xxx xxx xxx.

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 . . . 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;

xxx xxx xxx. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing "[t]axes, fees or charges of any kind on the
National Government, its agencies and instrumentalities . . . ." 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 underR.A.
No. 6938, non-stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied) ESacHC

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:

xxx xxx xxx

(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:

. . . Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and
non-profit hospitals and educational institutions. It would be belaboring the
obvious why the MIAA does not fall within any of the exempt entities under Section
193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the
Local Government Code. This theory will result in gross absurdities. It will make
the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can impose any kind of local
tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax.
Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research
Institute, 31 Laguna Lake Development Authority, 32 Fisheries Development
Authority, 33 Bases Conversion Development Authority, 34 Philippine Ports
Authority, 35Cagayan 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 taxwhen 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.

xxx xxx xxx. (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:

. . . 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 assumesthat 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 presented a 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:

xxx xxx xxx

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
theAdministrative 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 . . . 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. EcSCHD

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.

xxx xxx xxx

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 charter 40 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 charter 41 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 Bank 44 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 ofthe
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) DAEcIS

Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does not excuse the State
from withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized

essentially for economic or commercial objectives, must meet the test of economic
viability. These are the government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are the government-owned
or controlled corporations, along with government-owned or controlled corporations
organized under the Corporation Code, that fall under the definition of "government-owned
or controlled corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not
create MIAA to compete in the market place. MIAA does not compete in the market place
because there is no competing international airport operated by the private sector. MIAA
performs an essential public service as the primary domestic and international airport of
the Philippines. The operation of an international airport requires the presence of
personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and

departure of passengers, screening out those without visas or travel
documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on

prohibited importations;

3. The quarantine office of the Department of Health, to enforce health

measures against the spread of infectious diseases into the country;
 4. The Department of Agriculture, to enforce measures against the spread of
plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to

prevent the entry of terrorists and the escape of criminals, as well as
to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and

Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises such as runway and buildings
for the government personnel, passengers, and airlines, and to
manage the airport operations.

All these agencies of government perform government functions essential to the

operation of an international airport.

MIAA performs an essential public service that every modern State must provide its
citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA
imposes on passengers and airlines. The terminal fees that MIAA charges every passenger
are regulatory or administrative fees 47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:

SEC. 2. General Terms Defined. . . .

(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. . . .
(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 Constitutionbecause 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 . . . constructed by the State" includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended for
public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code,
which governs the legal relation and status of government units, agencies and offices
within the entire government machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, MIAA as a government instrumentality is not a taxable person because
it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only
exception is when MIAA leases its real property to a "taxable person" as provided in Section
234(a) of the Local Government Code, in which case the specific real property leased
becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings
leased to taxable persons like private parties are subject to real estate tax by the City of
Paraaque.
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 . . . constructed by the
State," which includes public airports and seaports, as properties of public dominion and
owned by the Republic. As properties of public dominion owned by the Republic, there is no
doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real
estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or
foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE
the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from
the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate
tax assessments, including the final notices of real estate tax delinquencies, issued by the
City of Paraaque on the Airport Lands and Buildings of the Manila International Airport
Authority, except for the portions that the Manila International Airport Authority has leased
to private parties. We also declare VOID the assailed auction sale, and all its effects, of the
Airport Lands and Buildings of the Manila International Airport Authority. ESHAcI

No costs.

SO ORDERED.

(Manila International Airport Authority v. Court of Appeals, G.R. No. 155650, [July 20,
|||

2006], 528 PHIL 181-309)

[G.R. No. 177131. June 7, 2011.]

BOY SCOUTS OF THE PHILIPPINES, petitioner, vs. COMMISSION ON

AUDIT, respondent.

DECISION

LEONARDO-DE CASTRO, J : p

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the
Philippines (BSP) is the subject matter of this controversy that reached us viapetition for
prohibition 1 filed by the BSP under Rule 65 of the 1997 Rules of Court. In this petition,
the BSP seeks that the COA be prohibited from implementing its June 18,
2002 Decision, 2 its February 21, 2007 Resolution, 3 as well as all other issuances arising
therefrom, and that all of the foregoing be rendered null and void. 4

Antecedent Facts and Background of

the Case
 This case arose when the COA issued Resolution No. 99-011 5 on August 19, 1999
("the COA Resolution"), with the subject "Defining the Commission's policy with respect
to the audit of the Boy Scouts of the Philippines." In its whereas clauses, the COA
Resolution stated that the BSP was created as a public corporation
under Commonwealth Act No. 111, as amended by Presidential Decree No.
460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor
Relations Commission, 6 the Supreme Court ruled that the BSP, as constituted under its
charter, was a "government-controlled corporation within the meaning of Article IX (B)
(2) (1) of the Constitution"; and that "the BSP is appropriately regarded as a government
instrumentality under the 1987 Administrative Code." 7 The COA Resolution also cited its
constitutional mandate under Section 2 (1), Article IX (D). Finally, the COA Resolution
reads:

NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION

PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual
financial audit of the Boy Scouts of the Philippines in accordance with generally
accepted auditing standards, and express an opinion on whether the financial
statements which include the Balance Sheet, the Income Statement and the
Statement of Cash Flows present fairly its financial position and results of
operations.SECATH

xxx xxx xxx

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy

Scouts of the Philippines shall be classified among the government corporations
belonging to the Educational, Social, Scientific, Civic and Research Sector under
the Corporate Audit Office I, to be audited, similar to the subsidiary corporations,
by employing the team audit approach. 8 (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter 9 dated

November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now
the Vice President of the Republic, wherein he wrote:

It is the position of the BSP, with all due respect, that it is not subject to the
Commission's jurisdiction on the following grounds:

1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs.
National Labor Relations Commission, et al. (G.R. No. 80767) classifying the
BSP as a government-controlled corporation is anchored on the "substantial
Government participation" in the National Executive Board of the BSP. It is to
be noted that the case was decided when the BSP Charter is defined
by Commonwealth Act No. 111 as amended by Presidential Decree 460.

However, may we humbly refer you to Republic Act No. 7278 which amended the
BSP's charter after the cited case was decided. The most salient of all
amendments in RA No. 7278 is the alteration of the composition of the
National Executive Board of the BSP.

The said RA virtually eliminated the "substantial government participation" in the

National Executive Board by removing: (i) the President of the Philippines and
 executive secretaries, with the exception of the Secretary of Education, as
members thereof; and (ii) the appointment and confirmation power of the
President of the Philippines, as Chief Scout, over the members of the said
Board.

