PUBCORP Assignment #1

Section 1, Article X, 1987 Constitution

Section 1. The territorial and political subdivisions of the Republic of the Philippines are the
provinces, cities, municipalities, and barangays. There shall be autonomous regions in Muslim
Mindanao and the Cordilleras as hereinafter provided.

Section 16, Article XII, 1987 Constitution

Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability.

Section 2, 1987 Administrative Code

Section 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:

(1) Government of the Republic of the Philippines refers to the corporate governmental entity
through which the functions of government are exercised throughout the Philippines, including,
save as the contrary appears from the context, the various arms through which political
authority is made effective in the Philippines, whether pertaining to the autonomous regions, the
provincial, city, municipal or barangay subdivisions or other forms of local government.

(2) National Government refers to the entire machinery of the central government, as
distinguished from the different forms of local governments.

(3) Local Government refers to the political subdivisions established by or in accordance with
the Constitution.

(4) Agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporations, or
a local government or a distinct unit therein.

(5) National Agency refers to a unit of the National Government.

(6) Local Agency refers to a local government or a distinct unit therein.

(7) Department refers to an executive department created by law. For purposes of Book IV, this
shall include any instrumentality, as herein defined, having or assigned the rank of a
department, regardless of its name or designation.

(8) Bureau refers to any principal subdivision or unit of any department. For purposes of Book
IV, this shall include any principal subdivision or unit of any instrumentality given or assigned
the rank of a bureau, regardless of actual name or designation, as in the case of department-
wide regional offices.
(9) Office refers, within the framework of governmental organization, to any major functional unit
of a department or bureau including regional offices. It may also refer to any position held or
occupied by individual persons, whose functions are defined by law or regulation.

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework vested within 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.

(11) Regulatory agency refers to any agency expressly vested with jurisdiction to regulate,
administer or adjudicate matters affecting substantial rights and interests of private persons, the
principal powers of which are exercised by a collective body, such as a commission, board or
council.

(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.

(14) "Officer" as distinguished from "clerk" or "employee", refers to a person whose duties, not
being of a clerical or manual nature, involves the exercise of discretion in the performance of
the functions of the government. When used with reference to a person having authority to do a
particular act or perform a particular function in the exercise of governmental power, "officer"
includes any government employee, agent or body having authority to do the act or exercise
that function.

(15) "Employee", when used with reference to a person in the public service, includes any
person in the service of the government or any of its agencies, divisions, subdivisions or
instrumentalities.

GOCC Governance Act of 2011 (RA No. 10149)

REPUBLIC ACT No. 10149

REPUBLIC ACT No. 10149

AN ACT TO PROMOTE FINANCIAL VIABILITY AND FISCAL DISCIPLINE IN

GOVERNMENT-OWNED OR -CONTROLLED CORPORATIONS AND TO STRENGTHEN
THE ROLE OF THE STATE IN ITS GOVERNANCE AND MANAGEMENT TO MAKE THEM
MORE RESPONSIVE TO THE NEEDS OF PUBLIC INTEREST AND FOR OTHER
PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER I

GENERAL PROVISIONS

Section 1. Short Title. - This Act shall be known as the "GOCC Governance Act of 2011l".

Section 2. Declaration of Policy. - The State recognizes the potential of government-owned or

-controlled corporations (GOCCs) as significant tools for economic development. It is thus the
policy of the State to actively exercise its ownership rights in GOCCs and to promote growth by
ensuring that operations are consistent with national development policies and programs.

Towards this end, the State shall ensure that:

(a) The corporate form of organization through which government carries out activities is utilized
judiciously;

(b) The operations of GOCCs are rationalized and monitored centrally in order that government
assets and resources are used efficiently and the government exposure to all forms of liabilities
including subsidies is warranted and incurred through prudent means;

(c) The governance of GOCCs is carried out in a transparent, responsible and accountable
manner and with the utmost degree of professionalism and effectiveness;

(d) A reporting and evaluation system, which will require the periodic disclosure and
examination of the operations and management of the GOCCs, their assets and finances,
revenues and expenditures, is enforced;

(e) The governing boards of every GOCC and its subsidiaries are competent to carry out its
functions, fully accountable to the State as its fiduciary, and acts in the best interest of the
State;

(f) Reasonable, justifiable and appropriate remuneration schemes are adopted for the
directors/trustees, officers and employees of GOCCs and their subsidiaries to prevent or deter
the granting of unconscionable and excessive remuneration packages; and

(g) There is a clear separation between the regulatory and proprietary activities of GOCCs, in
order to achieve a level playing field with corporations in the private sector performing similar
commercial activities for the public.

Section 3. Definition of Terms. –

(a) Affiliate refers to a corporation fifty percent (50%) or less of the outstanding capital stock of
which is owned or controlled, directly or indirectly, by the GOCC.

(b) Appointive Director refers to:

(1) In the case of chartered GOCCs, all members of its Board of Directors/Trustees who are not
ex officio members thereof;

(2) In the case of nonchartered GOCCs, members of its Board of Directors/Trustees whom the
State is entitled to nominate, to the extent of its percentage shareholdings in such GOCC; and

(3) In the case of subsidiaries and affiliates, members of its Board of Directors/Trustees whom
the GOCC is entitled to nominate to the extent of its percentage shareholdings in such
subsidiary or affiliate.

(c) Board of Directors/Trustees or Board refers to the governing body that exercises the
corporate powers of a GOCC.

(d) Breakthrough Results refer to the achievement of corporate goals or other performance
indicators as determined by the GOCC or its supervising department.

(e) Charter Statement refers to a statement of the GOCC's vision, mission and core values.

(f) Chartered GGCC refers to a GOCC, including Government Financial Institutions, created
and vested with functions by a special law.

(g) Chief Executive Officer (CEO) refers to the highest ranking corporate executive, who could
be the President or the General Manager, Chairman or the Administrator of a GOCC.

(h) Department refers to an executive department created by law. This shall include any
instrumentality having or assigned the rank of a department, regardless of its name or
designation.

(i) Ex Officio Board Member refers to any individual who sits or acts as a member of the Board
of Directors/ Trustees by virtue of one's title to another office, and without further warrant or
appointment.

(j) Fit and Proper Rule refers to the standard for determining whether a member of the Board of
Directors/ Trustees or CEO is fit and proper to hold a position in a GOCC which shall include,
but not be limited to, standards on integrity, experience, education, training and competence.

(k) Government Agency refers to any of the various units of the Government of the Republic of
the Philippines, including a department, bureau, office, instrumentality or GOCC, or a local
government or a distinct unit therein.

(l) Government Corporate Governance Standards refer to a set of principles derived from law
and practices, rules and standards prescribed by the Governance Commission for Government-
Owned or -Controlled Corporations (GCG) that generate long-term and desirable economic
value for the State. It shall also refer to a system whereby shareholders, creditors, and other
stakeholders of a corporation ensure that management enhances the value of the corporation
as it competes in an increasingly global market place.

(m) Government Financial Institutions (GFls) refer to financial institutions or corporations in

which the government directly or indirectly owns majority of the capital stock and which are
either: (1) registered with or directly supervised by the Bangko Sentral ng Pilipinas; or (2)
collecting or transacting funds or contributions from the public and places them in financial
instruments or assets such as deposits, loans, bonds and equity including, but not limited to, the
Government Service Insurance System and the Social Security System.

(n) Government Instrumentalities with Corporate Powers (GICP)/Government Corporate Entities

(GCE) refer to instrumentalities or agencies of the government, which are neither corporations
nor agencies integrated within the departmental framework, but vested by law with special
functions or jurisdiction, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy usually through a charter including, but not limited to,
the following: the Manila International Airport Authority (MIAA), the Philippine Ports Authority
(PPA), the Philippine Deposit Insurance Corporation (PDIC), the Metropolitan Waterworks and
Sewerage System (MWSS), the Laguna Lake Development Authority (LLDA), the Philippine
Fisheries Development Authority (PFDA), the Bases Conversion and Development Authority
(DCDA), the Cebu Port Authority (CPA), the Cagayan de Oro Port Authority, the San Fernando
Port Authority, the Local Water Utilities Administration (LWUA) and the Asian Productivity
Organization (APO).

(o) Government-Owned or -Controlled Corporation (GOCC) refers to any agency organized as

a stock or nonstock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government of the Republic of the
Philippines directly or through its instrumentalities either wholly or, where applicable as in the
case of stock corporations, to the extent of at least a majority of its outstanding capital stock:
Provided, however, That for purposes of this Act, the term "GOCC" shall include GlCP/GCE and
GFI as defined herein.

(p) Nonchartered GOCC refers to a GOCC organized and operating under Batas Pambansa
Bilang 68, or "The Corporation Code of the Philippines".

(q) Officers refer to the corporate officers of the GOCC as provided in its charter or bylaws,
such as the CEO, Chief Financial Officer, Chief Investment Officer, President, Vice President,
General Manager, Treasurer and Corporate Secretary.

(r) Ownership Manuals refer to guidelines and rules pertaining to the ownership by the State or
corporations and enterprises or the exercise of such ownership governing the GOCCs or any
classification thereof.

(s) Per Diems refer to the compensation granted to members of the Board of Directors or
Trustees of a GOCC for actual attendance in meetings.

(t) Performance Evaluation System refers to the process of appraising the accomplishments of
GOCCs in a given fiscal year based on set performance criteria, targets and weights,

(u) Performance Scorecard refers to a governance and management tool forming part of the
performance evaluation system which consists of a set of measures, targets and initiatives that
facilitate the achievement of breakthrough results and performance through the effective and
efficient monitoring and coordination of the strategic objectives of the GOCC.

(v) President refers to the President of the Republic of the Philippines.

(w) Related Corporation refers to a subsidiary or affiliate of a GOCC.

