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G.R. No.

169328

October 27, 2006

JULIAN A. ALZAGA, MEINRADO ENRIQUE A. BELLO, and MANUEL S. SATUITO, petitioners, vs. HONORABLE SANDIGANBAYAN (2nd Division) and PEOPLE OF THE PHILIPPINES, respondents. DECISION YNARES-SANTIAGO, J.: This Petition for Certiorari assails the April 25, 2005 and August 10, 2005 Resolutions1 of the Sandiganbayan in Criminal Case Nos. 25681-25684, which respectively reversed the May 27, 2004 Resolution2 of the court a quoand denied petitioners Motion for Reconsideration.3 On October 7, 1999,4 four separate Informations for violation of Section 3(e) of Republic Act (R.A.) No. 3019 were filed against petitioners Julian A. Alzaga, Meinrado Enrique A. Bello and Manuel S. Satuito relative to alleged irregularities which attended the purchase of four lots in Tanauan, Batangas, by the Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-RSBS). Alzaga was the Head of the Legal Department of AFP-RSBS when one of the lots was purchased. Bello was a Police Superintendent and he succeeded Alzaga as Head of the Legal Department. It was during his tenure when the other three lots were purchased. Both were Vice Presidents of AFP-RSBS. On the other hand, Satuito was the Chief of the Documentation and Assistant Vice President of the AFPRSBS.5 Petitioners filed their respective Motions to Quash and/or Dismiss the informations alleging that the Sandiganbayan has no jurisdiction over them and their alleged offenses because the AFP-RSBS is a private entity created for the benefit of its members and that their positions and salary grade levels do not fall within the jurisdiction of the Sandiganbayan pursuant to Section 4 of Presidential Decree (P.D.) No. 1606 (1978),6 as amended by R.A. No. 8249 (1997).7 On May 27, 2004, the Sandiganbayan granted petitioners motions to dismiss for lack of jurisdiction. However, in a Resolution dated April 25, 2005, the Sandiganbayan reversed its earlier resolution. It held that the AFP-RSBS is a government-owned or controlled corporation thus subject to its jurisdiction. It also found that the positions held by Alzaga and Bello, who were Vice Presidents, and Satuito who was an Assistant Vice President, are covered and embraced by, and in fact higher than the position of managers mentioned under Section 4 of P.D. No. 1606, as amended, thus under the jurisdiction of the Sandiganbayan. Petitioners Motion for Reconsideration8 was denied, hence, this petition raising the following issues: I THE COURT A QUO COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR

EXCESS OF JURISDICTION IN DECIDING A QUESTION OF SUBSTANCE IN A MANNER NOT ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE THAT IT HAS JURISDICTION OVER THE PERSON OF THE PETITIONERS II THE COURT A QUO COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DECIDING A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW OR JURISPRUDENCE THAT THE ARMED FORCES RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFP-RSBS) IS A GOVERNMENT-OWNED OR CONTROLLED CORPORATION III THE COURT A QUO COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN DECIDING A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH LAW OR JURISPRUDENCE THAT PETITIONERS ALZAGA AND BELLO[,] WHO WERE BOTH VICE-PRESIDENTS OF THE AFP-RSBS[,] AND PETITIONER SATUITO[,] WHO WAS ASSISTANT VICE-PRESIDENT OF THE AFPRSBS[,] ARE COVERED AND EMBRACED BY THE POSITION "MANAGERS" MENTIONED UNDER SECTION 4 a (1) (g) OF PD NO. 1606, AS AMENDED.9 The petition is without merit. The AFP-RSBS was established by virtue of P.D. No. 361 (1973)10 in December 1973 to guarantee continuous financial support to the AFP military retirement system, as provided for in R.A. No. 340 (1948).11 It is similar to the Government Service Insurance System (GSIS) and the Social Security System (SSS) since it serves as the system that manages the retirement and pension funds of those in the military service.12 The AFP-RSBS is administered by the Chief of Staff of the AFP through a Board of Trustees and Management Group,13 and funded from congressional appropriations and compulsory contributions from members of the AFP; donations, gifts, legacies, bequests and others to the system; and all earnings of the system which shall not be subject to any tax whatsoever.14 Section 4 of P.D. No. 1606, as further amended by R.A. No. 8249, grants jurisdiction to the Sandiganbayan over: a. Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-graft and Corrupt Practices Act, Republic Act No. 1379, and Chapter II, Section 2, Title VII, Book II of the Revised Penal Code, where one or more of the accused are officials occupying the following positions in the government whether in a permanent, acting or interim capacity, at the time of the commission of the offense:

(1) Officials of the executive branch occupying the positions of regional director and higher, otherwise classified as Grade 27 and higher, of the Compensation and Position Classification Act of 1989 (Republic Act No. 6758), specifically including: xxxx (g) Presidents, directors or trustees, or managers of government-owned or controlled corporations, state universities or educational institutions or foundations; In People v. Sandiganbayan,15 where herein petitioners Alzaga and Satuito were respondents, this Court has ruled that the character and operations of the AFP-RSBS are imbued with public interest thus the same is a government entity and its funds are in the nature of public funds. In Ramiscal, Jr. v. Sandiganbayan,16 we held that the AFP-RSBS is a government-owned and controlled corporation under R.A. No. 9182, otherwise known as The Special Purpose Vehicle Act of 2002. These rulings render unmeritorious petitioners assertion that the AFP-RSBS is a private entity. There is likewise no merit in petitioners claim that the Sandiganbayan has no jurisdiction over them since their positions as vice presidents and assistant vice president are not covered nor embraced by the term "managers" under section 4 of RA. No. 8249. We held in Geduspan v. People,17 that while the first part of section 4 covers only officials of the executive branch with the salary grade 27 and higher, the second part "specifically includes" other executive officials whose positions may not be of grade 27 and higher but who are by express provision of law placed under the jurisdiction of the said court. In the latter category, it is the position held and not the salary grade which determines the jurisdiction of the Sandiganbayan. Thus, presidents, directors or trustees, or managers of government owned and controlled corporations, are under the jurisdiction of the Sandiganbayan. In the instant case, petitioners Alzaga and Bello were Head of the Legal Department while petitioner Satuito was Chief of the Documentation with corresponding ranks of Vice Presidents and Assistant Vice President. These positions are not specifically enumerated in RA. No. 8249; however, as correctly observed by the Sandiganbayan, their ranks as Vice Presidents and Assistant Vice President are even higher than that of "managers" mentioned in RA. No. 8249. In sum, the Sandiganbayan correctly ruled that the AFPRSBS is a government-owned and controlled corporation and that it has jurisdiction over the persons of petitioners who were Vice Presidents and Assistant Vice President when the charges against them were allegedly committed. WHEREFORE, the instant Petition for Certiorari is DISMISSED. The assailed Resolution of

the Sandiganbayan dated April 25, 2005 that the AFPRSBS is a government-owned and controlled corporation and that it has jurisdiction over the persons of the petitioners and the Resolution dated August 10, 2005 denying petitioners motion for reconsideration, are AFFIRMED. SO ORDERED.

G.R. No. 81490 August 31, 1988 HAGONOY WATER DISTRICT represented by its General Manager CELESTINO S. VENGCO, petitioner, vs. THE HON. NATIONAL LABOR RELATIONS COMMISSION, EXECUTIVE LABOR ARBITER VLADIMIR P.L. SAMPANG, DEPUTY SHERIFF JOSE A. CRUZ and DANTE VILLANUEVA, respondents. Mario S. Jugco for petitioner. Renato C. Guevara for private respondent Villanueva. FELICIANO, J.: The present petition for certiorari seeks to annul and set aside: a) the decision of the Labor Arbiter dated 17 March 1987 in NLRC Case No. RAB-III-8-2354-85, entitled "Dante Villanueva versus LWA-Hagonoy Waterworks District/Miguel Santos;" and b) the Resolution of the National Labor Relations Commission dated 20 August 1987 affirming the mentioned decision. Private respondent Dante Villanueva was employed as service foreman by petitioner Hagonoy Water District ("Hagonoy") from 3 January 1977 until 16 May 1985, when he was indefinitely suspended and thereafter dismissed on 12 July 1985 for abandonment of work and conflict of interest. On 14 August 1985, private respondent filed a complaint for illegal dismissal, illegal suspension and underpayment of wages and emergency cost of living allowance against petitioner Hagonoy with the then Ministry of Labor and Employment, Regional Arbitration Branch III, San Fernando, Pampanga. Petitioner immediately moved for outright dismissal of the complaint on the ground of lack of jurisdiction. Being a government entity, petitioner claimed, its personnel are governed by the provisions of the Civil Service Law, not by the Labor Code, and protests concerning the lawfulness of dismissals from the service fall within the jurisdiction of the Civil Service Commission, not the Ministry of Labor and Employment. Petitioner cited Resolution No. 1540 of the Social Security Commission cancelling petitioner's compulsory coverage from the system effective 16 May 1979 "considering the rulings that local water districts are instrumentalities owned and controlled by the government and that their officers and employees are government employees." In opposing the motion, private respondent Villanueva contended that local water districts, like petitioner Hagonoy, though quasi-public corporations, are in the nature of private corporations since they perform proprietary functions for the government. The Labor Arbiter proceeded to hear and try the case and, on 17 March 1986, rendered a Decision in favor of the private respondent and against petitioner Hagonoy. The dispositive part of the decision read: WHEREFORE, premises considered, respondents are hereby ordered to

reinstate petitioner immediately to his former position as Service Foreman, without loss of seniority rights and privileges, with full backwages, including all benefits provided by law, from the date he was terminated up to his actual date of reinstatement. In addition, respondents are hereby ordered to pay the petitioner the amount of P4,927.50 representing the underpayments of wages from July 1983 to May 16, 1985. SO ORDERED. On appeal, the National Labor Relations Commission affirmed the decision of the Labor Arbiter in a Resolution dated 20 August 1987. The petitioner moved for reconsideration, insisting that public respondents had no jurisdiction over the case. Meanwhile, a Writ of Execution was issued by the Labor Arbiter on 16 November 1987. The writ was enforced by garnishing petitioner Hagonoy's deposits with the Planters Development Bank of Hagonoy. Petitioner then filed a Motion to Quash the Writ of Execution with Application for Writ of Preliminary Injunction arguing that the writ was prematurely issued as its motion for reconsideration had not yet been resolved. By Resolution dated 10 December 1987, public respondent Commission denied the application for a preliminary injunction. The motion to quash was similarly denied by the Commission which directed petitioner to reinstate immediately private respondent and to pay him the amount of P63,577.75 out of petitioner's garnished deposits. Hence, the instant petition. The only question here in whether or not local water districts are government owned or controlled corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section 25 of Presidential Decree No. 198, known as the "Provincial Water Utilities Act of 1973" which went into effect on 25 May 1973, and which provides as follows: Exemption from Civil Service. The district and its employees, being engaged in a proprietary function, are hereby exempt from the provisions of the Civil Service Law. Collective Bargaining shall be available only to personnel below supervisory levels: Provided, however, That the total of all salaries, wages, emoluments, benefits or other compensation paid to all employees in any month shall not exceed fifty percent (50%) of average net monthly revenue, said net revenue

representing income from water sales and sewerage service charges, lease pro-rata share of debt service and expenses for fuel or energy for pumping during the preceding fiscal year. The Labor Arbiter however failed to take into account the provisions of Presidential Decree No. 1479, which went into effect on 11 June 1978. P.D. No. 1479 wiped away Section 25 of P.D. 198 quoted above, and Section 26 of P.D. 198 was renumbered as Section 25 in the following manner: Section 26 of the same decree [P.D. 198] is hereby amended to read as Section 25 as follows: Section 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration. Thus, Section 25 of P.D. 198 exempting the employees of water districts from the application of the Civil Service Law was removed from the statute books. This is not the first time that officials of the Department of Labor and Employment have taken the position that the Labor Arbiter here adopted. In Baguio Water District vs. Cresenciano B. Trajano, etc. et al., 1 the petitioner Water District sought review of a decision of the Bureau of Labor Relations which affirmed that of a Med-Arbiter calling for a certification election among the regular rank-and-file employees of the Baguio Water District (BWD). In granting the petition, the Court said: The Baguio Water District was formed pursuant to Title II-Local Water District Law of P.D. No. 198, as amended, The BWD is by Sec. 6 of that decree 'a quasipublic corporation performing public service and supplying public wants. A part of the public respondent's decision rendered in September, 1983, reads in part: We find the appeal [of the BWD] to be devoid of merit. The records show that the operation and administration of BWD is governed and regulated by special laws, that is, Presidential Decrees Nos. 198 and 1479 which created local water districts throughout the country. Section 25 of Presidential Decree (PD) 198 clearly provides that the district and its employees shall be

exempt from the provisions of the Civil Service Law and that its personnel below supervisory level shall have the right to collectively bargain. Contrary to appellant's claim, said provision has not been amended much more abrogated expressly or impliedly by PD 1479 which does not make mention of any matter on Civil Service Law or collective bargaining. (Rollo, p. 590.) We grant the petition for the following reasons: 1. Section 25 of P.D. No. 198 was repealed by Sec. 3 of P.D. No. 1479; Sec. 26 of P.D. No. 198 was amended to read as Sec. 25 by Sec. 4 of P.D. No. 1479. The amendatory decree took effect on June 11, 1978. xxx xxx xxx 3. The BWD is a corporation created pursuant to a special law P.D. No. 198, as amended. As such its officers and employees are part of the Civil Service. (Sec. 1, Art. XII-B, [1973] Constitution; P.D. No. 686.) The broader question of whether employees of government owned or controlled corporations are governed by the Civil Service Law and Civil Service Rules and Regulations was addressed by this Court in 1985 in National Housing Corporation vs. Juco. 2 After a review of constitutional, statutory and case law on the matter, the Court, through Mr. Justice Gutierrez, held: There should no longer be any question at this time that employees of government-owned or controlled corporations are governed by the civil service law and civil service rules and regulations. Section 1. Article XII-B of the [1973] Constitution specifically provides: The Civil Service embraces every branch, agency, subdivision, and instrumentality of the Government, including every government-owned or controlled corporation. ... The 1935 Constitution had a similar provision in its Section 1, Article XII which stated: A Civil Service embracing all branches and subdivisions of the Government shall be provided by law. The inclusion of "government-owned or controlled corporations" within the

embrace of the civil service shows a deliberate effort of the framers to plug an earlier loophole which allowed government-owned or controlled corporations to avoid the full consequences of the all encompassing coverage of the, civil service system. The same explicit intent is shown by the addition of "agency" and "instrumentality" to branches and subdivisions of the Government. All offices and firms of the government are covered. The amendments introduced in 1973 are not Idle exercises or meaningless gestures. They carry the strong message that civil service coverage is broad and all-embracing insofar as employment in the government in any of its governmental. or corporate arms is concerned. xxx xxx xxx Section I of Article XII-B, [1973] Constitution uses the word "every" to modify the phrase "government-owned or controlled corporation." "Every" means each one of a group, without exception. It means all possible and all, taken one by one. Of course, our decision in this case refers to a corporation created as a government-owned or controlled entity. It does not cover cases involving private firms taken over by the government in foreclosure or similar proceedings. We reserve judgment on these latter cases when the appropriate controversy is brought to this Court. 3 In Juco, the Court spelled out the law on the issue at bar as such law existed under the 1973 Constitution and the Provisional Constitution of 1984, 4 until just before the effectivity of the 1987 Constitution. Public respondent Commission, in confirming the Labor Arbiter's assumption of jurisdiction over this case, apparently relied upon Article IX (B), Section 2 (1) of the 1987 Constitution, which provides that: [T]he Civil Service embraces ... government owned or controlled corporations with original charters.(Emphasis supplied) The NLRC took the position that although petitioner Hagonoy is a government owned or controlled corporation, it had no original charter having been created simply by resolution of a local legislative council. The NLRC concluded that therefore petitioner Hagonoy fell outside the scope of the civil service.