The BSP believes that the cited case has been superseded by RA 7278. Thereby
weakening the case's conclusion that the BSP is a government-controlled
corporation (sic). The 1987 Administrative Code itself, of which the BSP vs.
NLRC relied on for some terms, defines government-owned and controlled
corporations as agencies organized as stock or non-stock corporations which
the BSP, under its present charter, is not.

Also, the Government, like in other GOCCs, does not have funds invested in the BSP.
What RA 7278 only provides is that the Government or any of its subdivisions,
branches, offices, agencies and instrumentalities can from time to time donate and
contribute funds to the BSP.CIHAED

xxx xxx xxx

Also the BSP respectfully believes that the BSP is not "appropriately regarded as a
government instrumentality under the 1987 Administrative Code" as stated in the
COA resolution. As defined by Section 2(10) of the said code, 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."

The BSP is not an entity administering special funds. It is not even included in the
DECS National Budget. . . .

It may be argued also that the BSP is not an "agency" of the Government. The 1987
Administrative Code, merely referred the BSP as an "attached agency" of the DECS
as distinguished from an actual line agency of departments that are included in the
National Budget. The BSP believes that an "attached agency" is different from an
"agency." Agency, as defined in Section 2(4) of the Administrative Code, is defined as
any of the various units of the Government including a department, bureau, office,
instrumentality, government-owned or controlled corporation or local government
or distinct unit therein.

Under the above definition, the BSP is neither a unit of the Government; a
department which refers to an executive department as created by law (Section
2[7] of the Administrative Code); nor a bureau which refers to any principal
subdivision or unit of any department (Section 2[8], Administrative Code). 10

Subsequently, requests for reconsideration of the COA Resolution were also made
separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo
City and Eugenio F. Capreso, Council Scout Executive of Calbayog City. 11

In a letter 12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit

Officer (CAO) I of the COA, furnished the BSP with a copy of the Memorandum13 dated
June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said
Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not
supersede the Court's ruling in Boy Scouts of the Philippines v. National Labor Relations
Commission, even though said law eliminated the substantial government participation
in the selection of members of the National Executive Board of the BSP. The
Memorandum further provides:

Analysis of the said case disclosed that the substantial government participation is
only one (1) of the three (3) grounds relied upon by the Court in the resolution of
the case. Other considerations include the character of the BSP's purposes and
functions which has a public aspect and the statutory designation of the BSP as a
"public corporation". These grounds have not been deleted by R.A. No. 7278. On the
contrary, these were strengthened as evidenced by the amendment made relative
to BSP's purposes stated in Section 3 of R.A. No. 7278.
ISHCcT

On the argument that BSP is not appropriately regarded as "a government

instrumentality" and "agency" of the government, such has already been answered
and clarified. The Supreme Court has elucidated this matter in the BSP case when it
declared that BSP is regarded as, both a "government-controlled corporation with
an original charter" and as an "instrumentality" of the Government. Likewise, it is
not disputed that the Administrative Code of 1987 designated the BSP as one of the
attached agencies of DECS. Being an attached agency, however, it does not change
its nature as a government-controlled corporation with original charter and,
necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D
of the Constitution provides that COA shall have the power, authority, and duty to
examine, audit and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies or
instrumentalities, including government-owned or controlled corporations with
original charters.14

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

In view of the points clarified by said Memorandum upholding COA Resolution No.
99-011, we have to comply with the provisions of the latter, among which is to
conduct an annual financial audit of the Boy Scouts of the Philippines. 15

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO
I, the COA informed the BSP that a preliminary survey of its organizational structure,
operations and accounting system/records shall be conducted on November 21 to 22,
2000. 16

Upon the BSP's request, the audit was deferred for thirty (30) days. The BSP then
filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary
Restraining Order before the COA. This was denied by the COA in its questioned
Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for
reconsideration but this was likewise denied under its questioned Resolution. 17

This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
The Issue

As stated earlier, the sole issue to be resolved in this case is whether the BSP falls
under the COA's audit jurisdiction.

The Parties' Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations
Commission is inapplicable for purposes of determining the audit jurisdiction of the COA
as the issue therein was the jurisdiction of the National Labor Relations Commission over
a case for illegal dismissal and unfair labor practice filed by certain BSP employees. 18

While the BSP concedes that its functions do relate to those that the government
might otherwise completely assume on its own, it avers that this alone was not
determinative of the COA's audit jurisdiction over it. The BSP further avers that the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission"simply
stated . . . that in respect of functions, the BSP is akin to a public corporation" but this
was not synonymous to holding that the BSP is a government corporation or entity
subject to audit by the COA. 19

The BSP contends that Republic Act No. 7278 introduced crucial amendments to
its charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National
Labor Relations Commission are no longer valid as the government has ceased to play a
controlling influence in it. The BSP claims that the pronouncements of the Court therein
must be taken only within the context of that case; that the Court had categorically
found that its assets were acquired from the Boy Scouts of America and not from the
Philippine government, and that its operations are financed chiefly from membership
dues of the Boy Scouts themselves as well as from property rentals; and that "the BSP
may correctly be characterized as non-governmental, and hence, beyond the audit
jurisdiction of the COA." It further claims that the designation by the Court of the BSP as
a government agency or instrumentality is mere obiter dictum. 20 CAaDSI

The BSP maintains that the provisions of Republic Act No. 7278 suggest that
"governance of BSP has come to be overwhelmingly a private affair or nature, with
government participation restricted to the seat of the Secretary of Education, Culture
and Sports." 21 It cites Philippine Airlines, Inc. v. Commission on Audit 22 wherein the
Court declared that, "PAL, having ceased to be a government-owned or controlled
corporation is no longer under the audit jurisdiction of the COA." 23 Claiming that the
amendments introduced by Republic Act No. 7278 constituted a supervening event that
changed the BSP's corporate identity in the same way that the government's
privatization program changed PAL's, the BSP makes the case that the government no
longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines v.
National Labor Relations Commission as its basis for the exercise of its jurisdiction and
the issuance of COA Resolution No. 99-011. 24 The BSP further claims as follows:

It is not far-fetched, in fact, to concede that BSP's funds and assets are private in
character. Unlike ordinary public corporations, such as provinces, cities, and
municipalities, or government-owned and controlled corporations, such as Land
 Bank of the Philippines and the Development Bank of the Philippines, the assets and
funds of BSP are not derived from any government grant. For its operations, BSP is
not dependent in any way on any government appropriation; as a matter of fact, it
has not even been included in any appropriations for the government. To be sure,
COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its
General Counsel, that BSP received, receives or continues to receive assets and
funds from any agency of the government. The foregoing simply point to the private
nature of the funds and assets of petitioner BSP.

xxx xxx xxx

As stated in petitioner's third argument, BSP's assets and funds were never acquired
from the government. Its operations are not in any way financed by the
government, as BSP has never been included in any appropriations act for the
government. Neither has the government invested funds with BSP. BSP, has not
been, at any time, a user of government property or funds; nor have properties of
the government been held in trust by BSP. This is precisely the reason why, until this
time, the COA has not attempted to subject BSP to its audit jurisdiction. . . . . 25

To summarize its other arguments, the BSP contends that it is not a government-
owned or controlled corporation; neither is it an instrumentality, agency, or subdivision
of the government.

In its Comment, 26 the COA argues as follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111 dated
October 31, 1936, and whose functions relate to the fostering of public
virtues of citizenship and patriotism and the general improvement of the
moral spirit and fiber of the youth. The manner of creation and the purpose
for which the BSP was created indubitably prove that it is a government
agency.

2. Being a government agency, the funds and property owned or held in trust by the
BSP are subject to the audit authority of respondent Commission on Audit
pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.

3. Republic Act No. 7278 did not change the character of the BSP as a government-
owned or controlled corporation and government instrumentality. 27

The COA maintains that the functions of the BSP that include, among others, the
teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are
undeniably sovereign functions enshrined under the Constitution and discussed by the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA
contends that any attempt to classify the BSP as a private corporation would be
incomprehensible since no less than the law which created it had designated it as a
public corporation and its statutory mandate embraces performance of sovereign
functions. 28ACDIcS

The COA claims that the only reason why the BSP employees fell within the scope
of the Civil Service Commission even before the 1987 Constitution was the fact that it
was a government-owned or controlled corporation; that as an attached agency of the
Department of Education, Culture and Sports (DECS), the BSP is an agency of the
government; and that the BSP is a chartered institution under Section 1 (12) of the
Revised Administrative Code of 1987, embraced under the term government
instrumentality. 29

The COA concludes that being a government agency, the funds and property
owned or held by the BSP are subject to the audit authority of the COA pursuant to
Section 2 (1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation of the
Philippines (VFP) v. Reyes, 30 wherein the Court held that among the reasons why the
VFP is a public corporation is that its charter, Republic Act No. 2640, designates it as
one. Furthermore, the COA quotes the Court as saying in that case:

In several cases, we have dealt with the issue of whether certain specific activities
can be classified as sovereign functions. These cases, which deal with activities not
immediately apparent to be sovereign functions, upheld the public sovereign nature
of operations needed either to promote social justice or to stimulate patriotic
sentiments and love of country.

xxx xxx xxx

Petitioner claims that its funds are not public funds because no budgetary
appropriations or government funds have been released to the VFP directly or
indirectly from the DBM, and because VFP funds come from membership dues and
lease rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not
prove that it is a private corporation. The DBM indeed did not see it fit to propose
budgetary appropriations to the VFP, having itself believed that the VFP is a private
corporation. If the DBM, however, is mistaken as to its conclusion regarding the
nature of VFP's incorporation, its previous assertions will not prevent future
budgetary appropriations to the VFP. The erroneous application of the law by public
officers does not bar a subsequent correct application of the law. 31 (Citations
omitted.)

The COA points out that the government is not precluded by law from extending
financial support to the BSP and adding to its funds, and that "as a government
instrumentality which continues to perform a vital function imbued with public interest
and reflective of the government's policy to stimulate patriotic sentiments and love of
country, the BSP's funds from whatever source are public funds, and can be used solely
for public purpose in pursuance of the provisions of Republic Act No. [7278]." 32 HCTaAS

The COA claims that the fact that it has not yet audited the BSP's funds may not
bar the subsequent exercise of its audit jurisdiction.

The BSP filed its Reply 33 on August 29, 2007 maintaining that its statutory
designation as a "public corporation" and the public character of its purpose and
functions are not determinative of the COA's audit jurisdiction; reiterating its stand
that Boy Scouts of the Philippines v. National Labor Relations Commission is not
applicable anymore because the aspect of government ownership and control has been
removed by Republic Act No. 7278; and concluding that the funds and property that it
either owned or held in trust are not public funds and are not subject to the COA's audit
jurisdiction.

Thereafter, considering the BSP's claim that it is a private corporation, this Court,
in a Resolution 34 dated July 20, 2010, required the parties to file, within a period of
twenty (20) days from receipt of said Resolution, their respective comments on the issue
of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional.

In compliance with the Court's resolution, the parties filed their respective
Comments.

In its Comment 35 dated October 22, 2010, the COA argues that the
constitutionality of Commonwealth Act No. 111, as amended, is not determinative of
the resolution of the present controversy on the COA's audit jurisdiction over petitioner,
and in fact, the controversy may be resolved on other grounds; thus, the requisites
before a judicial inquiry may be made, as set forth in Commissioner of Internal Revenue
v. Court of Tax Appeals, 36 have not been fully met. 37 Moreover, the COA maintains that
behind every law lies the presumption of constitutionality. 38 The COA likewise argues
that contrary to the BSP's position, repeal of a law by implication is not
favored. 39 Lastly, the COA claims that there was no violation of Section 16, Article XII of
the 1987 Constitution with the creation or declaration of the BSP as a government
corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v.
Commission on Audit, 40 the COA further alleges:

The true criterion, therefore, to determine whether a corporation is public or

private is found in the totality of the relation of the corporation to the State. If the
corporation is created by the State as the latter's own agency or instrumentality to
help it in carrying out its governmental functions, then that corporation is
considered public; otherwise, it is private. . . . . 41

For its part, in its Comment 42 filed on December 3, 2010, the BSP submits that
its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is
constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP
alleges that "while [it] is not a public corporation within the purview of COA's audit
jurisdiction, neither is it a private corporation created by special law falling within the
ambit of the constitutional prohibition . . . ." 43 The BSP further alleges: SCcHIE