(x) Secretary refers to the person vested with the authority and responsibility for the exercise of
the mandate of the Department, for the discharge of its powers and functions, and who shall
have supervision and control of the Department.

(y) Strategy Map refers to an integrated set of strategic choices or objectives drawn by the
governing body, the successful execution of which results in the achievement of the GOCC's
vision in relation to its mission or purpose for having been created.

(z) Subsidiary refers to a corporation where at least a majority of the outstanding capital stock is
owned or controlled, directly or indirectly, through one or more intermediaries, by the GOCC.

Section 4. Coverage. - This Act shall be applicable to all GOCCs, GICPs/GCEs, and
government financial institutions, including their subsidiaries, but excluding the Bangko Sentral
ng Pilipinas, state universities and colleges, cooperatives, local water districts, economic zone
authorities and research institutions: Provided, That in economic zone authorities and research
institutions, the President shall appoint one-third (1/3) of the board members from the list
submitted by the GCG.

CHAPTER II

THE GOVERNANCE COMMISSION FOR

GOVERNMENT-OWNED OR -CONTROLLED CORPORATIONS (GCG)

Section 5. Creation of the Governance Commission for Government-Owned or -Controlled

Corporations. - There is hereby created a central advisory, monitoring, and oversight body with
authority to formulate, implement and coordinate policies to be known as the Governance
Commission for Government-Owned or -Controlled Corporations, hereinafter referred to as the
GCG, which shall be attached to the Office of the President. The GCG shall have the following
powers and functions:

(a) Evaluate the performance and determine the relevance of the GOCC, to ascertain whether
such GOCC should be reorganized, merged, streamlined, abolished or privatized, in
consultation with the department or agency to which a GOCC is attached. For this purpose, the
GCG shall be guided by any of the following standards:

(1) The functions or purposes for which the GOCC was created are no longer relevant to the
State or no longer consistent with the national development policy of the State;

(2) The GOCC's functions or purposes duplicate or unnecessarily overlap with functions,
programs, activities or projects already provided by a Government Agency;

(3) The GOCC is not producing the desired outcomes, or no longer achieving the objectives and
purposes for which it was originally designed and implemented, and/or not cost efficient and
does not generate the level of social, physical and economic returns vis-a-vis the resource
inputs;

(4) The GOCC is in fact dormant or nonoperational;

(5) The GOCC is involved in an activity best carried out by the private sector; and

(6) The functions, purpose or nature of operations of any group of GOCCs require consolidation
under a holding company.
Upon determination by the GCG that it is to the best interest of the State that a GOCC should
be reorganized, merged, streamlined, abolished or privatized, it shall:

(i) Implement the reorganization, merger or streamlining of the GOCC, unless otherwise
directed by the President; or

(ii) Recommend to the President the abolition or privatization of the GOCC, and upon the
approval of the President, implement such abolition or privatization, unless the President
designates another agency to implement such abolition or privatization.

(b) Classify GOCCs into: (1) Developmental/Social Corporations; (2) Proprietary Commercial
Corporations; (3) Government Financial, Investment and Trust Institutions; (4) Corporations with
Regulatory Functions; and (5) Others as may be classified by the GCG, without prejudice to
further subclassifications in each category and/or any other classification based on parameters
as it may find relevant or material such as, but not limited to, industry type. The classification
shall guide the GCG in exercising its powers and functions as provided herein;

(c) In consultation with the relevant government agencies and stakeholders, adopt within one
hundred eighty (180) days from its constitution, an ownership and operations manual and the
government corporate standards governing GOCCs: Provided, That the government corporate
governance. Standards applicable to GOCCs shall be no less rigorous than those required by
the Philippine Stock Exchange or the, Securities and Exchange Commission of listed
companies, or those required by the Bangko Sentral ng Pilipinas or the Insurance Commission
for banking institutions and insurance companies, as the case may be. The manual shall be
consistent with the Medium-Term Philippine Development Plan issued by the National
Economic and Development Authority (NEDA) and shall include:

(1) Objectives of State ownership;

(2) Role of national government in the governance of GOCCs;

(3) Modes of implementation of the ownership policy;

(4) Guidelines on the monitoring of the operations of all GOCCs including their Related
Corporations. These shall include Strategy Maps, Charter Statements, Performance
Commitments and such other mechanisms;

(5) The roles, relationships and responsibilities of the State, the Government Agencies to which
the GOCC is attached, and the GOCC;

(6) Disclosure and transparency requirements;

(7) Code of Ethics of Directors and Officers;

(8) Creation of board committees and similar oversight bodies;

(9) Integrated corporate reporting system;

(10) Statement of the social responsibilities of the GOCC; and

(11) Such other matters as the GCG may deem proper to include in the ownership policy.
(d) Without prejudice to the filing of administrative and criminal charges, recommend to the
Board of Directors or Trustees the suspension of any member of the Board of Directors or
Trustees who participated by commission or omission in the approval of the act giving rise to
the violation or noncompliance with the ownership manual for a period depending on the nature
and extent of damage caused, during which period the director or trustee shall not be entitled to
any emolument;

(e) In addition to the qualifications required under the individual charter of the GOCCs and in
the bylaws of GOCCs without original charters, the GCG shall identify necessary skills and
qualifications required for Appointive Directors and recommend to the President a shortlist of
suitable and qualified candidates for Appointive Directors;

(f) Establish the performance evaluation systems including performance score cards which shall
apply to all GOCCs in general and to the various GOCC classification;

(g) Conduct periodic study, examination, evaluation and assessment of the performance of the
GOCCs, receive, and in appropriate cases, require reports on the operations and management
of the GOCCs including, but not limited to, the management of the assets and finances of the
GOCCs;

(h) Conduct compensation studies, develop and recommend to the President a competitive
compensation and remuneration system which shall attract and retain talent, at the same time
allowing the GOCC to be financially sound and sustainable;

(i) Provide technical advice and assistance to the government agencies to which the GOCCs
are attached in setting performance objectives and targets for the GOCCs and in monitoring
GOCCs performance vis-a-vis established objectives and targets;

(j) Coordinate and monitor the operations of GOCCs, ensuring alignment and consistency with
the national development policies and programs. It shall meet at least quarterly to:

(1) Review Strategy Maps and Performance Scorecards of all GOCCs;

(2) Review and assess existing performance-related policies including the

compensation/remuneration of Board of Directors/ Trustees and Officers and recommend
appropriate revisions and actions; and

(3) Prepare performance reports of the GOCCs for submission to the President.

(k) Prepare a semi-annual progress report to be submitted to the President and the Congress.
In its report, the GCG will provide its performance assessment of the GOCCs and recommend
clear and specific actions. Within one hundred twenty (120) days from the close of the year, the
GCG shall prepare an annual report on the performance of the GOCCs and submit it to the
President and the Congress; and

(1) Review the functions of each of the GOCC and, upon determination that there is a conflict
between the regulatory and commercial functions of a GOCC, recommend to the President m
consultation with the Government Agency to which such GOOC is attached, the privatization of
the GOCCs commercial operations, or the transfer of the regulatory functions to the appropriate
government agency, or such other plan of action to ensure that the commercial functions of the
GOCC do not conflict with such regulatory functions.
In the performance of its functions under subsections (a), (c), (e), (f), (g), (h) and (1) herein and
in any other review or evaluation of a GOCC that the GCG may conduct, the GCG shall engage
the participation of the Secretary or highest ranking official of the relevant agency or
department, as the case may be.

Section 6. Composition of the GCG. - The GCG shall be composed of five (5) members. The
Chairman with the rank of Cabinet Secretary and two (2) members with the rank of
Undersecretary shall be appointed by the President. The Secretaries of the Department of
Budget and Management and the Department of Finance shall sit as ex officio members.

Section 7. Powers and Functions of the Chairman. – The management of the GCG shall be
vested in the Chairman who shall have the following powers and duties;

(a) Preside over the meetings of the GCG;

(b) Direct and manage the day -to-day affairs and business of the GCG;

(c) With the approval of the GCG, determine the staffing pattern and the number of personnel of
the GOG and define their duties and responsibilities;

(d) With the approval of the GCG, to appoint, remove, suspend, or otherwise discipline for
cause, any employee of the GCG; and

(e) Perform such other duties as may he delegated or assigned to him by the GCG from time to
time.

CHAPTER III

COMPENSATION AND POSITION CLASSIFICATION SYSTEM FOR GOCCs

Section 8. Coverage of the Compensation and Position Classification System. - The GCG, after
conducting a compensation study, shall develop a Compensation and Position Classification
System which shall apply to all officers and employees of the GOCCs whether under the Salary
Standardization Law or exempt therefrom and shall consist of classes of positions grouped into
such categories as the GCG may determine, subject to the approval of the President.

Section 9. Position Titles and Salary Grades. - All positions in the Position Classification
System, as determined by the GCG and as approved by the President, shall be, allocated to
their proper position titles and salary grades in accordance with an Index of Occupational
Services, Position Titles and Salary Grades of the Compensation and Position Classification
System, which shall be prepared by the GCG and approved by the President.

The following principles shall govern the Compensation and Position Classification System:

(a) All GOCC personnel shall be paid just and equitable wages in accordance with the principle
of equal pay for work of equal value. Differences in pay shall be based on verifiable
Compensation and Position Classification factors in due regard to the financial capability of the
GOCC;

(b) Basic compensation for all personnel in the GOCC shall generally be comparable with those
in the private sector doing comparable work, and must be in accordance with prevailing laws on
minimum wages. The total compensation provided for GOCC personnel shall be maintained at
a reasonable level with due regard to the provisions of existing compensation and position
classification laws including Joint Resolution No.4, Series of 2009, and the GOCCs operating
budget; and

(c) A review of the GOCC compensation rates, taking into account the performance of the
GOCC, its overall contribution to the national economy and the possible erosion in purchasing
power due to inflation and other factors, shall be conducted periodically.