At the time the dispute in the case at bar arose, and at the time the Labor Arbiter rendered his decision (i.e., 17 March 1986), there is no question that the applicable law was that spelled out in National Housing Corporation vs. Juco (supra) and Baguio Water District vs. Cresenciano B. Trajano (supra) and that under such applicable law, the Labor Arbiter had no jurisdiction to render the decision that he in fact rendered. By the time the public respondent Commission rendered its decision of 20 August 1987 which is here assailed, the 1987 Constitution had already come into effect. 5 There is, nonetheless, no necessity for this Court at the present time and in the present case to pass upon the question of the effect of the provisions of Article DC (B), Section 2 (1) of the 1987 Constitution upon the pre-existing statutory and case law. For whatever that effect might be, and we will deal with that when an appropriate case comes before the Court we believe and so hold that the 1987 Constitution did not operate retrospectively so as to confer jurisdiction upon the Labor Arbiter to render a decision which, under the law applicable at the time of the rendition of such decision, was clearly outside the scope of competence of the Labor Arbiter. Thus, the respondent Commission had nothing before it which it could pass upon in the exercise of its appellate jurisdiction. For it is self-evident that a decision rendered by the Labor Arbiter without jurisdiction over the case is a complete nullity, vesting no rights and imposing no liabilities. ACCORDINGLY, the Petition for certiorari is GRANTED. The decision of the Labor Arbiter dated 17 March 1986, and public respondent Commission's Resolution dated 20 August 1987 and all other Resolutions and Orders issued by the Commission in this case subsequent thereto, are hereby SET ASIDE. This decision is, however, without prejudice to the right of private respondent Villanueva to refile, if he so wishes, this complaint in an appropriate forum. No pronouncement as to costs. SO ORDERED.

G.R. No. 95237-38 September 13, 1991 DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO CEBU WATER DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY WATER DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT, URDANETA WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT, TAGUM WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN WATER DISTRICT,petitioners, vs. CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents. Rodolfo S. De Jesus for petitioners. Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-Tingzon for CSC. MEDIALDEA, J.:p Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential Decree No. 198, as amended, are government-owned or controlled corporations with original charter falling under the Civil Service Law and/or covered by the visitorial power of the Commission on Audit is the issue which the petitioners entreat this Court, en banc, to shed light on. Petitioners are among the more than five hundred (500) water districts existing throughout the country formed pursuant to the provisions of Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 and 1479, otherwise known as the "Provincial Water Utilities Act of 1973." Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his legislative power under Proclamation No. 1081. It authorized the different local legislative bodies to form and create their respective water districts through a resolution they will pass subject to the guidelines, rules and regulations therein laid down. The decree further created and formed the "Local Water Utilities Administration" (LWUA), a national agency attached to the National Economic and Development Authority (NEDA), and granted with regulatory power necessary to optimize public service from water utilities operations. The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on Audit (COA), both government agencies and represented in this case by the Solicitor General. On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No. 63742, 172 SCRA 253):

Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned and controlled corporations with original charters. Inasmuch as PD No. 198, as amended, is the original charter of the petitioner, Tanjay Water District, and respondent Tarlac Water District and all water districts in the country, they come under the coverage of the Civil Service Law, rules and regulations. (Sec. 35, Art. VIII and Sec. 37, Art. IX of PD No. 807). As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575, the dispositive portion of which reads: NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby resolves to rule that Local Water Districts, being quasi-public corporations created by law to perform public services and supply public wants, the matter of hiring and firing of its officers and employees should be governed by the Civil Service Law, rules and regulations. Henceforth, all appointments of personnel of the different local water districts in the country shall be submitted to the Commission for appropriate action. (Rollo. p. 22). However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v. National Labor Relations Commission, et al.," the Third Division of this Court ruled in a minute resolution: xxx xxx xxx Considering that PD 198 is a general legislation empowering and/or authorizing government agencies and entities to create water districts, said PD 198 cannot be considered as the charter itself creating the Water District. Public respondent NLRC did not commit any grave abuse of discretion in holding that the operative act, that created the Metro Iloilo Water District was the resolution of the Sangguniang Panglunsod of Iloilo City. Hence, the employees of Water Districts are not covered by Civil Service Laws as the latter do (sic) not have original charters. In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-575 by issuing Resolution No. 90-770 which reads:

xxx xxx xxx NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it hereby rules, that the implementation of CSC. Resolution No. 575 dated June 27, 1990 be deferred in the meantime pending clarification from the Supreme Court are regards its conflicting decisions in the cases ofTanjay Water District v. Gabaton and Metro Iloilo Water District v. National Labor Relations Commission. (p. 26, Rollo) In the meanwhile, there exists a divergence of opinions between COA on one hand, and the (LWUA), on the other hand, with respect to the authority of COA to audit the different water districts. COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested in them by law (letter of COA to LWUA dated August 13, 1985, pp. 29-30, Rollo). On the other hand, LWUA maintained that only those water districts with subsidies from the government fall within the COA's jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision of the Government Auditing Code of the Phils. It is to be observed that just like the question of whether the employees of the water districts falls under the coverage of the Civil Service Law, the conflict between the water districts and the COA is also dependent on the final determination of whether or not water districts are government-owned or controlled corporations with original charter. The reason behind this is Sec. 2(1), Article IX-D of the 1987 constitution which reads: Sec. 2(1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original charters, and on a post audit basis. (emphasis supplied) Petitioners' main argument is that they are private corporations without original charter, hence they are outside the jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case which declared petitioners as quasi-public corporations created by virtue of PD 198, a general legislation which cannot be considered as the charter itself creating the water districts. Holding on to this ruling, petitioners contend that they are private corporations which are only regarded as quasi-public or semi-public because they

serve public interest and convenience and that since PD 198 is a general legislation, the operative act which created a water district is not the said decree but the resolution of the sanggunian concerned. After a fair consideration of the parties' arguments coupled with a careful study of the applicable laws as well as the constitutional provisions involved, We rule against the petitioners and reiterate Our ruling in Tanjay case declaring water districts government-owned or controlled corporations with original charter. As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20, 1984, 127 SCRA 730), We already ruled that a water district is a corporation created pursuant to a special law P.D. No. 198, as amended, and as such its officers and employees are covered by the Civil Service Law. In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988, 165 SCRA 272), We ruled once again that local water districts are quasi-public corporations whose employees belong to the Civil Service. The Court's pronoucement in this case, as extensively quoted in the Tanjay case, supra, partly reads: "The only question here is whether or not local water districts are governmkent owned or controlled corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section 25 of Presidential decree No. 198, known as the Provincial Water Utilities Act of 1973" which went onto effect in 25 May 1973, and which provides as follows: Exemption from Civil Service. The district and its employees, being engaged in a proprietary function, are hereby exempt from the provisions of the Civil Service Law. Collective Bargaining shall be available only to personnel below supervisory levels:Provided, however, That the total of all salaries, wages emoluments, benefits or other compensation paid to all employees in any month shall not exceed fifty percent (50%) of average net monthy revenue. Said net revenue

representing income from water sales and sewerage service charges, less pro-rata share of debt service and expenses for fuel or energy for pumping during the preceding fiscal year. The Labor Arbiter failed to take into accout the provisions of Presidential Decree No. 1479, which went into effect on 11 June 1978, P.D. No. 1479, wiped away Section 25 of PD 198 quoted above, and Section 26 of PD 198 was renumbered as Section 25 in the following manner: Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows: Section 25. Authorization. The district may exercise all the powers which are expressly granted by this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the exercise thereof shall, however, be subject to review by the Administration. Thus, Section 25 of PD 198 exempting the employees of water districts from the application of the Civil Service Law was removed from the statute books: xxx xxx xxx We grant the petition for the following reasons: 1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD No. 198 was amended ro read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree took effect on June 11, 1978. xxx xxx xxx 3. The BWD is a corporation created pursuant to a special law PD No. 198, as amended. As such its officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868). Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the different

water districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a special purpose which is intended to meet a particular set of conditions and cirmcumstances. The fact that said decree generally applies to all water districts throughout the country does not change the fact that PD 198 is a special law. Accordingly, this Court's resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby abandoned. By "government-owned or controlled corporation with original charter," We mean government owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines. Thus, in the case ofLumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held: The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.R. No 69870, promulgated on 29 November 1988, quoting extensively from the deliberations of 1986 Constitutional Commission in respect of the intent and meaning of the new phrase "with original character," in effect held that government-owned and controlled corporations with original charter refer to corporations chartered by special law as distinguished from corporations organized under our general incorporation statute the Corporations Code. In NASECO, the company involved had been organized under the general incorporation statute and was a sbusidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary of the Philippine National Bank, a bank chartered by a special statute. Thus, government-owned or controlled corporations like NASECO are effectively, excluded from the scope of the Civil Service. (emphasis supplied) From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under the said code, but on the contrary, they were created pursuant to a special law and are governed primarily by its provision. No consideration may thus be given to petitioners' contention that the operative act which created the water districts are the resolutions of the respective local sanggunians and that consequently, PD 198, as amended, cannot be considered as their charter. It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain a district. Section 6 of said decree provides:

Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision, .... Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a charter creating a juridical person. For example, Section 6(a) provides for the name that will be used by a water district, thus: Sec. 6. . . . To form a district, the legislative body of any city, municipality or province shall enact a resolution containing the following: a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District." It also prescribes for the numbers and qualifications of the members of the Board of Directors: Sec. 8. Number and Qualification. The Board of Directors of a district shall be composed of five citizens of the Philippines who are of voting age and residents within the district. One member shall be a representative of civic-oriented service clubs, one member of representative of professional associations, one member a representative of business, commercial or financial organizations, one member a representative of educational institutions and one member a representative of women's organization. No public official shall serve as director. Provided, however, that if the district has availed of the financial assistance of the Administration, the Administration may appoint any of its personnel to sit in the board of directors with all the rights and privileges appertaining to a regular member for such period as the indebtedness remains unpaid in which case the board shall be composed of six members; (as amended by PDs Nos. 768 and 1479). the manner of their appointment and nominations; Sec. 9. Appointment. Board members shall be appointed by the appointing authority. Said appointments shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations are submitted, the

appointing authority shall appoint any qualified person of the category to the vacant position; Sec.10. Nominations. On or before October 1 of each even numbered year, the secretary of the district shall contact each known organization, association, or institution being represented by the director whose term will expire on December 31 and solicit nominations from these organizations to fill the position for the ensuing term. One nomination may be submitted in writing by each such organization to the Secretary of the district on or before November 1 of such year: This list of nominees shall be transmitted by the Secretary of the district to the office of the appointing authority on or before November 15 of such year and he shall make his appointment from the list submitted on or before December 15. In the event the appointing authority fails to make his appointments on or before December 15, selection shall be made from said list of nominees by majority vote of the seated directors of the district constituting a quorum. Initial nominations for all five seats of the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution forming the district. Thirty days thereafter, a list of nominees shall be submitted to the provincial governor in the event the resolution forming the district is by a provincial board, or the mayor of the city or municipality in the event the resolution forming the adoption of the district is by the city or municipal board of councilors, who shall select the initial directors therefrom within 15 days after receipt of such nominations; their terms of office: Sec. 11. Term of Office. Of the five initial directors of each newly formed district, two shall be appointed for a maximum term of two years, two for a maximum term of four years, and one for a maximum term of six years. Terms of office of all directors in a given district shall be such that the term of at least one director, but not more then two, shall expire on December 31 of each even-numbered year. Regular terms of office after the initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors may be removed for cause only, subject to review and approval of the Administration; (as amended by PD 768).

the manner of filling up vacancies: Sec. 12. Vacancies. In the event of a vacancy in the board of directors occurring more than six months before expiration of any director's term, the remaining directors shall within 30 days, serve notice to or request the secretary of the district for nominations and within 30 days, thereafter a list of nominees shall be submitted to the appointing authority for his appointment of a replacement director from the list of nominees. In the absence of such nominations, the appointing authority shall make such appointment. If within 30 days after submission to him of a list of nominees the appointing authority fails to make an appointment, the vacancy shall be filled from such list by a majority vote of the remaining members of the Board of Directors constituting a quorum. Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board in the above manner. The director thus appointed shall serve the unexpired term only; (as amended by PD 768). and the compensation and personal liability of the members of the Board of Directors: Sec. 13. Compensation. Each director shall receive a per diem, to be determined by the board, for each meeting of the board actually attended by him, but no director shag receive per diems in any given month in excess of the equivalent of the total per diems of four meetings in any given month. No director shall receive other compensation for services to the district. Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD 768). Sec. 14. Personal Liability. No director may be held to be personally liable for any action of the district. Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually contained in other corporate charters. The conclusion is inescapable that the said decree is in truth and in fact the charter of the different water districts for it clearly defines the latter's primary purpose and its basic organizational set-up. In other words, PD 198, as amended, is the very law which gives a water district juridical personality. While it is true that a resolution of a local sanggunian is still necessary for the final creation of

a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being intended only to implement the provisions of said decree. In passing a resolution forming a water district, the local sanggunian is entrusted with no authority or discretion to grant a charter for the creation of a private corporation. It is merely given the authority for the formation of a water district, on a local option basis, to be exercised under and in pursuance of PD 198. More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b) of the same decree which reads: Sec. 3(b). Appointing authority. The person empowered to appoint the members of the Board of Directors of a local water district, depending upon the geographic coverage and population make-up of the particular district. In the event that more than seventy-five percent of the total active water service connections of a local water districts are within the boundary of any city or municipality, the appointing authority shall be the mayor of that city or municipality, as the case may be; otherwise, the appointing authority shall be the governor of the province within which the district is located: Provided, That if the existing waterworks system in the city or municipality established as a water district under this Decree is operated and managed by the province, initial appointment shall be extended by the governor of the province. Subsequent appointments shall be as specified herein. If portions of more than one province are included within the boundary of the district, and the appointing authority is to be the governors then the power to appoint shall rotate between the governors involved with the initial appointments made by the governor in whose province the greatest number of service connections exists (as amended by PD 768). The above-quoted section definitely sets to naught petitioners' contention that they are private corporations. It is clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to the local executives of the local subdivision units where such districts are located. In contrast, the members of the Board of Directors or trustees of a private corporation are elected from among the members and stockholders thereof. It would not be amiss to emphasize at this point that a private corporation is created for the private purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders should be given a free

hand to choose those who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are definitely not private corporations. The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this may bring to the thousands of water districts' employees throughout the country who stand to be affected because they do not have the necessary civil service eligibilities. As these employees are equally protected by the constitutional guarantee to security of tenure, We find it necessary to rule for the protection of such right which cannot be impaired by a subsequent ruling of this Court. Thus, those employees who have already acquired their permanent employment status at the time of the promulgation of this decision cannot be removed by the mere reason that they lack the necessary civil service eligibilities. ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared "government-owned or controlled corporations with original charter" which fall under the jurisdiction of the public respondents CSC and COA. SO ORDERED. Separate Opinions BIDIN, J., dissenting: I regret I have to register my dissent in this case. I agree with the main ponencia that P.D. 198, as amended, authorizes the different local legislative bodies (Sanggunian) to form and create their respective water districts through a Resolution which they will pass subject to the guidelines, rules and regulations therein laid down. The issue, therefore, to be resolved is whether the local water districts so created are governmentowned or controlled corporations with original charters embraced by the Civil Service as contemplated by Art. IXB, Sec. 2[1] of the 1987 Constitution. P.D. 198 is a general legislation which authorizes the formation of water districts. However, the operative act which creates a water district is not said decree but the resolution of the Sanggunian concerned forming and maintaining a local water district. Thus, Section 2 of P.D. 198, among others, provides: Sec. 2. Declaration of Policy . . . To encourage the formulation of such local water districts and the transfer thereto of existing water supply and waste water disposal facilities, this Decree provides by general act the authority for the formation thereof, on a local option basis. . . . (Emphasis supplied)

Implementing the above policy, Title II of P.D. 198 provides: TITLE II. LOCAL WATER DISTRICT LAW CHAPTER I. Title Sec. 4. Title. The provisions of this Title shall be known and referred to as the "Local Water District Law." CHAPTER II. Purpose and Formation Sec. 5. Purpose. Local water districts may be formed pursuant to this Title for the purposes of (a) acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic, industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts, (b) providing, maintaining and operating wastewater collection, treatment and disposal facilities, and (c) conducting such other functions and operations incidental to water resource development, utilization and disposal within such districts, as are necessary or incidental to said purpose. Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. xxx xxx xxx Sec. 7. Filing of Resolution. A certifted copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district

except as provided herein. (Emphasis supplied) It is apparent that insofar as the formation of local water districts are concerned, P.D. 198 is not an original charter but a general act authorizing the formation of water districts on local option basis (Sec. 2, P.D. 198) similar to the Corporation Code. What is chartered, formed and created under P.D. 198 as a government corporation is the "Local Water Utilities Administration" attached to the Office of the President as follows: Sec. 49. Charter. There is hereby chartered, created and formed a government corporation to be known as the "Local Water Utilities Administration which is hereby attached to the Office of the President. The provisions of this title shall be and constitute the charter of the Administration. On the other hand, local water districts are formed by resolutions of the respective Provincial, City and Municipal councils (Sec. 7, P.D. 198) filed with the Local Water Utilities Administration, a government corporation chartered under Section 49, P.D. 198 and attached to the Office of the President. Consequently, without the requisite resolution of the Sanggunian concerned forming the water district having been filed with the Local Water Utility Administration, no water district is formed. What gives the water districts juridical personality is the resolution of the respective Sanggunian forming the district and filed with the Local Water Utilities Administration. Once formed, a water district is subject to the provisions of P.D. 198 and no longer under the jurisdiction of any political administration which shall thereafter lose ownership, supervision and control over the district (Sec. 7, PD 198). In view of the foregoing, I vote to Grant the petition and to declare petitioners as quasi-public corporations performing public service without original charters and therefore not embraced by the Civil Service. Separate Opinions BIDIN, J., dissenting: I regret I have to register my dissent in this case. I agree with the main ponencia that P.D. 198, as amended, authorizes the different local legislative bodies (Sanggunian) to form and create their respective water districts through a Resolution which they will pass subject to the guidelines, rules and regulations therein laid down. The issue, therefore, to be resolved is whether the local water districts so created are governmentowned or controlled corporations with original charters embraced by the Civil Service as contemplated by Art. IXB, Sec. 2[1] of the 1987 Constitution.