Petitioner's purpose is embodied in Section 3 of C.A. No. 111, as amended by

Section 1 of R.A. No. 7278, thus:

xxx xxx xxx

 A reading of the foregoing provision shows that petitioner was created to advance
the interest of the youth, specifically of young boys, and to mold them into
becoming good citizens. Ultimately, the creation of petitioner redounds to the
benefit, not only of those boys, but of the public good or welfare. Hence, it can be
said that petitioner's purpose and functions are more of a public rather than a
private character. Petitioner caters to all boys who wish to join the organization
without any distinction. It does not limit its membership to a particular class of
boys. Petitioner's members are trained in scoutcraft and taught patriotism, civic
consciousness and responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, preparing them to become model citizens and
outstanding leaders of the country.44

The BSP reiterates its stand that the public character of its purpose and functions
do not place it within the ambit of the audit jurisdiction of the COA as it lacks the
government ownership or control that the Constitution requires before an entity may be
subject of said jurisdiction. 45 It avers that it merely stated in its Reply that the
withdrawal of government control is akin to privatization, but it does not necessarily
mean that petitioner is a private corporation. 46 The BSP claims that it has a unique
characteristic which "neither classifies it as a purely public nor a purely private
corporation"; 47 that it is not a quasi-public corporation; and that it may belong to a
different class altogether. 48

The BSP claims that assuming arguendo that it is a private corporation, its
creation is not contrary to the purpose of Section 16, Article XII of the Constitution; and
that the evil sought to be avoided by said provision is inexistent in the enactment of the
BSP's charter, 49 as, (i) it was not created for any pecuniary purpose; (ii) those who will
primarily benefit from its creation are not its officers but its entire membership
consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all
boys who wish to join the organization without any distinction; and (iv) it does not limit
its membership to a particular class or group of boys. Thus, the enactment of its charter
confers no special privilege to particular individuals, families, or groups; nor does it
bring about the danger of granting undue favors to certain groups to the prejudice of
others or of the interest of the country, which are the evils sought to be prevented by
the constitutional provision involved. 50

Finally, the BSP states that the presumption of constitutionality of a legislative

enactment prevails absent any clear showing of its repugnancy to the Constitution. 51

The Ruling of the Court

After looking at the legislative history of its amended charter and carefully
studying the applicable laws and the arguments of both parties, we find that the BSP is
a public corporation and its funds are subject to the COA's audit jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936),
entitled "An Act to Create a Public Corporation to be Known as the Boy Scouts of the
Philippines, and to Define its Powers and Purposes" created the BSP as a "public
corporation" to serve the following public interest or purpose:
 Sec. 3. The purpose of this corporation shall be to promote through organization
and cooperation with other agencies, the ability of boys to do useful things for
themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline
and kindred virtues, and moral values, using the method which are in common use
by boy scouts. STaAcC

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth
Act No. 111 and provided substantial changes in the BSP organizational structure.
Pertinent provisions are quoted below:

Section II.Section 5 of the said Act is also amended to read as follows:

The governing body of the said corporation shall consist of a National Executive
Board composed of (a) the President of the Philippines or his representative; (b) the
charter and life members of the Boy Scouts of the Philippines; (c) the Chairman of
the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional
Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and
Culture, the Secretary of Social Welfare, the Secretary of National Defense, the
Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and
the Secretary of Local Government and Community Development; (f) an equal
number of individuals from the private sector; (g) the National President of the Girl
Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to
represent the boy membership; and (i) three representatives of the cultural
minorities. Except for the Regional Chairman who shall be elected by the Regional
Scout Councils during their annual meetings, and the Scouts of their respective
regions, all members of the National Executive Board shall be either by
appointment or cooption, subject to ratification and confirmation by the Chief
Scout, who shall be the Head of State. Vacancies in the Executive Board shall be
filled by a majority vote of the remaining members, subject to ratification and
confirmation by the Chief Scout. The by-laws may prescribe the number of members
of the National Executive Board necessary to constitute a quorum of the board,
which number may be less than a majority of the whole number of the board. The
National Executive Board shall have power to make and to amend the by-laws, and,
by a two-thirds vote of the whole board at a meeting called for this purpose, may
authorize and cause to be executed mortgages and liens upon the property of the
corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further

amended Commonwealth Act No. 111 "by strengthening the volunteer and democratic
character" of the BSP and reducing government representation in its governing body, as
follows:

Section 1. Sections 2 and 3 of Commonwealth Act No. 111, as amended, is hereby

amended to read as follows:

"Sec. 2. The said corporation shall have the powers of perpetual succession,
to sue and be sued; to enter into contracts; to acquire, own, lease, convey
and dispose of such real and personal estate, land grants, rights and choses in
action as shall be necessary for corporate purposes, and to accept and
 receive funds, real and personal property by gift, devise, bequest or other
means, to conduct fund-raising activities; to adopt and use a seal, and the
same to alter and destroy; to have offices and conduct its business and
affairs in Metropolitan Manila and in the regions, provinces, cities,
municipalities, and barangays of the Philippines, to make and adopt by-laws,
rules and regulations not inconsistent with this Act and the laws of the
Philippines, and generally to do all such acts and things, including the
establishment of regulations for the election of associates and successors, as
may be necessary to carry into effect the provisions of this Act and promote
the purposes of said corporation: Provided, That said corporation shall have
no power to issue certificates of stock or to declare or pay dividends, its
objectives and purposes being solely of benevolent character and not for
pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote through

organization and cooperation with other agencies, the ability of boys to
do useful things for themselves and others, to train them in scoutcraft,
and to inculcate in them patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred virtues, and
moral values, using the method which are in common use by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed

and in lieu thereof, Section 4 shall read as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the
Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are

hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall consist of a

National Executive Board, the members of which shall be Filipino citizens of
good moral character. The Board shall be composed of the following:

"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be
elected by the members of the National Council at its meeting called for this
purpose; EcaDCI

"(b) The regional chairmen of the scout regions who shall be elected by the
representatives of all the local scout councils of the region during its meeting
called for this purpose: Provided, That a candidate for regional chairman
need not be the chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;

"(d) The National President of the Girl Scouts of the Philippines;

"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be
elected by the senior scout delegates of the local scout councils to the scout
youth forums in their respective areas, in its meeting called for this purpose,
to represent the boy scout membership;
 "(f) Twelve (12) regular members to be elected by the members of the
National Council in its meeting called for this purpose;

"(g) At least ten (10) but not more than fifteen (15) additional members from
the private sector who shall be elected by the members of the National
Executive Board referred to in the immediately preceding paragraphs (a),
(b), (c), (d), (e) and (f) at the organizational meeting of the newly
reconstituted National Executive Board which shall be held immediately after
the meeting of the National Council wherein the twelve (12) regular
members and the one (1) charter member were elected.

xxx xxx xxx

"Sec. 8. Any donation or contribution which from time to time may be made
to the Boy Scouts of the Philippines by the Government or any of its
subdivisions, branches, offices, agencies or instrumentalities or by a foreign
government or by private, entities and individuals shall be expended by the
National Executive Board in pursuance of this Act.