Any law to the contrary notwithstanding, no GOCC shall be exempt from the coverage of the
Compensation and Position Classification System developed by the GCG under this Act.

Section 10. Additional Incentives. - The GCG may recommend to the President, incentives for
certain position titles in consideration of the good performance of the GOCC; Provided, That no
incentives shall be granted unless the GOCC has fully paid all taxes for which it is liable, and
the GOCC has declared and paid all the dividends required to be paid under its charter or any
other laws.

Section 11. Non-diminution of Salaries. – The Compensation and Position Classification

System to be developed and recommended by the GCG and as approved by the President
shall apply to all positions, on full or part-time basis, now existing or hereafter created in the
GOCC; Provided, That in no case shall there be any diminution in the authorized salaries as of
December 31, 2010 of incumbent employees of GOCCs, including those exempt under
Republic Act No. 6758, as amended, upon the implementation of the Compensation and
Position Classification System for GOCCs.

CHAPTER IV

BOARD OF DIRECTORS/TRUSTEES/OFFICERS OF

GOVERNMENT OWNED OR CONTROLLED CORPORATIONS

Section 12. Coverage. - The duties, obligations, responsibilities and standards of care provided
under this Chapter shall be applicable to all members of the Board of Directors/Trustees and
Officers of GOCCs and subsidiaries now existing or hereafter created including government
appointed directors in affiliate corporations. These duties, obligations and responsibilities shall
be in addition to the powers and functions provided in the individual charters or articles of
incorporation and bylaws of the respective GOCCs.

Section 13. Number of Directors/Trustees. - The present number of Directors/Trustees

provided in the charter of the GOCCs shall be maintained.

Section 14. Ex Officio Alternates. - The ex officio members of the GOCC may designate their
respective alternates who shall be the officials next-in-rank to them, and whose acts shall be
considered the acts of their principals.

Section 15. Appointment of the Board of Directors/Trustees of GOCCs. - An Appointive

Director shall be appointed by the President of the Philippines from a shortlist prepared by the
GCG.

The GCG shall formulate its rules and criteria in the selection and nomination of prospective
appointees and shall cause the creation of search committees to achieve the same. All
nominees included in the list submitted by the GCG to the President shall meet the Fit and
Proper Rule as defined under this Act and such other qualifications which: the GCG may
determine taking into consideration the unique requirements of each GOCC. The GCG shall
ensure that the shortlist shall exceed by at least fifty percent (50%) of the number of
directors/trustees to be appointed. In the event that the President does not see fit to appoint any
of the nominees included in the shortlist, the President shall ask the GCG to submit additional
nominees.

Section 16. Fit and Proper. - All members of the Board, the CEO and other officers of the
GOCCs including appointive directors in subsidiaries and affiliate corporations shall be qualified
by the Fit and Proper Rule to be determined by the GCG in consultation and coordination with
the relevant government agencies to which the GOCC is attached and approved by the
President.

To maintain the quality of management of the GOCCs, the GCG, in coordination with the
relevant government agencies shall, subject to the approval of the President, prescribe, pass
upon and review the qualifications and disqualifications of individuals appointed as officers,
directors or elected CEO of the GOCC and shall disqualify those found unfit.

In determining whether an individual is fit and proper to hold the position of an officer, director or
CEO of the GOCC, due regard shall be given to one's integrity, experience, education, training
and competence.

Section 17. Term of Office. - Any provision in the charters of each GOCC to the contrary
notwithstanding, the term of office of each Appointive Director shall be for one (1) year, unless
sooner removed for cause: Provided, however, That the Appointive Director shall continue to
hold office until the successor is appointed. An Appointive Director may he nominated by the
GCG for reappointment by the President only if one obtains a performance score of above
average or its equivalent or higher in the immediately preceding year of tenure as Appointive
Director based on the performance criteria for Appointive Directors for the GOCC.

Appointment to any vacancy shall be only for the unexpired term of the predecessor. The
appointment of a director to fill such vacancy shall be in accordance with the manner provided
in Section 15 of this Act.

Any provision of law to the contrary notwithstanding, all incumbent CEOs and appointive
members of the Board of GOCCs shall, upon approval of this Act, have a term of office until
June 30, 2011, unless sooner replaced by the President: Provided, however, That the
incumbent CEOs and appointive members of the Board shall continue in office until the
successors have been appointed by the President.

Section 18. The Chief Executive Officer of the GOCC. - The CEO or the highest-ranking officer
provided in the charters of the GOCCs, shall be elected annually by the members of the Board
from among its ranks. The CEO shall be subject to the disciplinary powers of the Board and
may be removed by the Board for cause.

Section 19. Fiduciary Duties of the Board and Officers. As fiduciaries of the State, members of
the Board of Directors/Trustees and the Officers of GOCCs have the legal obligation and duty to
always act in the best interest of the GOCC, with utmost good faith in all its dealings with the
property and monies of the GOCC.

The members of the Board and Officers of GOCCs shall:

(a) Act with utmost and undivided loyalty to the GOCC;

(b) Act with due care, extraordinary diligence, skill and good faith in the conduct of the business
of the GOCC;

(c) Avoid conflicts of interest and declare any interest they may have in any particular matter
before the Board;

(d) Apply sound business principles to ensure the financial soundness of the GOCC; and

(e) Elect and/or employ only Officers who are fit and proper to hold such office with due regard
to the qualifications, competence, experience and integrity.

Where a member of the Board or an Officer, by virtue of the office, acquires or receives for
oneself a benefit or profit, of whatever kind or nature including, but not limited to, the acquisition
of shares in corporations where the: GOCC has an interest, using the properties of the GOCC
for their own benefit, receiving commission on contracts from the GOCC's assets, or taking
advantage of corporate opportunities of the GOCC, all such profits or benefits shall be subject
to restitution under Section 24 of this Act, without prejudice to any administrative, civil or
criminal action against members of the Board of Directors/Trustees or Officers. This provision
shall be applicable notwithstanding the fact that such member of the Board or Officer risked
one's own funds in the venture.

Section 20. Trustee Relation to the Properties, Interests and Monies of the GOCC. - Except for
the per diem received for actual attendance in board meetings and the reimbursement for actual
and reasonable expenses and incentives as authorized by the GCG, any and all realized and
unrealized profits and/or benefits including, but not limited to, the share In the profits, incentives
of members of the Board or Officers in excess of that authorized by the GCG, stock options,
dividends and other similar offers or grants from corporations where the GOCC is a stockholder
or investor, and any benefit from the performance of members of the Board or Officers of the
Corporation acting for and in behalf of the GOCC in dealing with its properties, investments in
other corporations, management of subsidiaries and other interest, are to be held in trust by
such member of the Board or Officer for the exclusive benefit of the GOCC represented.

Section 21. Care, Diligence and Skill in the Conduct of the Business of the GOCC. - The
members of the Board and the Officers must exercise extraordinary diligence In the conduct of
the business and in dealing with the properties of the GOCC. Such degree of diligence requires
using the utmost diligence of very cautious person with due regard for all the circumstances.

Section 22. Power of the Board of Directors/Trustees to Discipline, Remove Officers of GOCC.
- Subject to existing civil service laws, rules and regulations, the Board shall have the authority
to discipline the CEO, or order the removal from office, upon a majority vote of the members of
the Board who actually took part in the investigation and deliberation.

Section 23. Limits to Compensation, Per Diems, Allowances and Incentives. - The charters of
each of the GOCCs to the contrary notwithstanding, the compensation, per diems, allowances
and incentives of the members of the Board of Directors/Trustees of the GOCCs shall be
determined by the GCG using as a reference, among others, Executive Order No. 24 dated
February 10, 2011: Provided, however, That Directors/Trustees shall not be entitled to
retirement benefits as such directors/trustees.

In case of GOCCs organized solely for the promotion of social welfare and the common good
Without regard to profit, the total yearly per diems and incentives in the aggregate which the
members of the Board of such GOCCs may receive shall be determined by the President upon
the recommendation of the GCG based on the achievement by such GOCC of its performance
targets.

Section 24. Restitution. - Upon the determination and report of the Commission on Audit (COA)
that properties or monies belonging to the GOGG are in the possession of a member of the
Board or Officer without authority, or that profits are earned by the member of the Board or
Officer in violation of the fiduciary duty, or the aggregate per diems, allowances and incentives
received in a particular year are in excess of the limits provided under this Act, the member of
the Board or Officer receiving such properties or monies shall return the same to the GOCC.

Failure to make the restitution within thirty (30) days after a written demand has been served
shall, after trial and final judgment, be punished by an imprisonment of one (1) year and a fine
equivalent to twice the amount to be restituted, and in the discretion of the court of competent
jurisdiction, disqualification to hold public office.

GHAPTER V

DISCLOSURE REQUIREMENTS

Section 25. Full Disclosure. - All GOCCs shall maintain a website and post therein for
unrestricted public access:

(a) Their latest annual audited financial and performance report within thirty (30) days from
receipt of such report;

(b) Audited financial statements in the immediate past five (5) years;

(c) Quarterly, annual reports and trial balance;

(d) Current corporate operating budget;

(e) Complete compensation package of all the board members and officers, including travel,
representation, transportation and any other form of expenses or allowances;

(f) Local and foreign borrowings;

(g) Performance scorecards and strategy maps;

(h) Government subsides and net lending;

(i) All borrowings guaranteed by the government; and

(j) Such other information or report the GCG may require.

Section 26. Special Audit. –

(a) The thirty (30) GOCCs with the highest total assets shall be subject to periodic special audit
by the COA. The periodic audit shall. at the minimum make a determination whether:

(1) The accounting records of the GOCCs are complete and in accordance with generally
accepted accounting practices and standards; and
(2) The statements prepared from the accounts present fairly and comprehensively their
GOCCs financial position and the results of its financial operations.