P.D. 198 is a general legislation which authorizes the formation of water districts. However, the operative act which creates a water district is not said decree but the resolution of the Sanggunian concerned forming and maintaining a local water district. Thus, Section 2 of P.D. 198, among others, provides: Sec. 2. Declaration of Policy . . . To encourage the formulation of such local water districts and the transfer thereto of existing water supply and waste water disposal facilities, this Decree provides by general act the authority for the formation thereof, on a local option basis. . . . (Emphasis supplied) Implementing the above policy, Title II of P.D. 198 provides: TITLE II. LOCAL WATER DISTRICT LAW CHAPTER I. Title Sec. 4. Title. The provisions of this Title shall be known and referred to as the "Local Water District Law." CHAPTER II. Purpose and Formation Sec. 5. Purpose. Local water districts may be formed pursuant to this Title for the purposes of (a) acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic, industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts, (b) providing, maintaining and operating wastewater collection, treatment and disposal facilities, and (c) conducting such other functions and operations incidental to water resource development, utilization and disposal within such districts, as are necessary or incidental to said purpose. Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. xxx xxx xxx Sec. 7. Filing of Resolution. A certifted copy of the resolution or resolutions

forming a district shall be forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis supplied) It is apparent that insofar as the formation of local water districts are concerned, P.D. 198 is not an original charter but a general act authorizing the formation of water districts on local option basis (Sec. 2, P.D. 198) similar to the Corporation Code. What is chartered, formed and created under P.D. 198 as a government corporation is the "Local Water Utilities Administration" attached to the Office of the President as follows: Sec. 49. Charter. There is hereby chartered, created and formed a government corporation to be known as the "Local Water Utilities Administration which is hereby attached to the Office of the President. The provisions of this title shall be and constitute the charter of the Administration. On the other hand, local water districts are formed by resolutions of the respective Provincial, City and Municipal councils (Sec. 7, P.D. 198) filed with the Local Water Utilities Administration, a government corporation chartered under Section 49, P.D. 198 and attached to the Office of the President. Consequently, without the requisite resolution of the Sanggunian concerned forming the water district having been filed with the Local Water Utility Administration, no water district is formed. What gives the water districts juridical personality is the resolution of the respective Sanggunian forming the district and filed with the Local Water Utilities Administration. Once formed, a water district is subject to the provisions of P.D. 198 and no longer under the jurisdiction of any political administration which shall thereafter lose ownership, supervision and control over the district (Sec. 7, PD 198). In view of the foregoing, I vote to Grant the petition and to declare petitioners as quasi-public corporations performing public service without original charters and therefore not embraced by the Civil Service.

[G.R. No. 149154. June 10, 2003] RODOLFO S. DE JESUS, EDELWINA DG. PARUNGAO, HERMILO S. BALUCAN, AVELINO C. CASTILLO, DANILO B. DE LEON (Interim Board of Directors, Catbalogan Water District), and ALICE MARIE C. OSORIO (Board Secretary), petitioners, vs. COMMISSION ON AUDIT, respondent. DECISION CARPIO, J.: The Case This is a petition for certiorari[1] to annul the Decision dated 12 September 2000 of the Commission on Audit (COA) and its Resolution dated 5 July 2001. The COA affirmed the disallowance of payment of allowances and bonuses to members of the interim Board of Directors of the Catbalogan Water District.

The COAs Ruling The COA explained that members of the CWD Board cannot receive compensation and other benefits in addition to the per diems allowed by Section 13 of PD 198. We quote the relevant portion of the COAs decision: Resolution No. 313, s. 1995, as amended, which grants compensation and other benefits to the members of the Board of Directors of CWD is not in harmony with the aforequoted provisions of Sec. 13, PD 198, which speaks only of per diems, the amount of which is subject to approval by the administrator if more than P50.00 each for every meeting. It is a fundamental rule in statutory construction that if a statute is clear, plain and free from ambiguity, it must be given literal meaning and applied without attempted interpretation. Thus, any resolution granting allowances to directors of Water Districts other than that authorized in Sec. 13 of PD 198 is null and void. A statutorily proscribed benefit may not be amended by a mere administrative fiat.[2]

The Antecedents An auditing team from the COA Regional Office No. VIII in Candahug, Palo, Leyte, audited the accounts of the Catbalogan Water District (CWD) in Catbalogan, Samar. The auditing team discovered that between May to December 1997 and April to June 1998, members of CWDs interim Board of Directors (Board) granted themselves the following benefits: Representation and Transportation Allowance (RATA), Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, YearEnd Bonus and cash gifts. These allowances and bonuses were authorized under Resolution No. 313, series of 1995, of the Local Water Utilities Administration (LWUA). During the audit, the COA audit team issued two notices of disallowance dated 1 October 1998 disallowing payment of the allowances and bonuses received by petitioners, namely: Rodolfo S. De Jesus, Edelwina DG. Parungao, Hermilo S. Balucan, Avelino C. Castillo and Danilo B. De Leon as members of the CWD Board as well as Alice Marie C. Osorio as the Boards secretary (collectively petitioners). The audit team disallowed the allowances and bonuses on the ground that they run counter to Section 13 of Presidential Decree No. 198 (PD 198). Petitioners appealed to the COA Regional Office No. VIII but COA Regional Director Dominador T. Tersol denied the appeal. Aggrieved, petitioners filed a petition for review with the COA which in a decision dated 12 September 2000 denied the petition. The COA also denied on 5July 2001 petitioners motion for reconsideration. Hence, the instant petition.

The Issues Petitioners contend that the COA committed grave abuse of discretion amounting to lack or excess of jurisdiction in 1. Motu proprio exercising jurisdiction to declare LWUA Board Resolution No. 313, Series of 1995, as amended, not in conformity with Section 13 of PD 198, as amended; 2. Ruling that Section 13 of PD 198, as amended, prohibits payment to petitioners of RATA, extraordinary and miscellaneous expenses (EME), and other allowances and bonuses; 3. Demanding the refund of the disallowed allowances and bonuses received by petitioners as interim members and secretary of the CWD Board.

The Courts Ruling The petition is meritorious in part. The Catbalogan Water District was created pursuant to PD 198, as amended,[3] otherwise known as the Provincial Water Utilities Act of 1973. PD 198 authorized the local legislative bodies, through an enabling resolution, to create their respective water districts, subject to the guidelines and regulations under PD 198. PD 198 further created the Local Water Utilities Administration (LWUA), a national agency, and granted LWUA regulatory powers necessary to optimize public service from water districts.

COA s Authority to Disallow Allowances and Benefits Granted under LWUA Board Resolution No. 313, Series 1995 For authority to grant themselves additional allowances and bonuses, petitioners rely on LWUA Resolution No. 131, series of 1995, entitledPolicy Guidelines on Compensation and Other Benefits to WD Board of Directors. Petitioners assert that LWUA is the government agency tasked to regulate and control water districts created pursuant to PD 198 and that LWUA has the power to issue regulations to implement effectively PD 198. Petitioners claim that the COA has no jurisdiction to construe any provision of PD 198 on the compensation and other benefits granted to LWUAdesignated members of the board of water districts. By exercising motu proprio plenary jurisdiction to construe and apply Section 13 of PD 198, the COA encroached on the powers of the LWUA. The COA also violated the presumption of legality and regularity generally accorded to policy circulars issued by the administrative agency entrusted to enforce the law. Petitioners further claim that it is the Department of Budget and Management (DBM), not the COA, that has the power to administer the compensation and classification system of the government service and to revise it as necessary. Finally, citing Eslao v. COA,[4] petitioners contend that the COA can do no less than to faithfully observe and carry into effect the mandate of LWUA Board Resolution No. 313, until it is declared void in the proper forum. Petitioners contentions are untenable. Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides: Sec. 2(1). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned and controlled corporations with original charters, and on a post audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this constitution; (b) autonomous state colleges and state universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special preaudit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this article, to define the scope of its audit and examination, establish the techniques and methods required therefore, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. (Emphasis supplied) The Constitution and existing laws[5] mandate the COA to audit all government agencies, including government-owned and controlled corporations with original charters. Indeed, the Constitution specifically vests in the COA the authority to determine whether government entities comply with laws and regulations in disbursing government funds, and to disallow illegal or irregular disbursements of government funds.[6] This independent constitutional body is tasked to be vigilant and conscientious in safeguarding the proper use of the governments, and ultimately, the peoples property.[7] The Court already ruled in several cases[8] that a water district is a government-owned and controlled corporation with a special charter since it is created pursuant to a special law, PD 198. The COA has the authority to investigate whether directors, officials or employees of government-owned and controlled corporations, receiving additional allowances and bonuses, are entitled to such benefits under applicable laws. Thus, water districts are subject to the jurisdiction of the COA.[9] We cannot sustain petitioners claim that the COA usurped the functions of the LWUA in construing PD 198 and disallowing payment of the additional allowances and bonuses. Such a theory leads to the absurd situation where the board of an administrative agency, by the mere act of issuing a resolution, can put to naught the broad and extensive powers granted to the COA by the Constitution. This will prevent the COA from discharging its constitutional duty as an effective, efficient and independent watchdog of the financial operations of the government.[10] Petitioners reliance on Eslao[11] is misplaced. In Eslao, the Department of Environment and Natural Resources and the Pangasinan State University entered into an agreement to evaluate government reforestation programs. The Asian Development Bank granted a loan to fund the implementation of the agreement. The personnel involved in the project were paid under the DBM-issued National Compensation Circular No.53, which dealt with foreign-assisted projects. The COA disallowed the payment on the ground that the compensation should fall under the DBM-issued Compensation Policy Guidelines No. 80-4, which governs all projects and provides for lower compensation rates. In reversing the COA, the Court held that National Compensation Circular No. 53 amended Compensation Policy Guidelines No. 804 by excepting from the latters scope foreign-assisted projects. The Court declared that the COA cannot substitute its own judgment for any applicable x x x administrative regulation with the wisdom or propriety

of which, however, it does not agree, at least not before such x x x regulation is set aside by the x x x courts x x x. Clearly, Eslao is not in point. The difference is that in Eslao, the COA accepted the wisdom of Compensation Policy Guidelines No. 80-4 but refused to accept the propriety of the exception to the circular embodied in National Compensation Circular No. 53. The DBM issued both compensation regulations under its legislative authority to classify positions and determine appropriate salaries for specific position classes and. review appropriate salaries for specific position classes and review the compensation benefits programs of agencies x x x.[12] Clearly, the COA had ample legislative authority to issue both compensation regulations. In the instant case, the COA was simply exercising its constitutional duty to examine and audit disbursements of public funds that are patently beyond what the law allows. Petitioners confuse the COA which is an independent constitutional body with the DBM which is under the executive branch of the government. The DBM is responsible for formulating and implementing the national budget.[13] It is tasked to assist the President in the preparation of a national resources and expenditures budget, preparation, execution and control of the National budget, preparation and maintenance of accounting systems essential to the budgetary process, achievement of more economy and efficiency in the management of government operations, administration of compensation and position classification systems, assessment of organization effectiveness and review and evaluation of legislative proposals having budgetary or organizational implications.[14] While the DBM is the government agency tasked to release government funds, the duty to examine and audit government accounts and expenditure properly pertains to the COA.[15]

bonuses and other similar benefits disallowed in this case. This issue was already resolved in the similar case of Baybay Water District v. Commission on Audit.[16] In Baybay Water District, the members of the board of Baybay Water District also questioned the disallowance by the COA of payment of RATA, rice allowance and excessive per diems. The Court ruled that PD 198 governs the compensation of members of the board of water districts. Thus, members of the board of water districts cannot receive allowances and benefits more than those allowed by PD 198. Construing Section 13 of PD 198, the Court declared: xxx Under S 13 of this Decree, per diem is precisely intended to be the compensation of members of board of directors of water districts. Indeed, words and phrases in a statute must be given their natural, ordinary, and commonly-accepted meaning, due regard being given to the context in which the words and phrases are used. By specifying the compensation which a director is entitled to receive and by limiting the amount he/she is allowed to receive in a month, and, in the same paragraph, providing No director shall receive other compensation than the amount provided for per diems, the law quite clearly indicates that directors of water districts are authorized to receive only the per diem authorized by law and no other compensation or allowance in whatever form. Section 13 of PD 198 is clear enough that it needs no interpretation. It expressly prohibits the grant of compensation other than the payment of per diems, thus preempting the exercise of any discretion by water districts in paying other allowances and bonuses.[17]

Refund of the Allowances and Benefits Received in Good Faith Relying mainly on Civil Liberties Union v. Executive Secretary,[18] petitioners claim that the COA grossly erred in requiring them to refund the allowances and bonuses they received in good faith. In Civil Liberties Union, the Court declared Executive Order No. 284 unconstitutional as it allows Cabinet members, undersecretaries or assistant secretaries to hold multiple positions in violation of the express prohibition in Section 13, Article VII of the 1987 Constitution. However, the Court held that during their tenure in the questioned positions, respondents are de facto officers and entitled to emoluments for actual services rendered. The Court explained that in cases were there is no de jure officer, a de facto officer, who in good faith has had possession of the office and has discharged the duties pertaining thereto, is legally entitled to the emoluments of the office, and may in an appropriate action recover the salary, fees and other compensations attached to the office.[19] The Court considered it unjust that the public should benefit from the services of a de facto officer and then be freed from all liability to pay for such, services. Thus, the Court ruled that any per diem, allowances or other emoluments received by the respondents in Civil

PD 198 Expressly Prohibits the Grant of RATA, EME, and Bonuses to Members of the Board of Water Districts Section 13 of PD 198, as amended, reads as follows: Compensation. - Each director shall receive a per diem, to be determined by the board, for each meeting of the board actually attended by him, but no director shall receive per diems in any given month in excess of the equivalent of the total per diems of four meetings in any given month. No director shall receive other compensation for services to the district. Any per diem in excess of P50 shall be subject to approval of the Administration. (Emphasis supplied) Petitioners argue that the term compensation in Section 13 of PD 198 does not include RATA, EME,

Liberties Union for actual services rendered in the questioned positions may be retained by them. The scenario in petitioners case is different. The CWD Board appointed petitioners pursuant to PD 198. Petitioners received allowances and bonuses other than those granted to their office by PD 198. Petitioners cannot claim any compensation other than the per diem provided by PD 198 precisely because no other compensation is attached to their office. Nevertheless, our pronouncement in Blaquera v. Alcala[20] supports petitioners position on the refund of the benefits they received. InBlaquera, the officials and employees of several government departments and agencies were paid incentive benefits which the COA disallowed on the ground that Administrative Order No. 29 dated 19 January 1993 prohibited payment of these benefits. While the Court sustained the COA on the disallowance, it nevertheless declared that: Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject incentive benefits for the year 1992, which amounts the petitioners have already received. Indeed, no indicia of bad faith can be detected under the attendant facts and circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such benefits. This ruling in Blaquera applies to the instant case. Petitioners here received the additional allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313 authorized such payment. At the time petitioners received the additional allowances and bonuses, the Court had not yet decided Baybay Water District.[21] Petitioners had no knowledge that such payment was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and bonuses they received but disallowed by the COA. WHEREFORE, the Decision of the Commission on Audit dated 12 September 2000 as well as its Resolution dated 5 July 2001 are AFFIRMED with MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance, Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End Bonus and cash gifts, received per Resolution No. 313, series of 1995, of the Local Water Utilities Administration, between May to December 1997 and April to June 1998. SO ORDERED.