The BSP as a Public Corporation under

Par. 2, Art. 2 of the Civil Code

There are three classes of juridical persons under Article 44 of the Civil Code and
the BSP, as presently constituted under Republic Act No. 7278, falls under the second
classification. Article 44 reads:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose
created by law; their personality begins as soon as they have been constituted
according to law;

(3) Corporations, partnerships and associations for private interest or purpose to

which the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member. (Emphases supplied.)

The BSP, which is a corporation created for a public interest or purpose, is subject
to the law creating it under Article 45 of the Civil Code, which provides:

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are
governed by the laws creating or recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the
provisions of this Code concerning partnerships. (Emphasis and underscoring
supplied.) SDaHEc
 The purpose of the BSP as stated in its amended charter shows that it was created
in order to implement a State policy declared in Article II, Section 13 of the
Constitution, which reads:

ARTICLE II DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and
shall promote and protect their physical, moral, spiritual, intellectual, and social
well-being. It shall inculcate in the youth patriotism and nationalism, and
encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in
pursuit of a constitutional mandate, comes within the class of "public corporations"
defined by paragraph 2, Article 44 of the Civil Code and governed by the law which
creates it, pursuant to Article 45 of the same Code.

The BSP's Classification Under the

Administrative Code of 1987

The public, rather than private, character of the BSP is recognized by the fact
that, along with the Girl Scouts of the Philippines, it is classified as an attached
agency of the DECS under Executive Order No. 292, or the Administrative Code of
1987, which states:

TITLE VI EDUCATION, CULTURE AND SPORTS

Chapter 8 Attached Agencies

SEC. 20. Attached Agencies. The following agencies are hereby attached to the
Department:

xxx xxx xxx

(12) Boy Scouts of the Philippines;

(13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is

defined in the Administrative Code of 1987 as follows:

BOOK IV

THE EXECUTIVE BRANCH

Chapter 7 ADMINISTRATIVE RELATIONSHIP

SEC. 38. Definition of Administrative Relationship. Unless otherwise expressly

stated in the Code or in other laws defining the special relationships of particular
agencies, administrative relationships shall be categorized and defined as follows:
 xxx xxx xxx

(3) Attachment. (a) This refers to the lateral relationship between the
department or its equivalent and the attached agency or corporation for purposes
of policy and program coordination. The coordination may be accomplished by
having the department represented in the governing board of the attached
agency or corporation, either as chairman or as a member, with or without
voting rights, if this is permitted by the charter; having the attached corporation
or agency comply with a system of periodic reporting which shall reflect the
progress of programs and projects; and having the department or its equivalent
provide general policies through its representative in the board, which shall serve as
the framework for the internal policies of the attached corporation or agency.
(Emphasis ours.) IHCESD

As an attached agency, the BSP enjoys operational autonomy, as long as policy and
program coordination is achieved by having at least one representative of government
in its governing board, which in the case of the BSP is the DECS Secretary. In this sense,
the BSP is not under government control or "supervision and control." Still this
characteristic does not make the attached chartered agency a private corporation
covered by the constitutional proscription in question.

Art. XII, Sec. 16 of the Constitution refers

to "private corporations" created by
government for proprietary or
economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found
in Article XII of the Constitution, entitled "National Economy and Patrimony." Section 1
of Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises,
including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen
from the aforementioned declaration of state policies and goals which pertains
to national economy and patrimony and the interests of the people in economic
development. aETAHD

Section 16, Article XII deals with "the formation, organization, or regulation of
private corporations," 52 which should be done through a general law enacted by
Congress, provides for an exception, that is: if the corporation is government owned or
controlled; its creation is in the interest of the common good; and it meets the test of
economic viability. The rationale behind Article XII, Section 16 of the 1987
Constitution was explained in Feliciano v. Commission on Audit, 53 in the following
manner:

The Constitution emphatically prohibits the creation of private corporations except

by a general law applicable to all citizens. The purpose of this constitutional
provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied
to other citizens. 54 (Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the
creation of "private corporations" by special law. The said constitutional provision
should not be construed so as to prohibit the creation of public corporations or a
corporate agency or instrumentality of the government intended to serve a public
interest or purpose, which should not be measured on the basis of economic viability,
but according to the public interest or purpose it serves as envisioned by paragraph (2),
of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code
of 1987.

The BSP is a Public Corporation Not

Subject to the Test of Government
Ownership or Control and Economic
Viability

The BSP is a public corporation or a government agency or instrumentality with

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

Classification of Corporations Under

Section 16, Article XII of the Constitution
on National Economy and Patrimony
 The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of
cases, insists that the Constitution recognizes only two classes of
corporations:private corporations under a general law, and government-owned or
controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be construed so as to

prohibit Congress from creating public corporations. In fact, Congress has enacted
numerous laws creating public corporations or government agencies or instrumentalities
vested with corporate powers. Moreover, Section 16, Article XII, which relates to
National Economy and Patrimony, could not have tied the hands of Congress in creating
public corporations to serve any of the constitutional policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces "a totally
different species of corporation, which is neither a private corporation nor a
government owned or controlled corporation" and, in so doing, is missing the fact that
the BSP, "which was created as a non-stock, non-profit corporation, can only be either a
private corporation or a government owned or controlled corporation."

Note that in Boy Scouts of the Philippines v. National Labor Relations Commission,
the BSP, under its former charter, was regarded as both a government owned or
controlled corporation with original charter and a "public corporation." The said case
pertinently stated:

While the BSP may be seen to be a mixed type of entity, combining aspects of
both public and private entities, we believe that considering the character of its
purposes and its functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the Government in the selection
of members of the National Executive Board of the BSP, the BSP, as presently
constituted under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution.
SHCaEA

We are fortified in this conclusion when we note that the Administrative Code of
1987 designates the BSP as one of the attached agencies of the Department of
Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as
referring to any of the various units of the Government including a department,
bureau, office, instrumentality, government-owned or -controlled corporation, or
local government or distinct unit therein. "Government instrumentality" is in turn
defined in the 1987 Administrative Code in the following manner:

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. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.