(b) As may be necessary or convenient in the performance by the GCG of its functions, the
Chairman of the GCG may direct at any time a special COA audit of any other GOCC for any
specific purpose or when authorized by law, direct an audit by independent auditors.

CHAPTER VI

CREATION AND ACQUISITION OF A GOCC OR

RELATED CORPORATION

Section 27. Requisites for the Creation of a New GOCC or Related Corporation under the
Corporation Code. – A government agency seeking to establish a GOCC or Related
Corporation under "The Corporation Code of the Philippines" shall submit its proposal to the
GCG for review and recommendation to the President for approval before registering the same
with the Securities and Exchange Commission (SEC). The SEC shall not register the articles of
incorporation and bylaws of a proposed GOCC or Related Corporation, unless the application
for registration is accompanied by an endorsement from the GCG stating that the President has
approved the same.

Section 28. Requisites for the Acquisition of Controlling Interest in Another Corporation. - Any
government agency seeking to purchase a corporation or acquire controlling interest therein
shall submit its proposal to the GCG for review and approval of the President.

CHAPTER VII

MISCELLANEOUS PROVISIONS

Section 29. Appropriations. - The amount of Ten million pesos (P10,000,000.00) for the initial
operation of the GOG shall be sourced from the Contingent Fund of the President.

Subsequent funding requirements shall be included in the annual General Appropriations Act.

Section 30. Suppletory Application of The Corporation Code and Charters of the GOCCs. - The
provisions of "The Corporation Code of the Philippines" and the provisions of the charters of the
relevant GOCC, insofar as they are not inconsistent with the provisions of this Act, shall apply
suppletorily to GOCCs.

Section 31. Transitory Provision. - The Privatization Council and the Privatization and
Management Office created under Executive Order No. 323, Series of 2000, shall continue to
implement and finish the privatization of GOCCs that have been identified by the said
Privatization Council arid approved for privatization by the President prior to the effectivity of
this Act: Provided, however, That the privatization of said GOCCs that remain unfinished at the
end of two (2) years after the effectivity of this Act shall be automatically transferred to the GCG
which shall continue the privatization of the GOCCs.

Section 32. Repealing Clause. - The charters of the GOCCs under existing laws and all other
laws, executive orders including Executive Order No. 323, Series of 2000, administrative
orders, rules, regulations, decrees and other issuances or parts thereof which are inconsistent
with the provisions of this Act are hereby revoked, repealed or modified accordingly.
Section 33. Separability Clause. - Should any provision of this Act be declared unconstitutional,
the same shall not affect the validity of the other provisions of this Act.

Section 34. Effectivity. - This Act shall take effect after fifteen (15) days following its publication
in the Official Gazette or in two (2) newspapers of general circulation.

Approved

Cases:
Aquino v. Municipality of Malay, Aklan, G.R. No. 211356, September 29, 2014

CRISOSTOMO B. AQUINO vs. MUNICIPALITY OF MALAY AKLAN,

G.R. No. 211356; September 29, 2014

DOCTRINE: Based on law and jurisprudence, the office of the mayor has quasi-judicial powers to order
the closing and demolition of establishments. This power granted by the LGC, as earlier explained, We
believe, is not the same power devolved in favor of the LGU under Sec. 17 (b)(2)(ii), as above-quoted,
which is subject to review by the DENR. The fact that the building to be demolished is located within a
forestland under the administration of the DENR is of no moment, for what is involved herein, strictly
speaking, is not an issue on environmental protection, conservation of natural resources, and the
maintenance of ecological balance, but the legality or illegality of the structure. Rather than treating this
as an environmental issue then, focus should not be diverted from the root cause of this debacle
compliance.

FACTS: Petitioner is the president and chief executive officer of Boracay Island West Cove Management
Philippines, Inc. (Boracay West Cove). On January 7, 2010, the company applied for a zoning compliance
with the municipal government of Malay, Aklan. While the company was already operating a resort in the
area, the application sought the issuance of a building permit covering the construction of a three-storey
hotel over a parcel of land measuring 998 sqm. located in Sitio Diniwid, Barangay Balagab, Boracay
Island, Malay, Aklan, which is covered by a Forest Land Use Agreement for Tourism Purposes (FLAgT)
issued by the Department of Environment and Natural Resources (DENR) in favor of Boracay West Cove.

Through a Decision on Zoning dated January 20, 2010, the Municipal Zoning Administrator denied
petitioner’s application on the ground that the proposed construction site was within the "no build zone"
demarcated in Municipal Ordinance 2000-131 (Ordinance). As provided in the Ordinance:(b) No Build
Zone – the space twenty-five (25) meters from the edge of the mean high water mark measured inland;

In rebuttal, respondents contended that the FLAgT does not excuse the company from complying with the
Ordinance and Presidential Decree No. 1096 (PD 1096), otherwise known as the National Building Code
of the Philippines. Respondents also argued that the demolition needed no court order because the
municipal mayor has the express power under the Local Government Code (LGC) to order the removal of
illegally constructed buildings.

Ruling of the Court of Appeals

In its assailed Decision dated August 13, 2013, the CA dismissed the petition solely on
procedural ground, i.e., the special writ of certiorari can only be directed against a tribunal, board, or
officer exercising judicial or quasi-judicial functions and since the issuance of EO 10 was done in the
exercise of executive functions, and not of judicial or quasi-judicial functions, certiorari will not lie. Instead,
the proper remedy for the petitioner, according to the CA, is to file a petition for declaratory relief with the
Regional Trial Court.

Petitioner sought reconsideration but this was denied by the CA on February 3, 2014 through the
challenged Resolution. Hence, the instant petition raising arguments on both procedure and substance.

The Issues

Stripped to the essentials, the pivotal issues in the extant case are as follows:

1. The propriety under the premises of the filing of a petition for certiorari instead of a petition for
declaratory relief;

a. Whether or not declaratory relief is still available to petitioner;

b. Whether or not the CA correctly ruled that the respondent mayor was performing neither a
judicial nor quasi-judicial function when he ordered the closure and demolition of Boracay West
Cove’s hotel;

2. Whether or not respondent mayor committed grave abuse of discretion when he issued EO 10;

a. Whether or not petitioner’s right to due process was violated when the respondent mayor
ordered the closure and demolition of Boracay West Cove’s hotel without first conducting judicial
proceedings;

b. Whether or not the LGU’s refusal to issue petitioner the necessary building permit and
clearances was justified;

c. Whether or not petitioner’s rights under the FLAgT prevail over the municipal ordinance
providing for a no-build zone; and

d. Whether or not the DENR has primary jurisdiction over the controversy, not the LGU.

The Court’s Ruling

We deny the petition. Certiorari, not declaratory relief, is the proper remedy.

On the propriety of filing a petition for certiorari, Sec. 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for certiorari. — When any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby
may file a verified petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require. x x x

For certiorari to prosper, the petitioner must establish the concurrence of the following requisites, namely:

1. The writ is directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions;

2. Such tribunal, board, or officer has acted without or in excess of jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and

3. There is no appeal or any plain speedy, and adequate remedy in the ordinary course of law.
Guilty of reiteration, the CA immediately dismissed the Petition for Certiorari upon determining that the
first element is wanting—that respondent mayor was allegedly not exercising judicial or quasi-judicial
functions when he issued EO 10.

We are not persuaded.

The CA fell into a trap when it ruled that a mayor, an officer from the executive department,
exercises an executive function whenever he issues an Executive Order. This is tad too presumptive for it
is the nature of the act to be performed, rather than of the office, board, or body which performs it, that
determines whether or not a particular act is a discharge of judicial or quasi-judicial functions. The first
requirement for certiorari is satisfied if the officers act judicially in making their decision, whatever may be
their public character.

It is not essential that the challenged proceedings should be strictly and technically judicial, in the
sense in which that word is used when applied to courts of justice, but it is sufficient if they are quasi-
judicial. To contrast, a party is said to be exercising a judicial function where he has the power to
determine what the law is and what legal rights of the parties are, and then undertakes to determine these
questions and adjudicate upon the rights of the parties, whereas quasi-judicial function is "a term which
applies to the actions, discretion, etc., of public administrative officers or bodies x x x required to
investigate facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a
basis for their official action and to exercise discretion of a judicial nature."

In the case at bench, the assailed EO 10 was issued upon the respondent mayor’s finding that
Boracay West Cove’s construction, expansion, and operation of its hotel in Malay, Aklan is illegal. Such a
finding of illegality required the respondent mayor’s exercise of quasi-judicial functions, against which the
special writ of certiorari may lie. Apropos hereto is Our ruling in City Engineer of Baguio v. Baniqued:

There is no gainsaying that a city mayor is an executive official nor is the matter of issuing
demolition notices or orders not a ministerial one. In determining whether or not a structure
is illegal or it should be demolished, property rights are involved thereby needing notices
and opportunity to be heard as provided for in the constitutionally guaranteed right of due
process. In pursuit of these functions, the city mayor has to exercise quasi-judicial powers.

With the foregoing discussion, the CA erred in ruling that the respondent mayor was merely
exercising his executive functions, for clearly, the first requisite for the special writ has been satisfied.

Upon Our finding that a petition for certiorari under Rule 65 is the appropriate remedy, We will proceed to
resolve the core issues in view of the urgency of the reliefs prayed for in the petition. Respondents did not
commit grave abuse of discretion

a. The hotel’s classification as a nuisance

Article 694 of the Civil Code defines "nuisance" as any act, omission, establishment, business,
condition or property, or anything else that (1) injures or endangers the health or safety of others; (2)
annoys or offends the senses; (3) shocks, defies or disregards decency or morality; (4) obstructs or
interferes with the free passage of any public highway or street, or any body of water; or (5) hinders or
impairs the use of property.