BOY SCOUTS G.R. No. OF 177131 THE PHILIPPINES, Petitioner,

Present: CORONA, C.J., CARPIO, CARPIO MORALES, VELASCO, JR., NACHURA, LEONARDO-DE CASTRO, BRION, PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, and SERENO, JJ.

- versus -

NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in accordance with generally accepted auditing standards, and express an opinion on whether the financial statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial position and results of operations. xxxx BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team audit approach.[8] (Emphases supplied.)

Promulgated: COMMISSION ON AUDIT, Respondent. June 7, 2011 x-----------------------------------------x DECISION LEONARDO-DE CASTRO, J.: The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject matter of this controversy that reached us via petition for prohibition[1] filed by the BSP under Rule 65 of the 1997 Rules of Court. In this petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision,[2] its February 21, 2007Resolution,[3] as well as all other issuances arising therefrom, and that all of the foregoing be rendered null and void. [4] Antecedent Facts and Background of the Case This case arose when the COA issued Resolution No. 99-011[5] on August 19, 1999 (the COA Resolution), with the subject Defining the Commissions policy with respect to the audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission,[6] the Supreme Court ruled that the BSP, as constituted under its charter, was a government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution; and that the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code.[7] The COA Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:

The BSP sought reconsideration of the COA Resolution in a letter[9] dated November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote: It is the position of the BSP, with all due respect, that it is not subject to the Commissions jurisdiction on the following grounds: 1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored on the substantial Government participation in the National Executive Board of the BSP. It is to be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by Presidential Decree 460. However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs charter after the cited case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National Executive Board of the BSP. The said RA virtually eliminated the substantial government

participation in the National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as Chief Scout, over the members of the said Board. The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the cases conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized as stock or non-stock corporations which the BSP, under its present charter, is not. Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides is that the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to time donate and contribute funds to the BSP. xxxx Also the BSP respectfully believes that the BSP is not appropriately regarded as a government instrumentality under the 1987 Administrative Code as stated in the COA resolution. As defined by Section 2(10) of the said code, instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x It may be argued also that the BSP is not an agency of the Government. The 1987 Administrative Code, merely referred the BSP as an attached agency of the DECS as distinguished from an actual line agency of departments that are included in the National Budget. The BSP believes that

an attached agency is different from an agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct unit therein. Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal subdivision or unit of any department (Section 2[8], Administrative Code).[10] Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog City.[11] In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a copy of the Memorandum[13] dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law eliminated the substantial government participation in the selection of members of the National Executive Board of the BSP. The Memorandum further provides: Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the BSPs purposes and functions which has a public aspect and the statutory designation of the BSP as a public corporation. These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A. No. 7278. On the argument that BSP is not appropriately regarded as a government instrumentality and agency of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a government-controlled corporation with an original charter and as an

instrumentality of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original charters.[14] Based on the Memorandum of the COA General Counsel, Director Sunico wrote: In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.[15] In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that a preliminary survey of its organizational structure, operations and accounting system/records shall be conducted on November 21 to 22, 2000.[16] Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA in its questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied under its questioned Resolution.[17] This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining order against the COA. The Issue As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COAs audit jurisdiction.

The Parties Respective Arguments The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National Labor Relations Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP employees.[18] While the BSP concedes that its functions do relate to those that the government might otherwise completely assume on its own, it avers that this alone was not determinative of the COAs audit jurisdiction over it. The BSP further avers that the Court inBoy Scouts of the Philippines v. National Labor Relations Commission simply stated x x x that in respect of functions, the BSP isakin to a public corporation but this was not synonymous to holding that the BSP is a government corporation or entity subject to audit by the COA. [19] The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government has ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be taken only within the context of that case; that the Court had categorically found that its assets were acquired from the Boy Scouts of America and not from the Philippine government, and that its operations are financed chiefly from membership dues of the Boy Scouts themselves as well as from property rentals; and that the BSP may correctly be characterized as non-governmental, and hence, beyond the audit jurisdiction of the COA. It further claims that the designation by the Court of the BSP as a government agency or instrumentality is mere obiter dictum.[20] The BSP maintains that the provisions of Republic Act No. 7278 suggest that governance of BSP has come to be overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of Education, Culture and Sports.[21] It cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the Court declared that, PAL, having ceased to be a government-owned or controlled corporation is no longer under the audit jurisdiction of the COA.[23] Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event that changed the BSPs corporate identity in the same way that the governments privatization program changed PALs, the BSP makes the case that the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction and the issuance of COA Resolution No. 99-011.[24] The BSP further claims as follows: It is not far-fetched, in fact, to concede that BSPs funds and assets are private in character. Unlike ordinary public corporations, such as provinces, cities, and municipalities, or government-owned and

controlled corporations, such as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not derived from any government grant. For its operations, BSP is not dependent in any way on any government appropriation; as a matter of fact, it has not even been included in any appropriations for the government. To be sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or continues to receive assets and funds from any agency of the government. The foregoing simply point to the private nature of the funds and assets of petitioner BSP. xxxx As stated in petitioners third argument, BSPs assets and funds were never acquired from the government. Its operations are not in any way financed by the government, as BSP has never been included in any appropriations act for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of government property or funds; nor have properties of the government been held in trust by BSP. This is precisely the reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x.[25] To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the government. In its Comment,[26] the COA argues as follows: 1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably prove that it is a government agency. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.

3.

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

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by the Court inBoy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign functions.[28] The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced under the term government instrumentality.[29] The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution. In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes,[30] wherein the Court held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640, designates it as one. Furthermore, the COA quotes the Court as saying in that case: In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of country. xxxx 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

2.

lease rentals earned from administering government lands reserved for the VFP. The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous application of the law by public officers does not bar a subsequent correct application of the law.[31] (Citations omitted.) The COA points out that the government is not precluded by law from extending financial support to the BSP and adding to its funds, and that as a government instrumentality which continues to perform a vital function imbued with public interest and reflective of the governments policy to stimulate patriotic sentiments and love of country, the BSPs funds from whatever source are public funds, and can be used solely for public purpose in pursuance of the provisions of Republic Act No. [7278].[32] The COA claims that the fact that it has not yet audited the BSPs funds may not bar the subsequent exercise of its audit jurisdiction. The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory designation as a public corporation and the public character of its purpose and functions are not determinative of the COA s audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because the aspect of government ownership and control has been removed by Republic Act No. 7278; and concluding that the funds and property that it either owned or held in trust are not public funds and are not subject to the COAs audit jurisdiction. Thereafter, considering the BSPs claim that it is a private corporation, this Court, in a Resolution[34] dated July 20, 2010, required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective comments on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional. In compliance with the Courts resolution, the parties filed their respective Comments. In its Comment[35] dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as amended, is not determinative of the resolution of the present controversy on the COAs audit jurisdiction over petitioner, and in fact, the controversy

may be resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth inCommissioner of Internal Revenue v. Court of Tax Appeals,[36] have not been fully met.[37] Moreover, the COA maintains that behind every law lies the presumption of constitutionality.[38] The COA likewise argues that contrary to the BSPs position, repeal of a law by implication is not favored.[39] Lastly, the COA claims that there was no violation of Section 16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on Audit,[40] the COA further alleges: The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. x x x.[41] For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP alleges that while [it] is not a public corporation within the purview of COAs audit jurisdiction, neither is it a private corporation created by special law falling within the ambit of the constitutional prohibition x x x.[43] The BSP further alleges: Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus: xxxx A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that petitioners purpose and functions are more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization without any distinction. It does not limit its membership to a particular class of boys. Petitioners members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to become model citizens and outstanding leaders of the country.[44]

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an entity may be subject of said jurisdiction.[45] It avers that it merely stated in its Reply that the withdrawal of government control is akin to privatization, but it does not necessarily mean that petitioner is a private corporation.[46] The BSP claims that it has a unique characteristic which neither classifies it as a purely public nor a purely private corporation;[47] that it is not a quasi-public corporation; and that it may belong to a different class altogether.[48] The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the enactment of the BSPs charter,[49] as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation are not its officers but its entire membership consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all boys who wish to join the organization without any distinction; and (iv) it does not limit its membership to a particular class or group of boys. Thus, the enactment of its charter confers no special privilege to particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to certain groups to the prejudice of others or of the interest of the country, which are the evils sought to be prevented by the constitutional provision involved.[50] Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear showing of its repugnancy to the Constitution.[51] The Ruling of the Court After looking at the legislative history of its amended charter and carefully studying the applicable laws and the arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COAs audit jurisdiction. The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes created the BSP as a public corporation to serve the following public interest or purpose: Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using

the method which are in common use by boy scouts. Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided substantial changes in the BSP organizational structure. Pertinent provisions are quoted below: Section II. Section 5 of the said Act is also amended to read as follows: The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number of individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their respective regions, all members of the National Executive Board shall be either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of members of the National Executive Board necessary to constitute a quorum of the board, which number may be less than a majority of the whole number of the board. The National Executive Board shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 by strengthening thevolunteer and democratic character of the BSP and reducing government representation in its governing body, as follows: Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows: "Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and not for pecuniary profit of its members. "Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, selfreliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts." Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4 shall read as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines." Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows: "Sec. 5. The governing body of the said corporation shall consist of a National Executive Board, the members of which shall be Filipino citizens of good moral character. The Board shall be composed of the following: "(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of the National Council at its meeting called for this purpose; "(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman need not be the chairman of a local scout council; "(c) The Secretary Education, Culture and Sports; of

"(d) The National President of the Girl Scouts of the Philippines; "(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called for this purpose, to represent the boy scout membership; "(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called for this purpose; "(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be elected by the members of the National Executive Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National Executive Board which shall be held immediately after the meeting of the National Council wherein the twelve (12) regular

members and the one (1) charter member were elected. xxxx "Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act. The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads: Art. 44. The following are juridical persons: (1) The State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.) The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45 of the Civil Code, which provides: Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing them. Private corporations are regulated by laws of general application on the subject. Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy declared in Article II, Section 13 of the Constitution, which reads: ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in public and civic affairs. Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class of public corporations defined by paragraph 2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code. The BSPs Classification Under the Administrative Code of 1987 The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative Code of 1987, which states: TITLE VI EDUCATION, CULTURE AND SPORTS Chapter 8 Attached Agencies SEC. 20. Attached Agencies. The following agencies are hereby attached to the Department: xxxx (12) Boy Philippines; (13) Philippines. Girl Scouts Scouts of of the the

The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987 as follows: BOOK IV THE EXECUTIVE BRANCH Chapter 7 ADMINISTRATIVE RELATIONSHIP SEC. 38. Definition of Administrative Relationship . Unless

otherwise expressly stated in the Code or in other laws defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as follows: xxxx (3) Attachment. (a) This refers to the lateral relationship between the department or its equivalent and the attached agency or corporationfor purposes of policy and program coordination. The coordination may be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency. (Emphasis ours.) As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by having at least one representative of government in its governing board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not under government control or supervision and control. Still this characteristic does not make the attached chartered agency a private corporation covered by the constitutional proscription in question. Art. XII, Sec. 16 of the Constitution refers to private corporations created by government for proprietary or economic/business purposes At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of Article XII is quoted as follows: SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged. The State shall promote industrialization and full employment

based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices. In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership. The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration of state policies and goals which pertains to national economy and patrimony and the interests of the people in economic development. Section 16, Article XII deals with the formation, organization, or regulation of private corporations,[52] which should be done through a general law enacted by Congress, provides for an exception, that is: if the corporation is government owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on Audit,[53] in the following manner: The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.[54] (Emphasis added.) It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of private corporations by special law. The said constitutional provision should not be construed so as to prohibit the creation of public corporations or a corporate agency or instrumentality of the government intended to serve a public interest or purpose, which should not be measured on the basis of economic viability, but according to the public interest or purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of 1987.

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there exists another distinct class of corporations or chartered institutions which are otherwise known as public corporations. These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Departments or Offices. Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution recognizes only two classes of corporations: private corporations under a general law, and government-owned or controlled corporationscreated by special charters. We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the constitutional policies or objectives. In his dissent, Justice Carpio contends that this ponente introduces a totally different species of corporation, which is neither a private corporation nor a government owned or controlled corporation and, in so doing, is missing the fact that the BSP, which was created as a non-stock, non-profit corporation, can only be either a private corporation or a government owned or controlled corporation. Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter, was regarded as both a government owned or controlled corporation with original charter and a public corporation. The said case pertinently stated: While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we believe that considering the character of its purposes and its functions, the statutory designation of

the BSP as "a public corporation" and the substantial participation of the Government in the selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled corporation within the meaning of Article IX (B) (2) (1) of the Constitution. We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein. "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner: Instrumentalit y - refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. The same Code describes a "chartered institution" in the following terms: Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the

state universities and colleges, and the monetary authority of the State. We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code. It thus appears that the BSP may be regarded as both a "government controlled corporation with an original charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases supplied.) The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct from private corporations and government owned or controlled corporation is best exemplified by the 1987 Administrative Code cited above, which we quote in part: Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx (10) "Instrumentality" refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. xxxx (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 nonstock 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 governmentowned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations. Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases to be a government instrumentality as it still retains all the characteristics of the latter as an attached agency of the DECS under the Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the government is not constitutionally prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative Code. Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be owned or controlled by the government and be economically viable to justify its existence under a special law. The dissent of Justice Carpio also submits that by recognizing a new class of public corporation(s) created by special charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented. However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest law of our land to distinguish between government corporations performing governmental functions and corporations involved in business or proprietary functions: THE PRESIDENT. Commissioner Foz is recognized. MR. FOZ. Madam President, I support the proposal to insert ECONOMIC VIABILITY as one of the

grounds for organizing government corporations. x x x. MR. OPLE. Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers money through new equity infusions from the government and what is always invoked is the common good. x x x Therefore, when we insert the phrase ECONOMIC VIABILITY together with the common good, this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. x x x. xxxx THE PRESIDENT. Commissioner Quesada is recognized. MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability? THE proceed. PRESIDENT. Please

minimum government participation and intervention in the economy. MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements when the government would get into corporations. But this time around, we specifically mentioned economic viability. x x x. MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment. MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with Commissioner Foz. During the past three decades, there had been a proliferation of government corporations, very few of which have succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for liquidation because they failed the economic test. x x x. xxxx MS. QUESADA. But would not the Commissioner say that the reason why many of the government-owned or controlled corporations failed to come up with the economic test is due to the management of these corporations, and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of management of these corporations which could be remedied, not by eliminating government corporations or the idea of getting into state-owned corporations, but improving management which our technocrats should be able to do, given the training and the experience. MR. OPLE. That is part of the economic viability, Madam President. MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-controlled corporations were given to private hands, and that there will be more goods and services that will be affordable and within the reach of the ordinary citizens? MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation in accordance with a special charter