The same Code describes a "chartered institution" in the following terms:

 Chartered institution refers to any agency organized or operating under
a special charter, and vested by law with functions relating to specific
constitutional policies or objectives. This term includes the state universities
and colleges, and the monetary authority of the State.

We believe that the BSP is appropriately regarded as "a government instrumentality"

under the 1987 Administrative Code.

It thus appears that the BSP may be regarded as both a "government controlled
corporation with an original charter" and as an "instrumentality" of the
Government within the meaning of Article IX (B) (2) (1) of the
Constitution. . . . . 55 (Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered

institutions by legislative fiat distinct from private corporations and government owned
or controlled corporation is best exemplified by the 1987 Administrative Code cited
above, which we quote in part:

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:

xxx xxx xxx

(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. This
term includes regulatory agencies, chartered institutions and government-owned or
controlled corporations.

xxx xxx xxx

(12) "Chartered institution" refers to any agency organized or operating under a

special charter, and vested by law with functions relating to specific constitutional
policies or objectives. This term includes the state universities and colleges and
the monetary authority of the State.

(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: Provided, That government-owned or controlled
corporations may be further categorized by the Department of the Budget, the
Civil Service Commission, and the Commission on Audit for purposes of the
exercise and discharge of their respective powers, functions and responsibilities
with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled
by the government because of reduction of the number of representatives of the
government in the BSP Board, it does not follow that it also ceases to be a government
instrumentality as it still retains all the characteristics of the latter as an attached
agency of the DECS under the Administrative Code. Vesting corporate powers to an
attached agency or instrumentality of the government is not constitutionally prohibited
and is allowed by the above-mentioned provisions of the Civil Code and the 1987
Administrative Code. IDCHTE

Economic Viability and Ownership and

Control Tests Inapplicable to Public
Corporations

As presently constituted, the BSP still remains an instrumentality of the national

government. It is a public corporation created by law for a public purpose, attached to
the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private
corporation which is required to be owned or controlled by the government and be
economically viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing "a new class of
public corporation(s)" created by special charter that will not be subject to the test of
economic viability, the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the
intent of the framers of the highest law of our land to distinguish betweengovernment
corporations performing governmental functions and corporations involved in
business or proprietary functions:

THE PRESIDENT.

Commissioner Foz is recognized.

MR. FOZ.

Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of

the grounds for organizing government corporations. . . . .

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. . . .

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. . . . .
aETDIc
 xxx xxx xxx

THE PRESIDENT.

Commissioner Quesada is recognized.

MS. QUESADA.

Madam President, may we be clarified by the committee on what is meant by

economic viability?

THE PRESIDENT.

Please proceed.

MR. MONSOD.

Economic viability normally is determined by cost-benefit ratio that takes into

consideration all benefits, including economic external as well as internal
benefits. These are what they call externalities in economics, so that these
are not strictly financial criteria. Economic viability involves what we call
economic returns or benefits of the country that are not quantifiable in
financial terms. . . . .

xxx xxx xxx

MS. QUESADA.

So, would this particular formulation now really limit the entry of government
corporations into activities engaged in by corporations?

MR. MONSOD.

Yes, because it is also consistent with the economic philosophy that this
Commission approved that there should be minimum government
participation and intervention in the economy.

MS. QUESADA.

Sometimes this Commission would just refer to Congress to provide the particular
requirements when the government would get into corporations. But this
time around, we specifically mentioned economic viability. . . . .

MR. VILLEGAS.

Commissioner Ople will restate the reason for his introducing that amendment.

MR. OPLE.

I am obliged to repeat what I said earlier in moving for this particular amendment
jointly with Commissioner Foz. During the past three decades, there had
 been a proliferation of government corporations, very few of which have
succeeded, and many of which are now earmarked by the Presidential
Reorganization Commission for liquidation because they failed the economic
test. . . . .

xxx xxx xxx

MS. QUESADA.

But would not the Commissioner say that the reason why many of the government-
owned or controlled corporations failed to come up with the economic test is
due to the management of these corporations, and not the idea itself of
government corporations? It is a problem of efficiency and effectiveness of
management of these corporations which could be remedied, not by
eliminating government corporations or the idea of getting into state-owned
corporations, but improving management which our technocrats should be
able to do, given the training and the experience.

MR. OPLE.

That is part of the economic viability, Madam President.

MS. QUESADA.

So, is the Commissioner saying then that the Filipinos will benefit more if these
government-controlled corporations were given to private hands, and that
there will be more goods and services that will be affordable and within the
reach of the ordinary citizens?

MR. OPLE.

Yes. There is nothing here, Madam President, that will prevent the formation of
a government corporation in accordance with a special charter given by
Congress. However, we are raising the standard a little bit so that, in the
future, corporations established by the government will meet the test of
the common good but within that framework we should also build a
certain standard of economic viability.

xxx xxx xxx

THE PRESIDENT.

Commissioner Padilla is recognized. aTCAcI

MR. PADILLA.

This is an inquiry to the committee. With regard to corporations created by a

special charter for government-owned or controlled corporations, will these
be in the pioneer fields or in places where the private enterprise does not or
cannot enter? Or is this so general that these government corporations can
compete with private corporations organized under a general law?
 MR. MONSOD.

Madam President, . . . . There are two types of government corporations those

that are involved in performing governmental functions, like garbage
disposal, Manila waterworks, and so on; and those government corporations
that are involved in business functions. As we said earlier, there are two
criteria that should be followed for corporations that want to go into
business. First is for government corporations to first prove that they can be
efficient in the areas of their proper functions. This is one of the problems
now because they go into all kinds of activities but are not even efficient in
their proper functions.Secondly, they should not go into activities that the
private sector can do better.

MR. PADILLA.

There is no question about corporations performing governmental functions or

functions that are impressed with public interest. But the question is with
regard to matters that are covered, perhaps not exhaustively, by private
enterprise. It seems that under this provision the only qualification is
economic viability and common good, but shall government, through
government-controlled corporations, compete with private enterprise?

MR. MONSOD.

No, Madam President. As we said, the government should not engage in activities
that private enterprise is engaged in and can do better. . . . . 56 (Emphases
supplied.)