In establishing a no build zone through local legislation, the LGU effectively made a determination
that constructions therein, without first securing exemptions from the local council, qualify as nuisances
for they pose a threat to public safety. No build zones are intended for the protection of the public
because the stability of the ground’s foundation is adversely affected by the nearby body of water. The
ever present threat of high rising storm surges also justifies the ban on permanent constructions near the
shoreline. Indeed, the area’s exposure to potential geo-hazards cannot be ignored and ample protection
to the residents of Malay, Aklan should be afforded.
 Challenging the validity of the public respondents’ actuations, petitioner posits that the hotel
cannot summarily be abated because it is not a nuisance per se, given the hundred million peso-worth of
capital infused in the venture. Citing Asilo, Jr. v. People, petitioner also argues that respondents should
have first secured a court order before proceeding with the demolition. Preliminarily, We agree with
petitioner’s posture that the property involved cannot be classified as a nuisance per se, but not for the
reason he so offers. Property valuation, after all, is not the litmus test for such a determination. More
controlling is the property’s nature and conditions, which should be evaluated to see if it qualifies as a
nuisance as defined under the law.

As jurisprudence elucidates, nuisances are of two kinds: nuisance per se and nuisance per
accidens. The first is recognized as a nuisance under any and all circumstances, because it constitutes a
direct menace to public health or safety, and, for that reason, may be abated summarily under the
undefined law of necessity. The second is that which depends upon certain conditions and
circumstances, and its existence being a question of fact, it cannot be abated with out due hearing
thereon in a tribunal authorized to decide whether such a thing does in law constitute a nuisance.

In the case at bar, the hotel, in itself, cannot be considered as a nuisance per se since this type of
nuisance is generally defined as an act, occupation, or structure, which is a nuisance at all times and
under any circumstances, regardless of location or surrounding. Here, it is merely the hotel’s particular
incident––its location––and not its inherent qualities that rendered it a nuisance. Otherwise stated, had it
not been constructed in the no build zone, Boracay West Cove could have secured the necessary permits
without issue. As such, petitioner is correct that the hotel is not a nuisance per se, but to Our mind, it is
still a nuisance per accidens.

b. Respondent mayor has the power to order the demolition of illegal constructions

Generally, LGUs have no power to declare a particular thing as a nuisance unless such a thing is
a nuisance per se.

Despite the hotel’s classification as a nuisance per accidens, however, We still find in this case
that the LGU may nevertheless properly order the hotel’s demolition. This is because, in the exercise of
police power and the general welfare clause, property rights of individuals may be subjected to restraints
and burdens in order to fulfil the objectives of the government.

Otherwise stated, the government may enact legislation that may interfere with personal liberty,
property, lawful businesses and occupations to promote the general welfare.

One such piece of legislation is the LGC, which authorizes city and municipal governments,
acting through their local chief executives, to issue demolition orders. Under existing laws, the office of
the mayor is given powers not only relative to its function as the executive official of the town; it has also
been endowed with authority to hear issues involving property rights of individuals and to come out with
an effective order or resolution thereon. Pertinent herein is Sec. 444 (b)(3)(vi) of the LGC, which
empowered the mayor to order the closure and removal of illegally constructed establishments for failing
to secure the necessary permits, to wit:

i. Illegality of structures

In the case at bar, petitioner admittedly failed to secure the necessary permits, clearances, and
exemptions before the construction, expansion, and operation of Boracay Wet Cove’s hotel in Malay,
Aklan. To recall, petitioner declared that the application for zoning compliance was still pending with the
office of the mayor even though construction and operation were already ongoing at the same time. As
such, it could no longer be denied that petitioner openly violated Municipal Ordinance 2000-131, which
provides:

SECTION 9. – Permits and Clearances.

(a) No building or structure shall be allowed to start construction unless a Building Permit therefore has
been duly issued by the Office of the Municipal Engineer. Once issued, the building owner or any person
in charge of the construction shall display on the lot or on the building undergoing construction a placard
containing the Building Permit Number and the date of its issue. The office of the Municipal Engineer shall
not issue any building permit unless:

SECTION 10. – Penalties.

(e) Any building, structure, or contraption erected in any public place within the Municipality of Malay such
as but not limited to streets, thoroughfares, sidewalks, plazas, beachesor in any other public place are
hereby declared as nuisance and illegal structure. Such building structure or contraption shall be
demolished by the owner thereof or any of his authorized representative within ten (10) days from receipt
of the notice to demolish. Failure or refusal on the part of the owner or any of his authorized
representative to demolish the illegal structure within the period here inabove specified shall automatically
authorize the government of the Municipality of Malay to demolish the same, gather and keep the
construction materials of the demolished structure. (emphasis supplied)

Petitioner cannot justify his position by passing the blame onto the respondent mayor and the
latter’s failure to act on his appeal for this does not, in any way, imply that petitioner can proceed with his
infrastructure projects. On the contrary, this only means that the decision of the zoning administrator
denying the application still stands and that petitioner acquired no right to construct on the no build zone.
The illegality of the construction cannot be cured by merely tendering payment for the necessary fees and
permits since the LGU’s refusal rests on valid grounds.

Alas, petitioner opted to defy the zoning administrator’s ruling. He consciously chose to violate
not only the Ordinance but also Sec. 301 of PD 1096, laying down the requirement of building permits,
which provides:

ii. Observance of procedural due process rights

In the case at bench, the due process requirement is deemed to have been sufficiently complied
with.

Verily, the only grounds invoked by petitioner in crying due process violation are (1) the absence
of a court order prior to demolition and (2) the municipal government’s exercise of jurisdiction over the
controversy instead of the DENR. Therefore, it can no longer be belatedly argued that the 10-day grace
period was not observed because to entertain the same would result in the violation of the respondents’
own due process rights. Given the presence of the requirements under Sec. 444 (b)(3)(vi) of the LGC,
whether the building constituted a nuisance per se or a nuisance per accidens becomes immaterial. The
hotel was demolished not exactly because it is a nuisance but because it failed to comply with the legal
requirements prior to construction. It just so happened that, in the case at bar, the hotel’s incident that
qualified it as a nuisance per accidens––its being constructed within the no build zone––further resulted in
the non-issuance of the necessary permits and clearances, which is a ground for demolition under the
LGC. Under the premises, a court order that is required under normal circumstances is hereby dispensed
with.

d. The FLAgT cannot prevail over the municipal ordinance and PD 1096

According to petitioner, the fact that it was issued a FLAgT constitutes sufficient authorization
from the DENR to proceed with the construction of the three-storey hotel.

The argument does not persuade.

 The rights granted to petitioner under the FLAgT are not unbridled. Forestlands, although under
the management of the DENR, are not exempt from the territorial application of municipal laws, for local
government units legitimately exercise their powers of government over their defined territorial jurisdiction.

Furthermore, the conditions set forth in the FLAgT and the limitations circumscribed in the
ordinance are not mutually exclusive and are, in fact, cumulative. As sourced from Sec. 447 (a)(5)(i) of
the LGC:

Section 447.Powers, Duties, Functions and Compensation. –

(a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve
resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant
to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as
provided for under Section 22 of this Code, and shall:

xxxx

(5) Approve ordinances which shall ensure the efficient and effective delivery of the basic services and
facilities as provided for under Section 17 of this Code, and in addition to said services and facilities, shall:

(i) Provide for the establishment, maintenance, protection, and conservation of communal forests and
watersheds, tree parks,greenbelts, mangroves, and other similar forest development projectsx x x.
(emphasis added)

Thus, aside from complying with the provisions in the FLAgT granted by the DENR, it was
incumbent on petitioner to likewise comply with the no build zone restriction under Municipal Ordinance
2000-131, which was already in force even before the FLAgT was entered into. On this point, it is well to
stress that Sections 6 and 8 of the Ordinance do not exempt petitioner from complying with the
restrictions since these provisions adverted to grant exemptions from the ban on constructions on slopes
and swamps, not on the no build zone.

Additionally, the FLAgT does not excuse petitioner from complying with PD 1096. As correctly
pointed out by respondents, the agreement cannot and will not amend or change the law because a
legislative act cannot be altered by mere contractual agreement. Hence, petitioner has no valid reason for
its failure to secure a building permit pursuant to Sec. 301 of the National Building Code.

e. The DENR does not have primary jurisdiction over the controversy

Lastly, in ascribing grave abuse of discretion on the part of the respondent mayor, petitioner
argued that the hotel site is a forestland under the primary jurisdiction of the DENR. As such, the merits of
the case should have been passed upon by the agency and not by the LGU. In the alternative, petitioner
explains that even if jurisdiction over the matter has been devolved in favor of the LGU, the DENR still
has the power of review and supervision over the former’s rulings. As cited by the petitioner, the LGC
reads:

Section 17.Basic Services and Facilities. –

xxxx

(b) Such basic services and facilities include, but are not limited to, the following:
xxxx

(2) For a Municipality:

xxxx

(ii) Pursuant to national policies and subject to supervision, control and review of the DENR,
implementation of community-based forestry projects which include integrated social forestry programs
and similar projects; management and control of communal forests with an area not exceeding fifty (50)
square kilometers; establishment of tree parks, greenbelts, and similar forest development projects.
(emphasis added)

Petitioner has made much of the fact that in line with this provision, the DENR Region 6 had
issued an opinion favourable to petitioner. To petitioner, the adverted opinion effectively reversed the
findings of the respondent mayor that the structure introduced was illegally constructed.

We disagree.

In alleging that the case concerns the development and the proper use of the country’s environment and
natural resources, petitioner is skirting the principal issue, which is Boracay West Cove's non-compliance
with the permit, clearance, and zoning requirements for building constructions under national and
municipal laws. He downplays Boracay West Cove's omission in a bid to justify ousting the LGU of
jurisdiction over the case and transferring the same to the DENR. He attempts to blow the issue out of
proportion when it all boils down to whether or not the construction of the three-storey hotel was
supported by the necessary documentary requirements.