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all benefits, including economic external as well as internal benefits. These are what they call externalities in economics, so that these are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of the country that are not quantifiable in financial terms. x x x. xxxx MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into activities engaged in by corporations? MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved that there should be

given by Congress. However, we are raising the standard a little bit so that, in the future, corporations established by the government will meet the test of the common good but within that framework we should also build a certain standard of economic viability. xxxx THE PRESIDENT. Commissioner Padilla is recognized. MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for government-owned or controlled corporations, will these be in the pioneer fields or in places where the private enterprise does not or cannot enter? Or is this so general that these government corporations can compete with private corporations organized under a general law? MR. MONSOD. Madam President, x x x. There are two types of government corporations those that are involved in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed for corporations that want to go into business. First is for government corporations to first prove that they can be efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the private sector can do better. MR. PADILLA. There is no question about corporations performing governmental functions or functions that are impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively, by private enterprise. It seems that under this provision the only qualification is economic viability and common good, but shall government, through government-controlled corporations, compete with private enterprise? MR. MONSOD. No, Madam President. As we said, the government

should not engage in activities that private enterprise is engaged in and can do better. x x x.[56] (Emphases supplied.) Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions, to which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this constitutional ban on the creation of public corporations where the economic viability test would be irrelevant. The said test would only apply if the corporation is engaged in some economic activity or business function for the government. It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one of the bills sponsors, Senator Joey Lina, described the BSP as follows: Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should be given this kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these two groups, I do not think there are other groups similarly situated. The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how huge the population of the young people is, at this point in time, and also considering the importance of having an organization such as this that will inculcate moral uprightness among the young people, and further considering that the development of these young people at that tender age of seven to sixteen is vital in the development of the country producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines from this general prohibition against providing tax exemption and privileges.[57] Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress to return the BSP to the private sector. It was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth organization, which has been its partner in forming responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached under its original charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the amendments to its Charter under Presidential Decree No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of the different departments in government who were too busy to attend the meetings of the BSPs National Executive Board (the Board) sent representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils established in the provinces and cities were not in touch with what was happening on the national level, but they were left to implement what was decided by the Board.[58] A portion of the legislators discussion is quoted below to clearly show their intent: HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout Movement has done not only for the youth in particular but for the country in general. And that is why, if we look around, our past and present national leaders, prominent men in the various fields of endeavor, public servants in government offices, and civic leaders in the communities all over the land, and not only in our country but all over the world many if not most of them have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have the early approval of this measure if only to pay back what we owe much to the Scouting Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just the Scouting Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest scouting organization in the world x x x. And to our mind, Mr. Chairman, this erratic growth and this decrease in membership [number] is because of the bad policy measures that were enunciated with the enactment or promulgation by the President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of the National Council in the election of the national board. x x x. And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also

confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working together, the Boy Scout of the Philippines officers working together with the House of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the Boy Scout Movement. x x x.[59](Emphasis ours.) The following is another excerpt from the discussion on the House version of the bill, in the Committee on Government Enterprises: HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of the Philippines did not provide for any direct government support by way of appropriation from the national budget to support the activities of this organization. The point here is, and at the same time they have been subjected to a governmental intervention, which to their mind has been inimical to the objectives and to the institution per se, that is why they are seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act 111. Such having been the experience in the hands of government, meaning, there has been negative interference on their part and inasmuch as their mandate is coming from a legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be better for this organization to seek a mandate from, lets say, the government the Corporation Code of the Philippines and register with the SEC as non-profit non-stock corporation so that government intervention could be very very minimal. Maybe thats a rhetorical question, they may or they may not answer, ano. I dont know what would be the benefit of a charter or a mandate being provided for by way of legislation versus a registration with the SEC under the Corporation Code of the Philippines inasmuch as they dont get anything from the government anyway insofar as direct funding. In fact, the only thing that they got from government was intervention in their affairs. Maybe we can solicit some commentary comments from the resource persons. Incidentally, dont take that as an objection, Im not objecting. Im all for the objectives of these two bills. It just occurred to me

that since you have had very bad experience in the hands of government and you will always be open to such possible intervention even in the future as long as you have a legislative mandate or your mandate or your charter coming from legislative action. xxxx MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of scout organization. Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the organization will lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze the assets of the organization and hamper the operation of the organization. I dont know, Mr. Chairman, how you look at it but there could be a danger for anybody filing a complaint against the organization in the SEC and the SEC might suspend the registration permit of the organization and we will not be able to operate. HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC because even if you are government corporation, court action may be taken against you in other judicial bodies because the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first point that you raised. In effect, what you are saying is that with the legislative mandate creating your charter, in effect, you have been given some sort of a franchise with this movement. MR. ESCUDERO: Yes. HON. AQUINO: Exclusive franchise of that movement? MR. ESCUDERO: Yes. HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr. Chairman. x x x.[60] (Emphases added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board, this was done to more strongly promote the BSPs objectives, which were not supported under Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-being of the youth, the future leaders of the country. The amendments were not done with the view of changing the character of the BSP into a privatized corporation. The BSP remains an agency attached to a department of the government, the DECS, and it was not at all stripped of its public character. The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary sits at the BSP Board ex officio,thus facilitating the policy and program coordination between the BSP and the DECS. Requisites for Declaration on Unconstitutionality Not Met in this Case The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone does not comply with the requisites for judicial review, which were clearly set forth in a recent case: When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.[61] (Emphasis added.) Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota, or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be ignored under the dissents rather overreaching view of how this case should have been decided. True, it was the Court that asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a law.

Re: the COAs Jurisdiction Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive contributions or donations from the government. Section 8 reads: Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the Executive Board in pursuance of this Act. The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises while the bill was being deliberated, and the pertinent portion of the discussion is quoted below: MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time, Mr. Chairman, when we have special activities we request for assistance or financial assistance from government agencies, from private business and corporations, but this is only during special activities that the Boy Scouts of the Philippines would conduct during the year. Otherwise, we have to raise our own funds to support the organization.[62] The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought up in said congressional deliberations, to wit: HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government corporation classified as such, are your funds or your finances subjected to the COA audit? MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall under the jurisdiction of the COA.

HON. AQUINO: All right, but before were you? MR. Chairman. ESCUDERO: No, Mr.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was and the Boy Scouts then because of this funding partly from government was being subjected to audit in the contributions being made in the part of the Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding from government, but then in the case of the local councils and this legislative charter, so to speak, enables the local councils even the national headquarters in view of the provisions in the existing law to receive donations from the government or any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private corporation with the Securities and Exchange Commission. Government bodies would be estopped from making donations to the Boy Scouts, which at present is not the case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463. xxxx HON. AMATONG: Mr. Chairman, in connection with that. THE CHAIRMAN: Yeah, Gentleman from Zamboanga. HON. AMATONG: There is no auditing being made because theres no money put in the organization, but how about donated funds to this organization? What are the remedies of the donors of how will they know how their money are being spent? MR. ESCUDERO: May I answer, Mr. Chairman? THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to submit a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise is accounted for at the end of the year by our external auditor. In this case the SGV.[63] Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under the Constitution, which pertinently provides: Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other governmentowned or controlled corporations with original charters and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law of the granting institution to submit to such audit as a condition of subsidy or equity. x x x. [64] Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of the BSP Charter. WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED. SO ORDERED.

G.R. No. 79182 September 11, 1991 PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO, respondents. Bacorro & Associates for petitioner. Alberto L. Dalmacion for private respondent. PARAS, J.:p This is a petition for certiorari to set aside the Resolution * dated July 3, 1987 of respondent National Labor Relations Commission (NLRC for brevity) which affirmed the decision dated April 30, 1986 of Labor Arbiter Vito J. Minoria of the NLRC, Regional Arbitration Branch No. VII at Cebu City in Case No. RAB-VII-0556-85 entitled "Danilo Mercado, Complainant, vs. Philippine National Oil Company-Energy Development Corporation, Respondent", ordering the reinstatement of complainant Danilo Mercado and the award of various monetary claims. The factual background of this case is as follows: Private respondent Danilo Mercado was first employed by herein petitioner Philippine National Oil CompanyEnergy Development Corporation (PNOC-EDC for brevity) on August 13, 1979. He held various positions ranging from clerk, general clerk to shipping clerk during his employment at its Cebu office until his transfer to its establishment at Palimpinon, Dumaguete, Oriental Negros on September 5, 1984. On June 30, 1985, private respondent Mercado was dismissed. His last salary was P1,585.00 a month basic pay plus P800.00 living allowance (Labor Arbiter's Decision, Annex "E" of Petition, Rollo, p. 52). The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty committed as follows: 1. On ApriI 12, 1985, Danilo Mercado was ordered to purchase 1,400 pieces of nipa shingles from Mrs. Leonardo Nodado of Banilad, Dumaguete City, for the total purchase price of Pl,680.00. Against company policy, regulations and specific orders, Danilo Mercado withdrew the nipa shingles from the supplier but paid the amount of P1,000.00 only. Danilo Mercado appropriated the balance of P680.00 for his personal use; 2. In the same transaction stated above, the supplier agreed to give the company a discount of P70.00 which Danilo Mercado did not report to the company; 3. On March 28, 1985, Danilo Mercado was instructed to contract the services of Fred R. Melon of Dumaguete City, for

the fabrication of rubber stamps, for the total amount of P28.66. Danilo Mercado paid the amount of P20.00 to Fred R. Melon and appropriated for his personal use the balance of P8.66. In addition, private respondent, Danilo Mercado violated company rules and regulations in the following instances: 1. On June 5, 1985, Danilo Mercado was absent from work without leave, without proper turn-over of his work, causing disruption and delay of company work activities; 2. On June 15, 1985, Danilo Mercado went on vacation leave without prior leave, against company policy, rules and regulations. (Petitioner's Memorandum, Rollo, p. 195). On September 23, 1985, private respondent Mercado filed a complaint for illegal dismissal, retirement benefits, separation pay, unpaid wages, etc. against petitioner PNOC-EDC before the NLRC Regional Arbitration Branch No. VII docketed as Case No. RAB-VII0556-85. After private respondent Mercado filed his position paper on December 16, 1985 (Annex "B" of the Petition, Rollo, pp. 28-40), petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss on January 15, 1986, praying for the dismissal of the case on the ground that the Labor Arbiter and/or the NLRC had no jurisdiction over the case (Annex "C" of the Petition, Rollo, pp. 41-45), which was assailed by private respondent Mercado in his Opposition to the Position Paper/Motion to Dismiss dated March 12, 1986 (Annex "D" of the Petition, Rollo, pp. 46-50). The Labor Arbiter ruled in favor of private respondent Mercado. The dispositive onion of said decision reads as follows: WHEREFORE, in view of the foregoing, respondents are hereby ordered: 1) To reinstate complainant to his former position with full back wages from the date of his dismissal up to the time of his actual reinstatement without loss of seniority rights and other privileges; 2) To pay complainant the amount of P10,000.00 representing his personal share of his savings account with the respondents; 3) To pay complainants the amount of P30,000.00 moral damages; P20,000.00

exemplary damages and P5,000.00 attorney's fees; 4) To pay complainant the amount of P792.50 as his proportionate 13th month pay for 1985. Respondents are hereby further ordered to deposit the aforementioned amounts with this Office within ten days from receipt of a copy of this decision for further disposition. SO ORDERED. (Labor Arbiter's Decision, Rollo, p. 56) The appeal to the NLRC was dismissed for lack of merit on July 3, 1987 and the assailed decision was affirmed. Hence, this petition. The issues raised by petitioner in this instant petition are: 1. Whether or not matters of employment affecting the PNOC-EDC, a government-owned and controlled corporation, are within the jurisdiction of the Labor Arbiter and the NLRC. 2. Assuming the affirmative, whether or not the Labor Arbiter and the NLRC are justified in ordering the reinstatement of private respondent, payment of his savings, and proportionate 13th month pay and payment of damages as well as attorney's fee. Petitioner PNOC-EDC alleges that it is a corporation wholly owned and controlled by the government; that the Energy Development Corporation is a subsidiary of the Philippine National Oil Company which is a government entity created under Presidential Decree No. 334, as amended; that being a government-owned and controlled corporation, it is governed by the Civil Service Law as provided for in Section 1, Article XII-B of the 1973 Constitution, Section 56 of Presidential Decree No. 807 (Civil Service Decree) and Article 277 of Presidential Decree No. 442, as amended (Labor Code). The 1973 Constitution provides: The Civil Service embraces every branch, agency, subdivision and instrumentality of the government including government-owned or controlled corporations. Petitioner PNOC-EDC argued that since Labor Arbiter Minoria rendered the decision at the time when the 1973 Constitution was in force, said decision is null and void because under the 1973 Constitution, governmentowned and controlled corporations were governed by

the Civil Service Law. Even assuming that PNOC-EDC has no original or special charter and Section 2(i), Article IXB of the 1987 Constitution provides that: The Civil Service embraces all branches, subdivision, instrumentalities and agencies of the Government, including government-owned or controlled corporations with original charters. such circumstances cannot give validity to the decision of the Labor Arbiter (Ibid., pp. 192-193). This issue has already been laid to rest in the case of PNOC-EDC vs. Leogardo, 175 SCRA 26 (July 5, 1989), involving the same petitioner and the same issue, where this Court ruled that the doctrine that employees of government-owned and/or con controlled corporations, whether created by special law or formed as subsidiaries under the General Corporation law are governed by the Civil Service Law and not by the Labor Code, has been supplanted by the present Constitution. "Thus, under the present state of the law, the test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law are the manner of its creation, such that government corporations created by special charter are subject to its provisions while those incorporated under the General Corporation Law are not within its coverage." Specifically, the PNOC-EDC having been incorporated under the General Corporation Law was held to be a government owned or controlled corporation whose employees are subject to the provisions of the Labor Code (Ibid.). The fact that the case arose at the time when the 1973 Constitution was still in effect, does not deprive the NLRC of jurisdiction on the premise that it is the 1987 Constitution that governs because it is the Constitution in place at the time of the decision (NASECO v. NLRC, G.R. No. 69870, 168 SCRA 122 [1988]). In the case at bar, the decision of the NLRC was promulgated on July 3, 1987. Accordingly, this case falls squarely under the rulings of the aforementioned cases. As regards the second issue, the record shows that PNOC-EDC's accusations of dishonesty and violations of company rules are not supported by evidence. Nonetheless, while acknowledging the rule that administrative bodies are not governed by the strict rules of evidence, petitioner PNOC-EDC alleges that the labor arbiter's propensity to decide the case through the position papers submitted by the parties is violative of due process thereby rendering the decision null and void (Ibid., p. 196). On the other hand, private respondent contends that as can be seen from petitioner's Motion for Reconsideration and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57- 64), the latter never questioned the findings of facts of the Labor Arbiter but simply limited its objection to the lack of legal basis in view of

its stand that the NLRC had no jurisdiction over the case (Private Respondent's Memorandum, Rollo, p. 104). Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss dated January 15, 1986 (Annex "C" of the Petition Rollo, pp. 41-45) before the Regional Arbitration Branch No. VII of Cebu City and its Motion for Reconsideration and/or Appeal dated July 28, 1986 (Annex "F" of the Petition, Rollo, pp. 57-64) before the NLRC of Cebu City. Indisputably, the requirements of due process are satisfied when the parties are given an opportunity to submit position papers. What the fundamental law abhors is not the absence of previous notice but rather the absolute lack of opportunity to ventilate a party's side. There is no denial of due process where the party submitted its position paper and flied its motion for reconsideration (Odin Security Agency vs. De la Serna, 182 SCRA 472 [February 21, 1990]). Petitioner's subsequent Motion for Reconsideration and/or Appeal has the effect of curing whatever irregularity might have been committed in the proceedings below (T.H. Valderama and Sons, Inc. vs. Drilon, 181 SCRA 308 [January 22, 1990]). Furthermore, it has been consistently held that findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are accorded not only respect but even finality (Asian Construction and Development Corporation vs. NLRC, 187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation vs. Federation of Free Workers, 189 SCRA 179 [August 30, 1990]). Judicial review by this Court does not go so far as to evaluate the sufficiency of the evidence but is limited to issues of jurisdiction or grave abuse of discretion (Filipinas Manufacturers Bank vs. NLRC, 182 SCRA 848 [February 28, 1990]). A careful study of the records shows no substantive reason to depart from these established principles. While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee, such loss or breach of trust must have some basis (Gubac v. NLRC, 187 SCRA 412 [July 13, 1990]). As found by the Labor Arbiter, the accusations of petitioner PNOC-EDC against private respondent Mercado have no basis. Mrs. Leonardo Nodado, from whom the nipa shingles were purchased, sufficiently explained in her affidavit (Rollo, p. 36) that the total purchase price of P1,680.00 was paid by respondent Mercado as agreed upon. The alleged discount given by Mrs. Nodado is not supported by evidence as well as the alleged appropriation of P8.66 from the cost of fabrication of rubber stamps. The Labor Arbiter, likewise, found no evidence to support the alleged violation of company rules. On the contrary, he found respondent Mercado's explanation in his affidavit (Rollo, pp. 38-40) as to the alleged violations to be satisfactory. Moreover, these findings were never contradicted by petitioner petitioner PNOC-EDC. PREMISES CONSIDERED, the petition is DENIED and the resolution of respondent NLRC dated July 3, 1987 is AFFIRMED with the modification that the moral damages are reduced to Ten Thousand (P10,000.00)

Pesos, and the exemplary damages reduced to Five Thousand (P5,000.00) Pesos. SO ORDERED.