Thus, the test of economic viability clearly does not apply to public corporations
dealing with governmental functions, to which category the BSP belongs. The discussion
above conveys the constitutional intent not to apply this constitutional ban on the
creation of public corporations where the economic viability test would be irrelevant.
The said test would only apply if the corporation is engaged in some economic activity
or business function for the government.

It is undisputed that the BSP performs functions that are impressed with public
interest. In fact, during the consideration of the Senate Bill that eventually
became Republic Act No. 7278, which amended the BSP Charter, one of the bill's
sponsors, Senator Joey Lina, described the BSP as follows:

Senator Lina. Yes, I can only think of two organizations involving the masses of our
youth, Mr. President, that should be given this kind of a privilege the Boy Scouts
of the Philippines and the Girl Scouts of the Philippines. Outside of these two
groups, I do not think there are other groups similarly situated.

The Boy Scouts of the Philippines has a long history of providing value formation
to our young, and considering how huge the population of the young people is,
at this point in time, and also considering the importance of having an
organization such as this that will inculcate moral uprightness among the young
people, and further considering that the development of these young people at
 that tender age of seven to sixteen is vital in the development of the country
producing good citizens, I believe that we can make an exception of the Boy
Scouting movement of the Philippines from this general prohibition against
providing tax exemption and privileges. 57

Furthermore, this Court cannot agree with the dissenting opinion which equates
the changes introduced by Republic Act No. 7278 to the BSP Charter as clear
manifestation of the intent of Congress "to return the BSP to the private sector." It was
not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in
this basic youth organization, which has been its partner in forming responsible citizens
for decades. DaTICE

In fact, as may be seen in the deliberation of the House Bills that eventually
resulted to Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate
the organization, to bring it back to its former glory reached under its original
charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the
amendments to its Charter under Presidential Decree No. 460. The BSP suffered from
low morale and decrease in number because the Secretaries of the different
departments in government who were too busy to attend the meetings of the BSP's
National Executive Board ("the Board") sent representatives who, as it turned out,
changed from meeting to meeting. Thus, the Scouting Councils established in the
provinces and cities were not in touch with what was happening on the national level,
but they were left to implement what was decided by the Board. 58

A portion of the legislators' discussion is quoted below to clearly show their

intent:

HON. DEL MAR. . . . I need not mention to you the value and the tremendous
good that the Boy Scout Movement has done not only for the youth in particular
but for the country in general. And that is why, if we look around, our past and
present national leaders, prominent men in the various fields of endeavor,
public servants in government offices, and civic leaders in the communities all
over the land, and not only in our country but all over the world many if not
most of them have at one time or another been beneficiaries of the Scouting
Movement. And so, it is along this line, Mr. Chairman, that we would like to have
the early approval of this measure if only to pay back what we owe much to the
Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may
just the Scouting Movement was enacted into law in October 31, 1936
under Commonwealth Act No. 111. . . . [W]e were acknowledged as the third
biggest scouting organization in the world . . . . And to our mind, Mr. Chairman, this
erratic growth and this decrease in membership [number] is because of the bad
policy measures that were enunciated with the enactment or promulgation by the
President before of Presidential Decree No. 460 which we feel is the culprit of the
ills that is flagging the Boy Scout Movement today. And so, this is specifically what
we are attacking, Mr. Chairman, the disenfranchisement of the National Council in
the election of the national board. . . . . And so, this is what we would like to be
appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also
confident, have the best interest of the Boy Scout Movement at heart and it is in
this spirit, Mr. Chairman, that we see no impediment towards working together, the
 Boy Scout of the Philippines officers working together with the House of
Representatives in coming out with a measure that will put back the vigor and
enthusiasm of the Boy Scout Movement. . . . . 59 (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the
bill, in the Committee on Government Enterprises:

HON. AQUINO:

. . . Well, obviously, the two bills as well as the previous laws that have created the
Boy Scouts of the Philippines did not provide for any direct government
support by way of appropriation from the national budget to support the
activities of this organization. The point here is, and at the same time they
have been subjected to a governmental intervention, which to their mind has
been inimical to the objectives and to the institution per se, that is why they
are seeking legislative fiat to restore back the original mandate that they had
under Commonwealth Act 111. Such having been the experience in the
hands of government, meaning, there has been negative interference on
their part and inasmuch as their mandate is coming from a legislative fiat,
then shouldn't it be, this rhetorical question, shouldn't it be better for
this organization to seek a mandate from, let's say, the government the
Corporation Code of the Philippines and register with the SEC as non-
profit non-stock corporation so that government intervention could be
very very minimal. Maybe that's a rhetorical question, they may or they may
not answer, ano. I don't know what would be the benefit of a charter or a
mandate being provided for by way of legislation versus a registration with
the SEC under the Corporation Code of the Philippines inasmuch as they don't
get anything from the government anyway insofar as direct funding. In fact,
the only thing that they got from government was intervention in their
affairs. Maybe we can solicit some commentary comments from the resource
persons. Incidentally, don't take that as an objection, I'm not objecting. I'm
all for the objectives of these two bills. It just occurred to me that since you
have had very bad experience in the hands of government and you will
always be open to such possible intervention even in the future as long as you
have a legislative mandate or your mandate or your charter coming from
legislative action.

xxx xxx xxx

MR. ESCUDERO:

Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines
will be required to register with the SEC. If we are registered with the SEC,
there could be a danger of proliferation of scout organization. Anybody can
organize and then register with the SEC. If there will be a proliferation of
this, then the organization will lose control of the entire organization.
Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC
against the Boy Scouts of the Philippines and the SEC may suspend the
operation or freeze the assets of the organization and hamper the operation
of the organization. I don't know, Mr. Chairman, how you look at it but there
could be a danger for anybody filing a complaint against the organization in
 the SEC and the SEC might suspend the registration permit of the
organization and we will not be able to operate.

HON. AQUINO:

Well, that I think would be a problem that will not be exclusive to corporations
registered with the SEC because even if you are government corporation,
court action may be taken against you in other judicial bodies because the
SEC is simply another quasi-judicial body. But, I think, the first point would
be very interesting, the first point that you raised. In effect, what you are
saying is that with the legislative mandate creating your charter, in effect,
you have been given some sort of a franchise with this movement.

MR. ESCUDERO:

Yes.

HON. AQUINO:

Exclusive franchise of that movement?

MR. ESCUDERO:

Yes.