Based on law and jurisprudence, the office of the mayor has quasi-judicial powers to order the
closing and demolition of establishments. This power granted by the LGC, as earlier explained, We
believe, is not the same power devolved in favor of the LGU under Sec. 17 (b )(2)(ii), as above quoted,
which is subject to review by the DENR. The fact that the building to be demolished is located within a
forestland under the administration of the DENR is of no moment, for what is involved herein, strictly
speaking, is not an issue on environmental protection, conservation of natural resources, and the
maintenance of ecological balance, but the legality or illegality of the structure. Rather than treating this
as an environmental issue then, focus should not be diverted from the root cause of this debacle-
compliance.

Ultimately, the purported power of review by a regional office of the DENR over respondents'
actions exercised through an instrumentality of an ex-parte opinion, in this case, finds no sufficient basis.
At best, the legal opinion rendered, though perhaps informative, is not conclusive on the courts and
should be taken with a grain of salt.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED for lack of merit. The
Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 120042 dated August 13, 2013
and February 3, 2014, respectively, are hereby AFFIRMED.

Capitol Wireless Inc. v. Provincial Government of Batangas, G.R. No. 180110, May 30,
2016

CAPITOL WIRELESS, INC., PETITIONER, VS. THE PROVINCIAL TREASURER OF

BATANGAS
G.R. No. 180110, May 30, 2016
DOCTRINE: Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided
in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non¬stock and nonprofit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this LGC.
(SEE HIGHLIGHTED PART)

FACTS: Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing
international telecommunications services. As such provider, Capwire has signed agreements
with other local and foreign telecommunications companies covering an international network of
submarine cable systems such as the Asia Pacific Cable Network System (APCN) (which
connects Australia, Thailand, Malaysia, Singapore, Hong Kong, Taiwan, Korea, Japan,
Indonesia and the Philippines); the Brunei-Malaysia-Philippines Cable Network System (BMP-
CNS), the Philippines-Italy (SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS)
systems. The agreements provide for co-ownership and other rights among the parties over the
network.
Capwire claims that it is co-owner only of the so-called "Wet Segment" of the APCN,
while the landing stations or terminals and Segment E of APCN located in Nasugbu, Batangas
are allegedly owned by the Philippine Long Distance Telephone Corporation (PLDT). Moreover,
it alleges that the Wet Segment is laid in international, and not Philippine, waters.
Capwire claims that as co-owner, it does not own any particular physical part of the
cable system but, consistent with its financial contributions, it owns the right to use a certain
capacity of the said system. This property right is allegedly reported in its financial books as
"Indefeasible Rights in Cable Systems."
However, for loan restructuring purposes, Capwire claims that "it was required to register
the value of its right," hence, it engaged an appraiser to "assess the market value of the
international submarine cable system and the cost to Capwire." On May 15, 2000, Capwire
submitted a Sworn Statement of True Value of Real Properties at the Provincial Treasurer's
Office, Batangas City, Batangas Province, for the Wet Segment of the system, stating:

System Sound Value

APCN P 203,300,000.00
BMP-CNS P 65,662,000.00
SEA-ME-WE-3 CNS P 7,540,000.00
GP-CNS P 1,789,000.00
Capwire claims that it also reported that the system "interconnects at the PLDT Landing
Station in Nasugbu, Batangas," which is covered by a transfer certificate of title and tax
declarations in the name of PLDT.
As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor)
issued the following Assessments of Real Property (ARP) against Capwire:
ARP Cable System Assessed Value
019-00967 BMP-CNS P 52,529,600.00
019-00968 APCN P 162,640,000.00
019-00969 SEA-ME-WE3-CNS P 6,032,000.00
019-00970 GP-CNS P 1,431,200.00
In essence, the Provincial Assessor had determined that the submarine cable systems
described in Capwire's Sworn Statement of True Value of Real Properties are taxable real
property, a determination that was contested by Capwire in an exchange of letters between the
company and the public respondent. The reason cited by Capwire is that the cable system lies
outside of Philippine territory, i.e., on international waters.
On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a
Notice of Auction Sale, respectively, from the respondent Provincial Treasurer of Batangas
(Provincial Treasurer).
On March 10, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of
Warrant of Levy, Notice of Auction Sale and/or Auction Sale with the Regional Trial Court (RTC)
of Batangas City.
Alter the filing of the public respondents' Comment, on May 5, 2003, the RTC issued an
Order dismissing the petition for failure of the petitioner Capwire to follow the requisite of
payment under protest as well as failure to appeal to the Local Board of Assessment Appeals
(LBAA), as provided for in Sections 206 and 226 of Republic Act (R.A.) No. 7160, or the Local
Government Code.
Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the
RTC in an Order dated August 26, 2003. It then filed an appeal to the Court of Appeals.
On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed by
Capwire and affirming the order of the trial court.
The appellate court held that the trial court correctly dismissed Capwire's petition
because of the latter's failure to comply with the requirements set in Sections 226 and 229 of
the Local Government Code, that is, by not availing of remedies before administrative bodies
like the LBAA and the Central Board of Assessment Appeals (CBAA). Although Capwire claims
that it saw no need to undergo administrative proceedings because its petition raises purely
legal questions, the appellate court did not share this view and noted that the case raises
questions of fact, such as the extent to which parts of the submarine cable system lie within the
territorial jurisdiction of the taxing authorities, the public respondents. Further, the CA noted that
Capwire failed to pay the tax assessed against it under protest, another strict requirement under
Section 252 of the Local Government Code.
Hence, the instant petition for review of Capwire. It asserts that recourse to the Local
Board of Assessment Appeals, or payment of the tax under protest, is inapplicable to the case
at bar since there is no question of fact involved, or that the question involved is not the
reasonableness of the amount assessed but, rather, the authority and power of the assessor to
impose the tax and of the treasurer to collect it. Capwire holds the position that the cable system
is not subject to tax because it lies in international waters.
Respondents disagree and insist that the case presents questions of fact such as the
extent and portion of the submarine cable system that lies within the jurisdiction of the said local
governments, as well as the nature of the so-called indefeasible rights as property of Capwire.
Such questions are allegedly resolvable only before administrative agencies like the Local
Board of Assessment Appeals.
The Court confronts the following issues:
1. Is the case cognizable by the administrative agencies and covered by the requirements
in Sections 226 and 229 of the Local Government Code which makes the dismissal of Capwire's
petition by the RTC proper?
2. May submarine communications cables be classified as taxable real property by the
local governments?

HELD:
1. No error attended the ruling of the appellate court that the case involves factual
questions that should have been resolved before the appropriate administrative bodies
In disputes involving real property taxation, the general rule is to require the taxpayer to
first avail of administrative remedies and pay the tax under protest before allowing any resort to
a judicial action, except when the assessment itself is alleged to be illegal or is made without
legal authority. Stated differently, the general rule of a prerequisite recourse to administrative
remedies applies when questions of fact are raised, but the exception of direct court action is
allowed when purely questions of law are involved.
Guided by the quoted pronouncement, the Court sustains the CA's finding that
petitioner's case is one replete with questions of fact instead of pure questions of law, which
renders its filing in a judicial forum improper because it is instead cognizable by local
administrative bodies like the Board of Assessment Appeals, which are the proper venues for
trying these factual issues. Verily, what is alleged by Capwire in its petition as "the crux of the
controversy," that is, "whether or not an indefeasible right over a submarine cable system that
lies in international waters can be subject to real property tax in the Philippines," is not the
genuine issue that the case presents - as it is already obvious and fundamental that real
property that lies outside of Philippine territorial jurisdiction cannot be subjected to its domestic
and sovereign power of real property taxation - but, rather, such factual issues as the extent and
status of Capwire's ownership of the system, the actual length of the cable/s that lie in Philippine
territory, and the corresponding assessment and taxes due on the same, because the public
respondents imposed and collected the assailed real property tax on the finding that at least a
portion or some portions of the submarine cable system that Capwire owns or co-owns lies
inside Philippine territory. Capwire's disagreement with such findings of the administrative
bodies presents little to no legal question that only the courts may directly resolve.
Therefore, Capwire's resort to judicial action, premised on its legal conclusion that its
cables (the equipment being taxed) lie entirely on international waters, without first
administratively substantiating such a factual premise, is improper and was rightly denied. Its
proposition that the cables lie entirely beyond Philippine territory, and therefore, outside of
Philippine sovereignty, is a fact that is not subject to judicial notice since, on the contrary, and
as will be explained later, it is in fact certain that portions of the cable would definitely lie within
Philippine waters. Jurisprudence on the Local Government Code is clear that facts such as
these must be threshed out administratively, as the courts in these types of cases step in at the
first instance only when pure questions of law are involved.