G.R. No. 113212 December 29, 1995 THE DEPARTMENT OF HEALTH (DR. JOSE N. RODRIGUEZ MEMORIAL HOSPITAL) and CESAR J. VIARDO, M.D., in his capacity as Director of the Dr. Jose N. Rodriguez Memorial Hospital, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER CORNELIO L. LINSANGAN and CEFERINO R. LAUR, respondents. HERMOSISIMA, JR., J.: The eternal problem of jurisdiction over Government employees is again posed in this case: Which Government agency the National Labor Relations Commission or the Civil Service Commission has jurisdiction over contests relating to the civil service? This is a Petition for Certiorari and Prohibition filed by the Department of Health in behalf of the Dr. Jose N. Rodriguez Memorial Hospital (DJRMH) and its Director, Cesar J. Viardo, seeking to review and set aside the Resolution of the National Labor Relations Commission in NLRC NCR CA No. 002864-92 (NLRC Case No. 00-0905194-90), dated September 7, 1993, which dismissed herein petitioners' appeal from the January 2, 1992 Decision of Labor Arbiter Cornelio L. Linsangan. The antecedent facts, culled from the assailed Decision rendered by Labor Arbiter Cornelio Linsangan and that of the NLRC, respectively, as well as from the pleadings of the parties, are not in dispute: Private respondent Ceferino R Laur was a patient of the then Tala Leprosarium (now Jose N. Rodriguez Memorial Hospital), having been admitted thereto in 1951 for treatment of Hansen's disease, commonly termed leprosy. He was discharged in 1956 after he was deemed to have been cured of his affliction. In 1975, he was employed at the DJRMH as a patientassistant by the then Hospital Director, Dr. Artemio F. Runez, upon the recommendation of the Barangay Captain of Tala. Specifically assigned as a member of the Patient-Assistant Police Force, he was accorded a compensation/salary, initially, in the amount of P110.00. This was gradually increased through the years, depending upon the availability of funds. His salary was chargeable to the maintenance and operating expenses of the hospital. On September 15, 1989, complaints for Alarm and Scandal, Oral Defamation, Grave Threats, Concealment of Deadly Weapon, Violation of the Code of Ethics of Policemen, and Conduct Unbecoming of a Police Officer were filed against said private respondent, pursuant to a report made by his Chief of Police. Upon a finding of guilt of the aforesaid offenses, the said private respondent was meted the penalty of suspension for sixty (60) days, with a stern warning that a repetition of the same would result in his outright dismissal by petitioner Dr. Cesar J. Viardo in his capacity as Chief of Hospital. 1

On July 15, 1990, private respondent Laur got involved in the mauling of one, Jake Bondoc, along with two policemen, Corporal Ferrer and Patrolman Berdon, Private respondent's account of the incident is to the effect that, while private respondent and his companions were manning their posts at the hospital's Administration Building, a group of twelve (12) young boys engaged another group of four male youngsters (4) in a stone-throwing encounter. This resulted in damage to the windows of the nearby Holy Rosary College. The caretaker of the college, Agustin Chan, while assessing the damage caused, was chased by the smaller group and threw stones at him. Agustin Chan ran and took refuge at the administration building where private respondent and the two policemen were on guard duty. It was at this point that one of the policemen hit one of the stone throwers with a night stick. 2 A complaint filed by a certain Jake Bondoc, one of the young boys, against private respondent and his companions provoked an investigation conducted on July 27, 1990, during which complainant Bondoc pointed to private respondent as the party responsible for his injuries even as Patrolman Berdon admitted to having hit Bondoc. On August 21, 1990, private respondent was dismissed by the Chief of Hospital, Dr. Cesar J. Viardo per Office Order No. 101, s-90, on the basis of the Public Assistance Complaints Unit's (PACU) report/investigation finding private respondent and his companions to have indeed mauled Jake Bondoc. The two policemen were merely suspended. Consequently, on September 26, 1990, private respondent filed with the National Labor Relations Commission a complaint for illegal dismissal with additional claims for payment of wage differentials, holiday pay, overtime pay and 13th month pay, as well as payment of moral and exemplary damages, attorney's fees and expenses of litigation and with prayer for reinstatement without loss of seniority rights against Dr. Jose N. Rodriguez Memorial Hospital (DJRMH) and Dr. Cesar J. Viardo. This was docketed as "NLRC NCR Case No. 00-09-05194-90" and subsequently assigned to Labor Arbiter Cornelio Linsangan. On January 2, 1993, Labor Arbiter Cornelio Linsangan rendered his Decision in private respondent's favor, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the respondent hospital to: 1. reinstate complainant to his former position or if not possible, pay him separation pay equivalent to one month salary for every year of service; 2. pay complainant the amount of P198,000.00 representing underpaid wages, unpaid overtime, holiday pay and 13th month pay;

3. pay the complainant full backwages which as of this date amounts to P49,088.00; 4. pay the complainant the amount of P20,000.00 as moral and exemplary damages; and 5. pay the complainant attorney's fees equivalent to 10% of the total award. 3 Respondent Labor Arbiter Linsangan so ruled because first, he has determined that, contrary to the petitioners' position that private respondent's employment was part of his medication and rehabilitative therapy, private respondent was in truth an employee in contemplation of the Labor Code, the existence of an employeremployee relationship between petitioner hospital and private respondent being evident from the fact that private respondent's work is necessary and desirable for the operation of the hospital. Private respondent was allegedly performing such functions as were inherent to and undertaken by the members of the regular police force. This, the respondent Labor Arbiter believes to be an indication that what private respondent was assigned to do was definitely beyond his rehabilitative therapy. Second, private respondent's dismissal was illegal because it was not for a just cause. The mauling incident was not sufficiently established, and, even if so established, the same would not justify his dismissal. Such dismissal was wanting in due process in view of the non-observance of the procedure prescribed for a valid exercise of the power to dismiss under Sections 2, 5 and 6 of Rule XIV of the Rules Implementing B.P. Blg. 130. 4 The aforesaid decision was appealed to the NLRC. In its Resolution, dated September 27, 1993, the NLRC dismissed the appeal, the dispositive portion of which reads: WHEREFORE, respondents appeal is hereby dismissed for its failure to perfect the same on time. 5 The petitioners, thus, instituted this petition for certiorari. The principal issue presented in this case is whether or not respondents NLRC and Labor Arbiter Cornelio L. Linsangan committed serious error in their decisions and acted without jurisdiction when they took cognizance of the complaint filed by private respondent Ceferino R Laur before the NLRC instead of the Civil Service Commission. The petitioners mainly contend that since the DJRMH is a government hospital, its employees are covered by Civil Service rules and regulations and not by the Labor Code. Therefore, any controversy concerning the relationship between the employees on the one hand and the hospital's administration on the other, as is the case of private respondent, comes under the jurisdiction of the Merit Systems Board and the Civil Service Commission.

We find the petition to be impressed with merit The petitioner-hospital, the DJRMH, originally known as the Tala Leprosarium, was one of three leper colonies established under Commonwealth Act No. 161. Maintained to this day as a public medical center and health facility attached to the Department of Health, the DJRMH exercises strictly governmental functions relating to the management and control of the dreaded communicable Hansen's disease, commonly known as leprosy. As it is clearly an agency of the Government, the DJRMH falls well within the scope and/or coverage of the Civil Service Law in accordance with paragraph 1., Section 2, Article IX B, 1987 Constitution and the provisions of Executive Order No. 292, otherwise known as the Administrative Code of 1987 and Presidential Decree No. 807, otherwise known as the Civil Service Decree of the Philippines. As the central personnel agency of the Government, the Civil Service Commission administers the Civil Service Law. It is, therefore, the single arbiter of all contests relating to the civil service. 6 The discharge of this particular function was formerly lodged in one of its offices, the Merit Systems Protection Board (MSPB) which was vested with the power, among others, "to hear and decide on appeal administrative cases involving officials and employees of the civil service and its decision shall be final except those involving dismissal or separation from the service which may be appealed to the Commission". 7 However, with the issuance of Civil Service Commission Resolution No. 93-2387 on June 29, 1993, such appeals shall now be filed directly with the Civil Service Commission. Pertinent portion of said resolution reads: xxx xxx xxx NOW, THEREFORE, pursuant to the provisions of Section 17 of Book V of the Administrative Code of 1987 which authorizes the Commission, as an independent constitutional body, to effect changes in its organization as the need arises, the Commission Resolves as it is hereby Resolved to effect the following changes: 1. Decisions in administrative cases involving officials and employees of the civil service appealable to the Commission pursuant to Section 47 of Book V of the Code including personnel actions such as contested appointments shall now be appealed directly to the Commission and not the MSPB; 8 xxx xxx xxx Worthy to note in this connection is the fact that the Labor Code itself provides that "the terms and conditions of employment of government employees shall be governed by the Civil Service Law, rules and regulations". 9

Conformably to the foregoing, it is, indeed, the Civil Service Commission which has jurisdiction over the present controversy. Its decisions are subject to review by the Supreme Court. 10 Jurisdiction is conferred by law. Where there is none, no agreement of the parties can provide one. 11Consequently, it was incorrect for the respondent labor arbiter to have proceeded to hear the case, simply because private respondent Ceferino Laur happened to lodge his complaint before his office, 12 or to hold that petitioners are estopped from assailing the respondent labor authorities' jurisdiction over the present case simply because the petitioners have earlier submitted themselves to the said jurisdiction by virtue of their participation in all the stages of the proceedings in the office of respondent Labor Arbiter Linsangan and in the NLRC, and that they failed to raise the issue of jurisdiction in the said proceedings. 13 Considering that the decision of a tribunal not vested with appropriate jurisdiction is null and void, 14 the respondent labor arbiter's finding of an employeremployee relationship between the petitioner government agency and the private respondent should serve no purpose whatsoever. Respondent labor arbiter's order of payment of private respondent's monetary claims is likewise null and should not be given effect. WHEREFORE, finding the Dr. Jose N. Rodriguez Memorial Hospital to be within the scope of the Civil Service Law and not of the Labor Code, the questioned decision of the respondent labor arbiter dated January 2, 1992 and the resolution of the NLRC, dated September 7, 1993, are hereby REVERSED and SET ASIDE for having been rendered without jurisdiction. The Temporary Restraining Order issued on February 28, 1994 is hereby made permanent. SO ORDERED.

G.R. No. 131529 April 30, 1999 IRINEO V. INTIA, JR., Postmaster General, Philippine Postal Corporation, and the Legal Officers of the PPCMain namely: WILFREDO B. SERRANO, MA. TERESA A. LORICO-GONZALES, LEONARDO C. DARANTINAO, JR., HENRY C. FAUSTO, LEE P. VICERAL, ROMAN T. COBRADO, JESSIE R. REOTUTAR, ROMUALDO L. RANAN, and ELEN I. NAGTALON, petitioners, vs. THE COMMISSION ON AUDIT and the CORPORATE AUDITOR FOR PHILIPPINE POSTAL CORPORATION , respondents. ROMERO, J In this special civil action under Rule 64 of the New Rules of Court, in relation to Rule 65 thereof, petitioner seek the reversal of the Decision 1 dated November 4, 1997 of public respondent Commission on Audit (COA) which affirmed the disallowances made by respondent Corporate Auditor for Philippine Postal Corporation (PPC) of the Representation and Transportation Allowance (RATA) of certain officials of PPC. The dispositive portion of said decision reads: Upon all the foregoing considerations, this Commission affirms the disallowances made by the Auditor as concurred in by the Director, Corporate Audit Office II, this Commission. Accordingly, the instant appeal has to be, as it is hereby denied for lack of merit. The facts are as follows: On April 7, 1992, Republic Act No. 7354, otherwise known as "The Postal Service Act of 1992," was enacted and approved creating the Philippine Postal Corporation and defining its powers, functions, and responsibilities. Pursuant to the powers granted to It by the said charter, the PPC Board of Directors issued and approved Board Resolution No 9-50, 2 entitled "Approving the three-year progressive increase of Representation and Travel Allowance (RATA) benefits equivalent to 40% of the basic salary of the officials of the Philippine Postal Corporation, subject to the existing rules and regulations." The resolution reads in part. BOARD RESOLUTION NO. 95-50 RESOLVED, as it is hereby resolved that the three year progressive increase of the . . . (RATA) benefits of officials of the Philippine Postal Corporation . . . equivalent to 40% of their basic salary, be approved subject to the existing rules and regulations. RESOLVED FURTHER, that the increases of RATA for 1995 of the

following officials to be implemented in the following manner, be confirmed . . . (c) of the 40% basic salaries of all officials holding positions below the Assistant Postmaster Generals up to Division Managers. RESOLVED STILL FURTHER that an additional fifty percent (50%) increase of the remaining balance thereof be implemented in 1996; RESOLVED STILL FURTHER that the increase of the aforesaid benefit equivalent to 40% of the basic salary of all concerned officials be fully implemented in 1997. xxx xxx xxx On April 26, 1995, to implement the foregoing board resolution, then Postmaster General Eduardo P. Pilapil issued Circular No. 95-22, 3 entitled "Guidelines Implementing Board Resolution No. 95-50 prescribing new rates of RATA of PPC officials. To reproduce the relevant parts of the circular: CIRCULAR NO. 95-22 1 The following Officials and employees are entitled to RATA: xxx xxx xxx 1.6 Regional Operation Managers 1.7 Division Managers Chiefs of equivalent 2. Payment of RATA, whether commutable or reimbursable, shall be in accordance with the rates prescribed below for the total allowances (50/50 share for each type of allowances): Position 1995 1996 1997 xxx xxx xxx 2.7 Operation Managers or equivalent (SG 26) P5,100 P5,400 P5,740 2.8 Division Managers Chiefs or equivalent (SG 25) 4,700 4,900 5,234 (SG 24) 4,200 4,400 4,734

Meanwhile, Republic Act No. 8174, otherwise known as "The General Appropriations Act of 1996" was approved, Section 35 of which fixes the monthly RATA rates of government officials, to wit: Sec. 35. Representation and Transportation Allowances. The following officials and those of equivalent rank as may be determined by the Department of Budget and Management while in the actual performance of their respective functions are hereby granted monthly commutable representation amd transportation allowance payable from the programmed appropriation provided for by their respective offices not exceeding the rates indicated below, which shall apply to each type of allowance: xxx xxx xxx e. At P1,750 for assistant Bureau Regional directors or equivalent; f. At P1,625 for Chief of Division, identified as such in the Personal Service Itemization . . . On October 23, 1996, respondent Corporate Auditor for Philippine Postal Corporation (PPC) served the following Notices of Disallowance (ND) on PPC: (a) ND No. 96-0002-101(96) dated September 23, 1996, covering the RATA of petitioner for the month of April 1996 in the total amount of P65,650.00. (b) ND No. 96-0004-101(96) dated September 23, 1996 covering the RATA of petitioner for May 1996 amounting to P65,350.00. On December 12, 1996, the Auditor served another notice, ND No. 96-0007-101(96) dated November 27, 1996, covering the RATA of petitioners for June 1996 in the amount of P64,525.00. Subsequently, respondent Auditor served other Notices of Disallowance covering the RATA allegedly paid in excess of that authorized under Section 35, R.A. 8174. On February 7, 1997, the new Postmaster General, Ireneo V. Intia, Jr. requested respondent Auditor to hold in abeyance the settlement of the above disallowances pending receipt of the legal opinion they had sought from the Office of the Government Corporate Counsel (OGCC). To this, respondent Auditor replied that the proper remedy of petitioners is appeal under Section 37, Title VII of COA Manual on Certificate of Settlement and Balances (CSB).