HON. AQUINO:

Well, that's very well taken so I will proceed with other issues, Mr.
Chairman. . . . . 60 (Emphases added.)

Therefore, even though the amended BSP charter did away with most of the
governmental presence in the BSP Board, this was done to more strongly promote the
BSP's objectives, which were not supported under Presidential Decree No. 460. The BSP
objectives, as pointed out earlier, are consistent with the public purposeof the
promotion of the well-being of the youth, the future leaders of the country. The
amendments were not done with the view of changing the character of the BSP into a
privatized corporation. The BSP remains an agency attached to a department of the
government, the DECS, and it was not at all stripped of its public character. cTEICD

The ownership and control test is likewise irrelevant for a public corporation like
the BSP. To reiterate, the relationship of the BSP, an attached agency, to the
government, through the DECS, is defined in the Revised Administrative Code of 1987.
The BSP meets the minimum statutory requirement of an attached government agency
as the DECS Secretary sits at the BSP Board ex officio, thus facilitating the policy and
program coordination between the BSP and the DECS.

Requisites for Declaration of

Unconstitutionality Not Met in this Case
 The dissenting opinion of Justice Carpio improperly raised the issue of
unconstitutionality of certain provisions of the BSP Charter. Even if the parties were
asked to Comment on the validity of the BSP charter by the Court, this alone does not
comply with the requisites for judicial review, which were clearly set forth in a recent
case:

When questions of constitutional significance are raised, the Court can exercise its
power of judicial review only if the following requisites are present: (1) the
existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the constitutional question;
(3) recourse to judicial review is made at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case. 61 (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the
constitutional issue should be the very lis mota, or threshold issue, of the case, and that
it should be raised by either of the parties. These requirements would be ignored under
the dissent's rather overreaching view of how this case should have been decided. True,
it was the Court that asked the parties to comment, but the Court cannot be the one to
raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in
the exercise of its power to pass upon the validity of a law. EISCaD

Re: the COA's Jurisdiction

Regarding the COA's jurisdiction over the BSP, Section 8 of its amended charter
allows the BSP to receive contributions or donations from the government. Section 8
reads:

Section 8.Any donation or contribution which from time to time may be made to
the Boy Scouts of the Philippines by the Government or any of its subdivisions,
branches, offices, agencies or instrumentalities shall be expended by the
Executive Board in pursuance of this Act.

The sources of funds to maintain the BSP were identified before the House
Committee on Government Enterprises while the bill was being deliberated, and the
pertinent portion of the discussion is quoted below:

MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the
organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive
annual allotment from the government. The organization has to raise its own funds
through fund drives and fund campaigns or fund raising activities. Aside from this,
we have some revenue producing projects in the organization that gives us funds to
support the operation. . . . From time to time, Mr. Chairman, when we have special
activities we request for assistance or financial assistance from government
agencies, from private business and corporations, but this is only during special
activities that the Boy Scouts of the Philippines would conduct during the year.
Otherwise, we have to raise our own funds to support the organization. 62

The nature of the funds of the BSP and the COA's audit jurisdiction were likewise
brought up in said congressional deliberations, to wit:
HON. AQUINO:

. . . Insofar as this organization being a government created organization, in fact, a

government corporation classified as such, are your funds or your finances
subjected to the COA audit?

MR. ESCUDERO:

Mr. Chairman, we are not. Our funds is not subjected. We don't fall under the
jurisdiction of the COA.

HON. AQUINO:

All right, but before were you?

MR. ESCUDERO:

No, Mr. Chairman.

MR. JESUS:

May I? As historical backgrounder, Commonwealth Act 111 was written by then

Secretary Jorge Vargas and before and up to the middle of the Martial Law
years, the BSP was receiving a subsidy in the form of an annual . . . a one
draw from the Sweepstakes. And, this was the case also with the Girl Scouts
at the Anti-TB, but then this was . . . and the Boy Scouts then because of
this funding partly from government was being subjected to audit in the
contributions being made in the part of the Sweepstakes. But this was
removed later during the Martial Law years with the creation of the Human
Settlements Commission. So the situation right now is that the Boy Scouts
does not receive any funding from government, but then in the case of the
local councils and this legislative charter, so to speak, enables the local
councils even the national headquarters in view of the provisions in the
existing law to receive donations from the government or any of its
instrumentalities, which would be difficult if the Boy Scouts is registered as a
private corporation with the Securities and Exchange Commission.
Government bodies would be estopped from making donations to the Boy
Scouts, which at present is not the case because there is the Boy Scouts
charter, thisCommonwealth Act 111 as amended by PD 463.

xxx xxx xxx

HON. AMATONG:

Mr. Chairman, in connection with that. aTICAc

THE CHAIRMAN:

Yeah, Gentleman from Zamboanga.

HON. AMATONG:
 There is no auditing being made because there's no money put in the organization,
but how about donated funds to this organization? What are the remedies of
the donors of how will they know how their money are being spent?

MR. ESCUDERO:

May I answer, Mr. Chairman?

THE CHAIRMAN:

Yes, gentleman.

MR. ESCUDERO:

The Boy Scouts of the Philippines has an external auditor and by the charter we are
required to submit a financial report at the end of each year to the National
Executive Board. So all the funds donated or otherwise is accounted for at
the end of the year by our external auditor. In this case the SGV. 63

Historically, therefore, the BSP had been subjected to government audit in so far
as public funds had been infused thereto. However, this practice should not preclude
the exercise of the audit jurisdiction of COA, clearly set forth under the Constitution,
which pertinently provides:

Section 2. (1)The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and receipts
of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies, commissions
and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or
controlled corporations with original charters and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity, directly or indirectly, from or
through the Government, which are required by law of the granting institution to
submit to such audit as a condition of subsidy or equity. . . . . 64

Since the BSP, under its amended charter, continues to be a public corporation or
a government instrumentality, we come to the inevitable conclusion that it is subject to
the exercise by the COA of its audit jurisdiction in the manner consistent with the
provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition

is DISMISSED.

SO ORDERED.

Corona, C.J., Velasco, Jr., Nachura, Brion, Peralta, Bersamin, Del Castillo, Abad,
Villarama, Jr. and Mendoza, JJ., concur.
 Carpio, J., see dissenting opinion.

Carpio Morales, Perez and Sereno, JJ., join J. Carpio's dissent.

(Boy Scouts of the Philippines v. Commission on Audit, G.R. No. 177131, [June 7, 2011],
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666 PHIL 140-224)