2. Affirmative. Submarine or undersea communications cables are akin to electric

transmission lines "no longer exempted from real property tax" and may qualify as "machinery"
subject to real property tax under the Local Government Code. To the extent that the
equipment's location is determinable to be within the taxing authority's jurisdiction.
Both electric lines and communications cables, in the strictest sense, are not directly
adhered to the soil but pass through posts, relays or landing stations, but both may be classified
under the term "machinery" as real property under Article 415(5) of the Civil Code for the simple
reason that such pieces of equipment serve the owner's business or tend to meet the needs of
his industry or works that are on real estate. Even objects in or on a body of water may be
classified as such, as "waters" is classified as an immovable under Article 415(8) of the Code.
Having determined that Capwire is liable, and public respondents have the right to
impose a real property tax on its submarine cable, the issue that is unresolved is how much of
such cable is taxable based on the extent of Capwire's ownership or co-ownership of it and the
length that is laid within respondents' taxing jurisdiction. The matter, however, requires a factual
determination that is best performed by the Local and Central Boards of Assessment Appeals, a
remedy which the petitioner did not avail of.
It is proper to lay down the other legal bases for the local taxing authorities' power to tax
portions of the submarine cables of petitioner. It is not in dispute that the submarine cable
system's Landing Station in Nasugbu, Batangas is owned by PLDT and not by Capwire.
Obviously, Capwire is not liable for the real property tax on this Landing Station. Nonetheless,
Capwire admits that it co-owns the submarine cable system that is subject of the tax assessed
and being collected by public respondents. As the Court takes judicial notice that Nasugbu is a
coastal town and the surrounding sea falls within what the United Nations Convention on the
Law of the Sea (UNCLOS) would define as the country's territorial sea (to the extent of 12
nautical miles outward from the nearest baseline, under Part II, Sections 1 and 2) over which
the country has sovereignty, including the seabed and subsoil, it follows that indeed a portion of
the submarine cable system lies within Philippine territory and thus falls within the jurisdiction of
the said local taxing authorities. "whether referred to as Philippine 'internal waters' under Article
I of the Constitution[44] or as 'archipelagic waters' under UNCLOS Part III, Article 49(1, 2, 4),
[45] the Philippines exercises sovereignty over the body of water lying landward of (its)
baselines, including the air space over it and the submarine areas underneath."
And as far as local government units are concerned, the areas described above are to
be considered subsumed under the term "municipal waters" which, under the Local Government
Code, includes "not only streams, lakes, and tidal waters within the municipality, not being the
subject of private ownership and not comprised within the national parks, public forest, timber
lands, forest reserves or fishery reserves, but also marine waters included between two lines
drawn perpendicularly to the general coastline from points where the boundary lines of the
municipality or city touch the sea at low tide and a third line parallel with the general coastline
and fifteen (15) kilometers from it." Although the term "municipal waters" appears in the Code in
the context of the grant of quarrying and fisheries privileges for a fee by local governments, its
inclusion in the Code's Book II which covers local taxation means that it may also apply as
guide in determining the territorial extent of the local authorities' power to levy real property
taxation.
Thus, the jurisdiction or authority over such part of the subject submarine cable system
lying within Philippine jurisdiction includes the authority to tax the same, for taxation is one of
the three basic and necessary attributes of sovereignty, and such authority has been delegated
by the national legislature to the local governments with respect to real property taxation.
Under the Local Government Code, every person by or for whom real property is
declared, who shall claim tax exemption for such property from real property taxation "shall file
with the provincial, city or municipal assessor within thirty (30) days from the date of the
declaration of real property sufficient documentary evidence in support of such claim." RA 4387,
which amended RA 2037, where it may be derived that there was a grant of real property tax
exemption for properties that are part of its franchise, or directly meet the needs of its business,
such had been expressly withdrawn by the Local Government Code, which took effect on
January 1, 1992, Sections 193 and 234 of which provide.
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non¬stock and nonprofit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code.
xxxx
Section 234. Exemptions from Real Property Tax. - The following arc 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 of otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
and
(c) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby withdrawn upon the effectivity of this
Code.
Such express withdrawal had been previously held effective upon exemptions bestowed
by legislative franchises granted prior to the effectivity of the Local Government Code. Capwire
fails to allege or provide any other privilege or exemption that were granted to it by the
legislature after the enactment of the Local Government Code. Therefore, the presumption
stays that it enjoys no such privilege or exemption. Tax exemptions are strictly construed
against the taxpayer because taxes are considered the lifeblood of the nation.

Manila International Airport Authority v. CA, G.R. No. 155650, July 20, 2006
NAIA VS PARAÑAQUE (GR NO. 155650 JULY 20, 2006)

Manila International Airport Authority vs Court of Appeals

GR No. 155650 July 20, 2006

Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
Airport (NAIA) complex in Parañaque City under Executive Order No. 9303, otherwise known as the
revised charter of the MIAA. EO 903 was issued on July 21, 1983 by then President Ferdinand E. Marcos.
Subsequently EO 909 and 298 amended the MIAA charter as operator of the international operator, MIAA
administers the land, improvements, and equipments within the NAIA complex. The MIAA charter
transferred to MIAA approximately 600 hectares of land, including the runways and buildings then under
the Bureau of Air Transportation. The MIAA charter 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. On March 21, 1997, the Office of the Government Corporate Counsel issued opinion
no. 061. The OGCC opined that the local government code of 1991 withdraw the exemption from real
estate tax granted to MIAA under section 21 of the MIAA charter. Thus, MIAA negotiated with respondent
city of Parañaque to pay the real estate tax imposed by the city. MIAA then paid some of the real estate
tax already due. On July 17, 2001, the City of Parañaque, through its city treasurer issued notices of levy
and warrants of levy on the airport lands and buildings. The mayor of the city of Parañaque threatened to
sell at public auction the airport lands and buildings should MIAA fail to pay the real estate tax deliquency.
MIAA thus sought clarification of OGCC opinion no. 061. On August 9, 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.

Issue: Whether or not the airport lands and buildings are exempt from real estate tax.

Held: Yes. 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 21 (10) of the introductory provisions of the administrative
code defines a government instrumentality as follows:

Sec 2 General terms defined

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.

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, police authority and the
surging of fees and charges. At the same time, MIAA exercises all the powers of a corporation under the
corporation law, in so far as these powers are not inconsistent with the provisions of this executive order.

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 the local government units – Unless otherwise
provided herein, the exercise of the taxing power of the provinces, cities, municipalities and barangays
shall not extend to the levy of the following:
xxx

o.) Taxes, fees or charges of any kind on the national government, its agencies and instrumentalities and
local government units.

Section 133 (0) recognizes the basic principles that local governments cannot tax the national
government, which historically, merely delegated to the local governments the power to tax. While the
1987 constitution now includes taxation as one of the powers of the local governments, local governments
may only exercise such powers subject to such guidelines and limitations as the congress may provide.

Liban v. Gordon, G.R. No. 175352, January 18, 2011

Boy Scouts of the Philippines v. COA, G.R. No. 177131, June 7, 2011
Funa v. Manila Economic and Cultural Office, G.R. No. 193462, February 4, 2014

VETERANS FEDERATION OF PHILIPPINES v. ANGELO T. REYES, GR NO. 155027, 2006-

02-28
Facts:
Petitioner VFP is a corporate body organized under R.A. 2640. Sometime in August 2002,
petitioner received a letter from the Undersecretary of Department of National Defense (DND) to
conduct management audit pursuant to R.A. 2640, where it is stated that VFP is under the
supervision and control of the Secretary of Defense. Petitioner complained about the broadness
of audit and requested suspension until issues are threshed out, which was subsequently
denied by DND.
On 10 June 2002, respondent DND Secretary issued the assailed DND Department Circular No.
04 entitled, "Further Implementing the Provisions of Sections 12 and 23 of Republic Act No.
2640,"
Petitioner assails Department Circular No. 04 on the ground that it expanded the scope of
control and supervision beyond what has been laid down in Rep. Act No. 2640. Petitioner
alleges that "(t)he equation of the meaning of `control’ and `supervision’ of the Administrative
Code of 1987 as the same `control and supervision’ under Rep. Act No. 2640, takes out the
context of the original legislative intent from the peculiar surrounding circumstances and
conditions that brought about the creation of the VFP."50 Petitioner claims that the VFP "was
intended as a self-governing autonomous body with a Supreme Council as governing authority,"
and that the assailed circular "pre-empts VFP’s original self-governance and autonomy (in)
representing veterans organizations, and substitutes government discretion and decisions to
that of the veterans’ own determination."51 Petitioner says that the circular’s provisions
practically render the Supreme Council inutile, despite its being the statutory governing body of
the VFP.52
As a result, petitioner sought relief under Rule 65 of the Rules of Court assailing that it is a
private non-government corporation.
Issues:
1)W/N VFP is a public corporation
2) W/N the rules and guidelines laid down in the assailed Department Circular No. 04 expanded
the scope of "control and supervision" beyond what has been laid down in Rep. Act No. 2640.
Ruling:
1) YES. it is crystal clear that our constitutions explicitly prohibit the regulation by special laws of
private corporations, with the exception of government-owned or controlled corporations
(GOCCs). Hence, it would be impermissible for the law to grant control of the VFP to a public
official if it were neither a public corporation, an unincorporated governmental entity, nor a
GOCC.18 Said constitutional provisions can even be read to prohibit the creation itself of the
VFP if it were neither of the three mentioned above

Petitioner claims that the VFP does not possess the elements which would qualify it as a public
office, particularly the possession/delegation of a portion of sovereign power of government to
be exercised for the benefit of the public;

In Laurel v. Desierto,22 we adopted the definition of Mechem of a public office, that it is "the right,
authority and duty, created and conferred by law, by which, for a given period, either fixed by
law or enduring at the pleasure of the creating power, an individual is invested with some
portion of the sovereign functions of the government, to be exercised by him for the benefit of
the public."

In the same case, we went on to adopt Mechem’s view that the delegation to the individual of
some of the sovereign functions of government is "[t]he most important characteristic" in
determining whether a position is a public office or not. 23 Such portion of the sovereignty of the
country, either legislative, executive or judicial, must attach to the office for the time being, to be
exercised for the public benefit. Unless the powers conferred are of this nature, the individual is
not a public officer. The most important characteristic which distinguishes an office from an
employment or contract is that the creation and conferring of an office involves a delegation to
the individual of some of the sovereign functions of government, to be exercised by him for the
benefit of the public; – that some portion of the sovereignty of the country, either legislative,
executive or judicial, attaches, for the time being, to be exercised for the public benefit. Unless
the powers conferred are of this nature, the individual is not a public officer. 24 The issue,
therefore, is whether the VFA’s officers have been delegated some portion of the sovereignty of
the country, to be exercised for the public benefit.