Accordingly, petitioners filed their Memorandum of Appeal with respondent Commission for the reversal of the Auditor's decision and the allowance of the implementation of PPC Circular No. 95-22 as authorized by Board Resolution No. 96-50. They relied on the following grounds: 1. Sections 21, 22, and 25 of R A No 7354 (The Postal Service Act of 1992), expressly empower the PPC to established its own progressive compensation; structure and fix the salaries and emoluments of personnel including the grant of additional benefits like RATA without being subjected to the rules and regulations of the Compensation and Position Classification Office or the Salary Standardization Law (R.A. No. 6758). 2. The legal opinion of the Department of Budget and Management (DBM) dated March 14, 1996 on which the COA based its decision and which states that pursuant to Section 6 of P.D. No. 1527, the compensation structure of PPC is subjected to review and approval by the DBM, is not correct because Section 6 of P. D. 1597 is unconstitutional as it violates the rule against the passage of irrepealable laws. 3. Section 13 of R.A. No 7354 categorically exempts PPC from submitting to Congress its annual budget unless the PPC requires subsidy guaranty of its liability from the National Treasury. 4. Paragraph 1 of the special provisions in R.A No. 8174 admits that corporations exempted from the provisions of R.A. No. 6738 like PPC shall pay the salaries and allowances not in accordance with the Salary Standardization Law. 5. RATA is included in the term "emoluments," the payment of which PPC is authorized to make under R.A. No. 7354. On November 4, 1997, respondent Commission rendered the decision now subject of the instant petition. The assailed decision is reproduced in part: After a careful and judicious evaluation of the facts and pertinent laws, rules and regulations herein obtaining, this Commission finds the appeal devoid of merit. It must be noted that Sections 21, 22 and 25 of R.A. 7354 never intended to exempt the PPC from the ambit of R.A 6758 What these specific sections

provide, especially Section 25, is the exemption of the PPC from the coverage of the rules and regulations of the Compensation and Position Classification Office which relates only to the qualification, position and salary grade of the employees concerned and not to the payment of additional benefits including the increase in the Representation and Transportation Allowance (RATA) Section 22 when provides for a progressive corporation (sic) structure for PPC personnel authorizes the Corporation to grant salary increases subject to either of two conditions stated therein. As to the constitutionality of Section 6 of P.D. No. 1587, the matter is beyond the competence of this Commission to rule upon. Thus, in the absence of contrary ruling by competent authority, this Commission finds no cogent reason to hold the same as being unconstitutional as alleged by herein appellants. Insofar as the validity of resolution fixing the allowances (e.g. RATA) of its employees by PPC's Board the Directors is concerned, this Commission fully adopts the stand taken by the DBM in its legal opinion, dated March 14, 1996, which states that: Accordingly, the Resolutions or Circulars, of the PPC granting additional benefits or compensation to its employees without the requisite review and approval by the President of the Philippines upon recommendation of the DBM is believed to be an ultra vires act of the corporation which cannot be given legal effect and recognition. Additional benefits or compensation that may be granted to government officials/employees require a law and may not be done by a mere expedient of a resolution or a circular of a GOCC, as in the case of the PPC. The above legal opinion according to the DBM is based on the following reasons:

1. While there may be a semblance of exemption for the PPC from the rules and regulations of the Compensation and Position Classification Bureau, such exemption is subject to the qualification thatPPC's own system of compensation and classification conforms as closely as possible with that provided for under R.A. No. 6758. 2. Such PPC exemption should be appreciated in correlation with the provision of Section 6 of P.D. 1597 . . . While it is true that Section 13 of R.A. No. 7354 exempts the PPC from submitting to Congress its annual budget unless it seeks subsidy/guaranty of its liability from the National Treasury, it is also true that Section 18 of the same Act provides that the PPC thru its board shall submit to both Houses of Congress, together with the Auditor's Report on the relevant accounts, an annual report generally dealing with the activities and operations of the Corporation during the preceding year . . . The exemption under Section 13 of R.A. No. 7354 does not in any way intend or show that the Corporation is exempt from R.A. 6758. 4 Aggrieved by the aforequoted decision, petitioner filed this petition before this Court, assigning the following errors: I. THE COMMISSION ERRED IN HOLDING THAT PPC IS NOT EXEMPT FROM THE SALARY STANDARDIZATION LAW (R.A. NO. 3758). II. THE COMMISSION ERRED IN CONFORMING WITH THE DBM THAT THE RESOLUTION AND CIRCULAR OF THE PPC GRANTING ADDITIONAL BENEFITS TO ITS EMPLOYEES WITHOUT THE REQUISITE REVIEW AND APPROVAL BY THE PRESIDENT OF THE PHILIPPINES THROUGH THE DBM IS AN ULTRA VIRES ACT OF THE CORPORATION. III. THE COMMISSION ERRED WHEN IT RULED THAT THE MONTHLY RATA OF PPC OFFICIALS MUST CONFORM TO THE AMOUNTS PRESCRIBED IN SECTION 35 OF REPUBLIC ACT NO. 8174. As to the first issue, petitioners argued that Sections 21, 22, and 25 of the PPC charter (R.A. No. 7354) exempt it from the Salary Standardization Law or the

Compensation and Position Classification Office rules. The said provisions read: Sec. 21. Powers and Function of the Postmaster General. As the Chief Executive Officer, the Postmaster General shall have the following powers and functions: xxx xxx xxx c) subject to the approval of the Board to determine the staffing pattern and the number of personnel, define their duties and responsibilities, and fix their salaries and emoluments in accordance with the approved compensations structure of the Corporation. xxx xxx xxx Sec. 22. Merit System The Corporation shall establish a human resources management system which shall govern the selection, hiring, appointment, transfer, promotion, or dismissal of all personal. Such system shall aim to establish professionalism and excellence at all levels of the postal organization in accordance with sound principles of management. A progressive compensation structure, which shall be based on job evaluation studies and wage surveys and subject to the Board's approval, shall be instituted as an integral component of the Corporation's human resources development program. The Corporation, however, may grant across the board salary increase or modify its compensation structure as to result in higher salaries, subject to either of the following conditions. a) there are evidences of prior improvement in employee productivity, measured by such quantitative indicators as mail volume per employee and delivery times. b) a law raising the minimum wage has been enacted with application to all government employees or has the effect of classifying some positions in the postal service as below the floor wage. Sec. 25. Exemption from Rules and Regulations of the Compensation and Position Classification Office. All personnel and positions of the Corporation shall be governed by Section 22 hereof, and as such shall

be exempt from the coverage of the rules and regulations of the Compensation and Position Classification Office. The Corporation, however, shall see to it that its own system conforms as closely as possible with that provided for under Republic Act No. 6758. Petitioners averred that since the PPC has the power under Sections 21 and of R.A. No. 7354 to fix its own compensation scheme and Section 25 of said charter expressly exempts it from the rules of the Compensation and Position Classification Office, it is clear that PPC Board Resolution No. 95-50 and PPC Circular 95-22 are valid corporate acts that can be the basis of the payment of RATA to PPC officials without prior approval from the DBM. As for the DBM legal opinion which was the basis for the disallowance of the payments of the RATA, petitioner assailed the same for being erroneous. According to the DBM, notwithstanding the exemption of PPC from the rules of CPCO granted under Section 25 of R.A 7354, the DBM has the power to review and approve the compensation structure of PPC because of Section 6 of P.D. No. 1597. Sec. 6. Exemption from OCPC Rules and Regulations. Agencies, position or groups of officials and employees of the national government, including government-owned and controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be issued by the President governing position classification, salary rates, levels of allowances, project and other honoria, overtime rates, and other forms of compensation and fringe benefits.Exemptions notwithstanding agencies shall report to the President, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President. (emphasis supplied) Petitioners, however, argued that Section 6, P.D. No. 1597 has already been repealed by Section 35 of R.A. No. 7354 which reads: Sec. 35. All acts, decrees, orders, executive orders, instructions, rules and regulations, inconsistent with the provisions of this Act are repealed or modified accordingly. They pointed out further that R.A. No. 7354 (The Postal Service Act of 1992) P.D. No. 1597, a general law which refers to all government agencies and GOCCs covered by and those exempted from the rules of the CPCO. For

these reasons, petitioners claimed that the power of the DBM to review and approve PPC's resolution and circulars implementing the latter's compensation plans its no longer in force. Petitioner likewise posited that Section 6, P.D. No. 1597 has no legal effect, it being in the nature of an irrepealable provision of law. They pointed to the phrase "agencies . . . of the national government, including government-owned and controlled corporations, who are hereafter exempted by law from coverage . . .," as violative of the Constitutional provision that legislative power shall be vested in the legislature and the prohibition against the passage of irrepealable laws. In effect, petitioner maintained. Section 6 limits the lawmaking powers of Congress by providing for conditions to be applied to agencies or GOCCs that are yet to be created. Even assuming arguendo that Section 6, P.D. No. 1597 has legal effects, petitioners theorized, it cannot be considered as requiring prior approval of the DBM since provision only requires the PPC to observe the guidelines on compensation schemes and to report to the President about its position classification and compensation system. Furthermore, petitioners asserted that scrutinizing the Senate deliberations, it is clear that the management and budgetary system of the PPC was being taken out of the control of the DBM. As to the applicability of Section 35 of R.A. No. 8174 limiting the amounts of RATA granted to certain employees, petitioners argued that said provision does not apply to the monthly RATA rates of PPC corporate officials, as PPC's budget is not covered by the Appropriations Act or R.A No. 8174. This, they said, is clear from Section 13 of the PPC Charter (R.A. No 7354): Sec. 13. Annual Budget . . . Unless the Corporation shall require a subsidy and/or a guarantee of its liability from the National Treasury, its budget for the year need not be submitted to Congress for approval and inclusion in the General Appropriations Act. On the other hand, in its comment, the Office of the Solicitor General argued Section 6 of P.D. 1597 is valid and subsisting, there having been no express or implied repeal of the assailed provision. Moreover, the Solicitor General explained that although Section 25 of the PPC charter exempts the corporation from the CPCO rules and regulations, under Section 6 of P.D. No. 1597, however, it is still required to report the details of its compensation system to the President through the DBM. The two provisions in question are thus compatible and reconcilable. With respect to the argument that the PPC is exempted from the coverage of CPCO rules and regulations, the Solicitor General observed that the said exemption is not absolute as it refers only to exemption from the

application of rules and regulations relating to position and compensation classification. Moreover, the Solicitor General added, the term "compensation" in said law refers to the salary structure of government personnel and not to allowances. From the foregoing, the issues of the present controversy may therefore be summed up as follows: (1) whether the PPC Board of Directors can, by itself, grant through a resolution an increase in allowances to its officials without said resolution going to the DBM for review and approval and (2) whether the RATA granted to PPC officials falls within the amounts provided in the General Appropriations Act. This Court rules in the negative on both issues. First, it is conceded that the PPC, by virtue of its charter, R.A. No. 7354, has the power to fix the salaries and emoluments of its employees. This function, being lodged in the Postmaster General, the same must be exercised with the approval of the Board of Directors. This is clear from Sections 21 and 22 of said charter. Petitioners correctly noted that since the PPC Board of Directors are authorized to approve the Corporation's compensation structure, it is also within the Board's power to grant or increase the allowances of PPC officials or employees. As can be gleaned from Sections 10 and 17 of P.D. No. 985 (A Decree Revising the Position Classification and Compensation System in the National Government, and Integrating the Same), the term "compensation" includes salaries, wages, allowances, and other benefits. Sec. 10. The Compensation System The Compensation System consists of (a) a Salary Schedule, (b) a Wage Schedule; (c) policies relating to allowances, bonuses, pension plans, and other benefits accruing to employees covered . . . (emphasis supplied). Sec. 11. Powers and Functions. The Budget Commission principally through the OCPC shall, in addition to those provided under other sections of this Decree, have the following powers and functions: xxx xxx xxx (g) Provide the required criteria and guidelines, in consultation with agency heads as may be deemed necessary and subject to the approval of the Commissioner of Budget, for the grant of all types of allowances and additional forms of compensation to employees in all agencies of the government.