In the case at bar, the functions of petitioner corporation enshrined in Section 4 of Rep. Act No.
264031 should most certainly fall within the category of sovereign functions. The protection of the
interests of war veterans is not only meant to promote social justice, but is also intended to
reward patriotism. All of the functions in Section 4 concern the well-being of war veterans, our
countrymen who risked their lives and lost their limbs in fighting for and defending our nation. It
would be injustice of catastrophic proportions to say that it is beyond sovereignty’s power to
reward the people who defended her.

Like the holding of the National Centennial Celebrations, the functions of the VFP are executive
functions, designed to implement not just the provisions of Rep. Act No. 2640, but also, and
more importantly, the Constitutional mandate for the State to provide immediate and adequate
care, benefits and other forms of assistance to war veterans and veterans of military campaigns,
their surviving spouses and orphans

2. Petitioner claims that VFP funds are not public funds.

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. 33 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.

3. Petitioner argues that it is a civilian federation where membership is voluntary.

Petitioner claims that the Secretary of National Defense "historically did not indulge in the direct
or ‘micromanagement’ of the VFP precisely because it is essentially a civilian organization
where membership is voluntary."41 This reliance of petitioner on what has "historically" been
done is erroneous, since laws are not repealed by disuse, custom, or practice to the
contrary.Petitioner’s stand that the VFP is a private corporation because membership thereto is
voluntary is likewise erroneous. As stated above, the membership of the VFP is not the
individual membership of the affiliate organizations, but merely the aggregation of the heads of
such affiliate organizations. These heads forming the VFP then elect the Supreme Council and
the other officers,45 of this public corporation.

4. Petitioner claims that the Administrative Code of 1987 does not provide that the VFP is an
attached agency, and nor does it provide that it is an entity under the control and supervision of
the DND in the context of the provisions of said code.

The Administrative Code, by giving definitions of the various entities covered by it,
acknowledges that its enumeration is not exclusive. The Administrative Code could not be said
to have repealed nor enormously modified Rep. Act No. 2640 by implication, as such repeal or
enormous modification by implication is not favored in statutory construction.46

5. Petitioner offers as evidence the DBM opinion that the VFP is a non-government organization
in its certification that the VFP "has not been a direct recipient of any funds released by the
DBM."

Respondents claim that the supposed declaration of the DBM that petitioner is a non-
government organization is not persuasive, since DBM is not a quasi-judicial agency.

2) NO. As previously mentioned, this Court has defined the power of control as "the power of an
officer to alter or modify or nullify or set aside what a subordinate has done in the performance
of his duties and to substitute the judgment of the former to that of the latter." 53 The power of
supervision, on the other hand, means "overseeing, or the power or authority of an officer to see
that subordinate officers perform their duties."54 Under the Administrative Code of 1987:55

Supervision and control shall include the authority to act directly whenever a specific function is
entrusted by law or regulation to a subordinate; direct the performance of duty; restrain the
commission of acts; review, approve, reverse or modify acts and decisions of subordinate
officials or units; determine priorities in the execution of plans and programs; and prescribe
standards, guidelines, plans and programs. x x x
The definition of the power of control and supervision under Section 2 of the assailed
Department Circular are synonymous with the foregoing definitions. Consequently, and
considering that petitioner is a public corporation, the provisions of the assailed Department
Circular No. 04 did not supplant nor modify the provisions of Republic Act No. 2640, thus not
violating the settled rule that "all such (administrative) issuances must not override, but must
remain consistent and in harmony with the law they seek to apply or implement. Administrative
rules and regulations are intended to carry out, neither to supplant nor to modify, the law."

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY v. CENTRAL BOARD OF

ASSESSMENT APPEALS, GR No. 178030, 2010-12-15
Facts:
Lucena Fishing Port Complex (LFPC) is one of the fishery infrastructure projects undertaken by
the National Government under the Nationwide Fish Port-Package. Located at Barangay
Dalahican, Lucena City, the fish port was constructed on a... reclaimed land with an area of 8.7
hectares more or less The Philippine Fisheries Development Authority (PFDA) was created by
virtue of P.D. 977 as amended by E.O. 772, with functions and powers to (m)anage, operate,
and develop the Navotas Fishing Port Complex and such other fishing port complexes that may
be established by the Authority. Pursuant thereto, Petitioner-Appellant PFDA took over the
management and operation of LFPC in February 1992. On October 26, 1999, in a letter
addressed to PFDA, the City Government of Lucena demanded payment of realty taxes on the
LFPC property for the period from 1993 to 1999 in the total amount of P39,397,880.00. On
October 17, 2000 another demand letter was sent by the Government of Lucena City on the
same LFPC property, this time in the amount of P45,660,080.00 covering the period from 1993
to 2000. On December 18, 2000 Petitioner-Appellant filed its Appeal before the Local Board of
Assessment Appeals of Lucena City, which was dismissed for lack of merit. On November 6,
2001 Petitioner-Appellant filed its motion for reconsideration; this was denied by the Appellee
Local Board on December 10, 2001. PFDA appealed to the CBAA. In its Decision dated 5
October 2005, the CBAA dismissed the appeal for lack of merit. The ownership of LFPC as
passed on by the Republic of the Philippines to PFDA is bourne by Direct evidence: P.D. 977,
as amended (supra). Therefore, Petitioner-Appellant's claim for realty tax exemption on LFPC is
untenable. On appeal, the Court of Tax Appeals denied PFDA's petition for review and affirmed
the 5 October 2005 Decision of the CBAA.
The Court of Tax Appeals held that PFDA is a government-owned or controlled corporation, and
is therefore subject to the real property tax imposed by local government units pursuant to
Section 232 in relation to Sections 193 and 234 of the Local Government Code.
Issue: W/N PFDA is liable for the real property tax assessed on the Lucena Fishing Port
Complex.
Ruling: YES. The ruling of the Court of Tax Appeals is anchored on the wrong premise that the
PFDA is a government-owned or controlled corporation. On the contrary, this Court has already
ruled that the PFDA is a government instrumentality and not a government-owned or
controlled... corporation.
In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals,6 the Court
resolved the issue of whether the PFDA is a government-owned or controlled corporation or an
instrumentality of the national government.
The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national
government which is generally exempt from payment of real property tax. However, said
exemption does not apply to the portions of the IFPC which the Authority leased to... private
entities. With respect to these properties, the Authority is liable to pay property tax.
Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to
satisfy the tax delinquency.

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has
a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting
shares. Hence it is not a stock corporation. Neither is it a non-stock corporation because it has
no members.

The Authority is actually a national government instrumentality which is defined as an 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. 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.

Under Section 133(o)[10] of the Local Government Code, local government units have no...
power to tax instrumentalities of the national government like the PFDA. Thus, PFDA is not
liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the
Lucena Fishing Port Complex, except those portions which are leased to private persons or...
entities.
Besides, the Lucena Fishing Port Complex is a property of public dominion intended for public
use, and is therefore exempt from real property tax under Section 234(a)[11] of the Local
Government Code. Properties of public dominion are owned by the State or... the Republic of
the Philippines.
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.

Feliciano vs Commission on Audit

GR No. 147402 January 14, 2004

Facts: A special audit team from COA Regional office no. VIII audited the accounts of LMWD.
Subsequently, LMWD received a letter from COA dated July 19, 1999 requesting payment of
auditing fees. As general manager of LMWD, petitioner sent a reply dated October 12, 1999
informing COA’s regional director that the water district could not pay the auditing fees.
Petitioner cited as basis for his action section 6 and 20 of Presidential Decree no. 198 as well as
section 18 of RA 6758. The regional director referred petitioner to reply o the COA Chairman on
October 18, 1999. On October 19, 1999, petitioner wrote COA through the Regional Director
asking for refund of all auditing fees LMWD previously paid to COA. On March 16, 2000,
petitioner received COA Chairman Celso D. Gangans resolution dated January 3, 2o00 denying
his requests. Petitioner filed a motion for reconsideration on March 31, 2000, which COA denied
on January 30, 2001.

Issue: Whether LWDs are Private or Government-Owned and Controlled Corporations with
Original Charters

Ruling: GOCCs w/ original charters. Private corporations may exist only under a general law. If
the corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations under existing
laws, that general law is the corporation code, except that the cooperative code governs the
incorporation of cooperatives.

Obviously, LWDs are not private corporations because they are not created under the
corporation code. LWDs are registered with the Securities and Exchange Commission (SEC).
Section 14 of the corporation code states that all corporations under this code shall file with the
SEC articles of incorporation. LWDs have no articles of incorporation, no incorporators and no
stockholders or members. There are no stockholders or members to elect the board of directors
of LWDs as in the case of all corporations registered with the SEC. The local mayor or the
provincial governor appoints the directors of LWDs for a fixed term of office. This court has ruled
that LWDs are not created under the corporation code.

The determining factor of COA’s audit jurisdiction is government ownership or control of the
corporation. The criterion of ownership and control is more important than the issue of original
charter.

Certainly, the government owns and controls LWDs. The government organizes LWDs in
accordance with a specific law, PD 198. There is no private party involved as co-owner in the
creation of and LWD. Just prior to the creation of LWDs, the national or local government owns
and controls all their assets. The government controls LWDs because under PD 198 the
municipal or city mayor, or the provincial governor, appoints all the board of directors of an LWD
for a fixed term of six (6) years. The board of directors of LWDs are not co-owners of the LWDs.
LWD have no private stockholders or members. The board of directors and other personnel of
LWDs are government employees subject to civil service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of compensation from
any government except compensation paid directly by COA out of its appropriations and
contributions. Thus, RA 6758 itself recognizes an exception to the statutory ban by COA
personnel receiving compensation from GOCCs.