Besides, allowances such as RATA are included in the term "emoluments" which, under Section 21 of RA 7354, the Postmaster General is authorized to grant to PPC personnel with the approval of the Board of Directors. Black's Law Dictionary defines "emolument" as that which is received as a compensation for services, or which is annexed to the possession of office as salary, fees and perquisites. The Commission on Audit was, therefore, in error when it held in its decision that "the exemption of the PPC from the coverage of the rules and regulations of the Compensation and Position Classification Office . . . relates only to the qualification, position and salary grade of the employees concerned and not to the payment of additional benefits including the increase in the Representation and Transportation Allowance (RATA). While the PPC Board of Directors admittedly acted within its powers when it granted the RATA increases in question, the same should have first been reviewed by the DBM before they were implemented Sections 21, 22, and 25 of the PPC charter should be read in conjunction with Section 6 of P.D. No. 1597: Sec 6. Exemption from OCPC Rules and Regulations. Agencies, position or groups of officials and employees of the national government, including government-owned and controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observed such guidelines and policies as may be issued by the President governing position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits.Exemption notwithstanding, agencies shall report to the Presidents, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President. (emphasis supplied). Contrary to petitioners' position, provision still applies and has not been repealed either expressly or impliedly. Their reliance on the general repealing clause in Section 35 5 of R.A. No. 7354 is erroneous. The holding of this Court in Mecano vs. COA 6 is instructive: "The question that should be asked is: What is the nature of this repealing clause? It is certainly not an express repealing clause because it fails to identify or designate the act or acts that are intended to be repealed. Rather, it is an example of a general repealing provision, as stated in Opinion No. 73, s. 1991. It is a clause which predicates the intended repeal under the condition that a substantial conflict must be found in existing and prior acts. The failure to add a specific repealing clause indicates that the intent was not to repeal any existing

law, unless an irreconcilable inconsistency and repugnancy exist in the terms of the new and old laws. This latter situation falls under the category of an implied repeal." As the Solicitor General correctly observed, there is no express repeal of Section 6 P.D. No. 1597 by R.A. No. 7354. Neither is there an implied repeal thereof because there is no irreconcilable conflict between the two laws. On the one hand. Section 25 of R.A. No. 7354 provides for the exemption of PPC from the rules and regulations of the CPCO On the other hand, Section 6 of P.D. 1597 requires PPC to report to the President, through the DBM, the details of its salary and compensation system. Thus, while the PPC is allowed to fix its own personnel compensation structure through its Board of Directors, the latter is required to follow certain standards in formulating said compensation system. One such standard is specifically stated in Section 25 of R.A. No. 7354: Sec. 25. Exemption from Rules and Regulations of the Compensation and Position Classification Office. All personnel and positions of the Corporation shall be governed by Section 22 hereof, and as such shall exempt from the coverage of the rules and regulations of the Compensation and Position Classification Office. The Corporation, however, shall see it that its own system conforms as closely as possible with that provided for under Republic Act No. 6758. (emphasis supplied) To sustain petitioners' claim that it is the PPC and PPC alone that should ensure that its compensation system conforms as closely as possible with that of R.A. No. 6758 will result in an invalid delegation of legislative power. If such interpretation is adopted, the law would, in effect, be granting PPC unfettered discretion to fix its compensation structure, something the legislature could not have intended. As the Solicitor General put it, Section 6 of P.D. No. 1597 is the "detail" intended to fill the gap in such laws as R.A. No. 7354 in order to ensure that delegation of legislative authority will be "canalized within banks to keep it from overflowing." It should be emphasized that the review by the DBM of any PPC resolution affecting the compensation structure of as personnel should not be interpreted to mean that the DBM can dictate upon the PPC Board of Directors and deprive the latter of its discretion on the matter. Rather, the DBM's function is merely to ensure that the action taken by the Board of Directors complies with the requirements of the law, specifically, that PPC's compensation system "conforms as closely as possible with that provided for under R.A. No. 6758." Sec. 25 of R.A. No. 7353 and Section 6 of P.D. No. 1597 can thus be read together and harmonized to give effect

to both provisions. This Court has held that statutes should be construed in light of the objective to be achieved and the evil or mischief to be suppressed, and they should be given such construction as will advance the object, suppress the mischief, and secure the benefits intended. 7 Clearly, therefore, no implied repeal can be deduced in this case. Worth reiterating is the rule in statutory construction that repeals by implication are not favored. When statutes are in pari materia, they should be construed together. A law cannot be deemed repealed unless it is clearly manifest that the legislature so intended it. As regards petitioners' argument that P.D. No. 1597 cannot be given any legal effect as it is unconstitutional because it is in the nature of an irrepealable law, suffice it to say that this Court will refrain from striking down a law if the case can be decided on other grounds. The Court will not touch the issue of unconstitutionality unless it is the very lis mota of the case. Thus, the Supreme Court held. "It is a well-established rule that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the record also present some other ground upon which the court may raise its judgment, that course will be adopted and the constitutional question will be left for consideration until such question will be unavoidable. 8 With respect to the second issue of whether the RATA granted to PPC officials must fall within the amounts provided for the in the General Appropriations Act as stated we rule in the negative. Sec. 13 of the PPC charter expressly provides for PPC's fiscal autonomy. Thus, unless PPC requires a subsidy and/or a guarantee of its liability from the National Treasury, its annual budget need not be submitted to Congress for approval and included in the General Appropriations Act. The intention of the lawmakers here is to promote the efficiency of the postal service by allowing the PPC to use its profits from its operations to upgrade its facilities and equipment and provide incentives for its personnel to render better services. Specifically, fiscal autonomy allows the PPC to attract and keep professional and competent people within its ranks. To sum up, the PPC being a government-owned and controlled corporation with an original charter, it falls within the scope of the Civil Service. 9 Thus, as regards personnel matters, the Civil Service Law applies to the PPC. Its Board of Directors is authorized under its charter to formulate and implement its own system of compensation for its personnel, including the payment of RATA. In the exercise of such power, it is not required to observe the rules and regulations of the Compensation and Position Classification Office. Neither is it required to follow strictly the amounts provided for in the General

Appropriations Act as its annual budget is not covered thereby. However, since the PPC charter expressly exempts it from the rules and regulations of the CPCO, said Board is not required to follow the CPCO's guidelines in formulating a compensation system for the PPC employees. 10 In other words, the general rule is that the PPC is covered by the Civil Service Law as regards all personnel matters except those affecting the compensation structure and position classification in the corporation which are left to the PPC Board of Directors to formulate in accordance with law. It must be stressed that the Board's discretion on the matter of personnel compensation is not absolute as the same must be exercised in accordance with the standard laid down by law, that is, its compensation system, including the allowances granted by the Board to PPC employees, must strictly conform with that provided for other government agencies under R.A. No. 6758 (Salary Standardization Law) in relation to the General Appropriations Act. To ensure such compliance, the resolutions of the Board affecting such matters should first be reviewed and approved by the Department of Budget and Management pursuant to Section 6 of P.D. No. 1597. WHEREFORE, premises considered, the petition is hereby DISMISSED and the assailed decision dated November 4, 1997 is AFFIRMED with the following MODIFICATIONS: (a) The exemption of the Philippine Postal Corporation from the coverage of the rules and regulations of the Compensation and Position Classification Office includes, not only the fixing of the qualification, position, and salary grade of the Corporation's employees but also the payment of additional benefits, including increases in their Representation and Transportation Allowance; (b) The Representation and Transportation Allowance granted to the concerned employees of the Corporation need not be limited to the amounts provided for in the General Appropriations Act; and (c) However, the compensation system set up must conforms as closely as possible with that provided for other government agencies under R.A. No. 6758 in relation to the General Appropriations Act and must, moreover, be reviewed and approved by the Department of Budget and Management pursuant to Section 6 of P.D. No. 1597.1wphi1.nt SO ORDERED.

G.R. No. 143784

February 5, 2003

PHILIPPINE RETIREMENT AUTHORITY (PRA), petitioner, vs. JESUSITO L. BUAG and ERLINA P. LOZADA, respondents. DECISION PUNO, J.: Before the Court is a Petition for Review on Certiorari involving alleged overpayment by the petitioner Philippine Retirement Authority (PRA) of certain benefits and allowances to its employees, particularly respondents herein. Petitioner PRA asks the Court to resolve the legal question of whether disbursements made by PRA of compensation, allowances and other benefits to its employees prior to the effectivity of R.A. No. 6758 or the Compensation and Position Classification Act of 19891 is subject to the review of the Department of Budget and Management. Petitioner PRA is a government-owned and controlled corporation created on July 4, 1985 under Executive Order No. 1037.2 PRA became operational on September 8, 1986.3 Private respondent Jesusito L. Buag is the former deputy general manager of petitioner PRA while private respondent Erlina P. Lozada is the incumbent department manager of petitioner PRA. As of July 1, 1989, in addition to their basic salaries, private respondents were each receiving from PRA the following allowances and benefits: a) Cost of Living Allowance (COLA), 40% of the basic salary; b) Amelioration Allowance, 10% of the basic salary; c) additional COLA, P300.00 a month; d) rice subsidy, P400.00 per month; e) meal subsidy, P525.00 a month; f) children allowance, P30.00 a month; and g) Representation and Transportation Allowance (RATA) in various amounts.4 In a letter dated December 29, 1992, the Office of the President, through then Executive Secretary Edelmiro A. Amante, Sr. approved the Corporate Operating Budget of petitioner PRA for calendar year 1992 in the amount ofP25,288,091.00. In the same letter, the amount of P9,129,833.00 representing unjustified/unauthorized allowances, fringe benefits and other items was disallowed.5 In a letter dated February 1, 1993, PRA sought reconsideration from the Office of the President on the disallowances, in particular, the amount of P1,324,822.00 out of the P9,129,833.00 disallowed disbursements representing supposed over-provision and payment of benefits and allowances to PRA employees. The amount ofP1,324,822.00 is itemized as follows:6 a) Over-provision of RATA .... P193,200.00

b) Transition Allowance ..... c) Provision for Hospitalization . d) Provision for Provident Fund Contribution TOTAL

611,454.00 100,000.00 420,168.00

P1,324,822.00

The Office of the President denied the request for reconsideration in a letter dated September 23, 1993.7 On October 12, 1993, PRA filed a request for clarification of the order denying the request for reconsideration.8 In reply thereto, the Office of the President explained in a letter dated November 11, 1993 that the approved Corporate Operating Budget of PRA for calendar year 1992 is subject to the following restrictions:9 "1. The approval refers to expenditures/ceilings for each expenditure class and shall not be construed as approval of specific items of expenditure; 2. Salaries, wages, allowances and benefits shall be in accordance with the approved Position Allocation List, pursuant to the Compensation and Position Classification Act of 1989 (R.A. 6758); 3. Payment of other benefits, such as bonuses, clothing, representation, transportation allowances, and such other allowances shall be in accordance with Sections 5.4, 5.5, and 5.6 of Corporate Compensation Circular No. 10, National Compensation Circular (NCC) No. 66, dated September 12 1991, and NCC No. 67, dated January 1, 1992; and 4. All expenditures shall be made within the limits of available funds realized by PRA from corporate revenues." Hence, petitioner PRA reduced the compensation of private respondents and stopped the payment of RATA and other allowances to private respondents. Feeling aggrieved, private respondents sought the legal opinion of the Department of Budget and Management on the disallowance and reduction of amount of fringe benefits and other allowances previously received by them. On January 11, 1995, the Department of Budget and Management opined that "the total monthly compensation and allowances sought have no legal basis."10 The Department of Budget and Management explained: "[I]t is worthy to note that the salaries actually received by the concerned personnel as of June 30, 1989 which were used as a basis in computing the allowances to be integrated and in determining the transition allowance

to be granted were not the basic salaries as certified and authorized by the DBM. Hence, there appears to be over computation of allowances to the integrated and transition allowances granted." (emphasis supplied) Private respondents then elevated the matter to the Office of the President. The case was docketed as O.P. Case No. 95-L-6336. On December 18, 1995, the Office of the President reversed the ruling of the Department of Budget and Management and awarded to the private respondents the allowances and benefits claimed. It ruled that "the exemption of PRA from the jurisdiction of [the Department of Budget and Management], as provided under the PRA charter, remained effective and legally impervious to the assertions by [the Department of Budget and Management] of its authority."11 As no prior approval or authority is required from the Department of Budget and Management with respect to the compensation scheme of PRA and the grant of allowances by it to its employees, the Office of the President held that disbursements made by PRA representing compensation and allowances of PRA officials and employees prior to the effectivity of July 1, 1989 were valid. It applied the principle of "nondiminution of benefits" embodied in the transitory provisions of R.A No. 6758 and concluded that private respondents are entitled to continue receiving the compensation and benefits previously enjoyed by them. Thus, the Office of the President directed the Department of Budget and Management to provide enough funds to cover the salaries and allowances of the PRA officials and employees. The subsequent Motions for Reconsideration filed by the Department of Budget and Management and by petitioner PRA were denied by the Office of the President. Consequently, petitioner PRA filed a Petition for Review with the Court of Appeals in accordance with Rule 43 of the Rules of Court, as amended. On December 14, 1999, the Court of Appeals rendered a decision affirming the ruling of the Office of the President. On June 19, 2000, it denied petitioners Motion for Reconsideration. In the instant petition, PRA, through the Office of the Government Corporate Counsel, argues that the Court of Appeals erred in applying the transitory provisions of R.A. No. 6758 in upholding the continued grant of compensation and allowances received by private respondents prior to the effectivity of said law. PRA maintained that these allowances and benefits were not authorized or approved by the Department of Budget and Management, contrary to E.O. No. 1037 (PRA Charter) in relation to P.D No. 98512 and P.D. No. 159713. PRA explains that prior to R.A. No. 6758, disbursements of compensation, allowances and other benefits to PRA employees are subject to the review of the Department of Budget and Management in accordance with P.D. No. 985 and P.D. No. 1597. PRA reasoned that the transitory provisions of R.A. No. 6758 which authorize the continued grant of allowances and benefits received by incumbents as of the effectivity of the said law is not applicable as the law could not have contemplated the

continued disbursement of unauthorized allowances and benefits. Further, PRA manifests that while E.O. No. 1037 grants the PRA Board the power to provide a compensation scheme for its employees and fix reasonable allowances and benefits, PRA has not approved or acted on any matter in this respect. Private respondents, on the other hand, argue that PRA has the requisite power and authority to impose and implement a compensation scheme for its employees without need of prior approval or authority from the Department of Budget and Management. They cite as basis Section 6 (f) of E.O. No. 1037 which grants the PRA Board the power to "establish and fix, review, revise and adjust the appropriate compensation scheme of the officers and employees of [PRA] with reasonable allowances, bonuses and other incentives." They allege that by virtue of this provision, prior to R.A. No. 6758, PRA was exempt from the regulatory authority of the Office of Compensation and Position Classification, notwithstanding the provisions of P.D. No. 985 and P.D. No. 1597. Moreover, private respondents argue that the disallowances in question were based on Department of Budget and Management Corporate Compensation Circular No. 10 (DBM-CCC No. 10), an issuance which was subsequently rendered ineffective by this Court due to its non-publication in the Official Gazette.14 The proper resolution of the case at bar involves a determination of the applicable law, rules and regulations governing the imposition of allowable compensation, allowances and monetary incentives to the employees of the PRA prior to the effectivity of R.A. No. 6758 and the legal effects of the subsequent passage of R.A. No. 6758. This issue is not without precedent. In the case of Intia, Jr. v. Commission on Audit,15 the Philippine Postal Corporation (PPC) argued that by virtue of the provisions of its charter, 16 PPC may unilaterally grant and/or increase the Representation and Transportation Allowance of its officials without the prior approval of the Department of Budget and Management. The PPC cited Section 21 (c) of its charter which grants the PPC the power and authority to "fix salaries and emoluments [of its employees] in accordance with the approved compensation structure of [PPC]." Further, the PPC argued that Section 25 of its charter exempts the PPC "from the coverage of the rules and regulations of the Compensation and Position Classification Office." In ruling against PPC, this Court declared that the provisions of the PPC charter should be read in conjunction with Section 6 of P.D. No. 1597.17 The said section reads: "Sec. 6. Exemption from OCPC Rules and Regulations. Agencies, positions or groups of officials and employees of the national government, including governmentowned and controlled corporations, who are hereafter exempted by law from OCPC coverage, shall observe such guidelines and policies as may be issued by the

President governing position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits. Exemptions notwithstanding, agencies shall report to the President, through the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President." This Court ruled in Intia that contrary to PPCs assertion, Section 6 of P.D. No. 1597 still applies and has not been repealed expressly or impliedly. Although its charter grants PPC the power to fix the compensation and benefits of its employees and exempts PPC from the coverage of the rules and regulations of the Compensation and Position Classification Office, by virtue of Section 6 of P.D. No. 1597, the compensation system established by the PPC is subject to the review of the Department of Budget and Management. In this respect, the function of the Department of Budget and Management is to ensure that the proposed compensation scheme is consistent with applicable laws and regulations. In reconciling the provisions of the PPC Charter and the provisions of P.D. No. 1597, this Court explained:
18

the Budget Commission, on their position classification and compensation plans, policies, rates and other related details following such specifications as may be prescribed by the President. Despite the power granted to the Board of Directors of PRA to establish and fix a compensation and benefits scheme for its employees, the same is subject to the review of the Department of Budget and Management. However, in view of the express powers granted to PRA under its charter, the extent of the review authority of the Department of Budget and Management is limited. As stated in Intia, the task of the Department of Budget and Management is simply to review the compensation and benefits plan of the government agency or entity concerned and determine if the same complies with the prescribed policies and guidelines issued in this regard. The role of the Department of Budget and Management is supervisorial in nature, its main duty being to ascertain that the proposed compensation, benefits and other incentives to be given to PRA officials and employees adhere to the policies and guidelines issued in accordance with applicable laws. The rationale for the review authority of the Department of Budget and Management is obvious. Even prior to R.A. No. 6758, the declared policy of the national government is to provide "equal pay for substantially equal work and to base differences in pay upon substantive differences in duties and responsibilities, and qualification requirements of the positions."22 To implement this policy, P.D. No. 985 provided for the standardized compensation of government employees and officials, including those in government-owned and controlled corporations. Subsequently, P.D. No. 1597 was enacted prescribing the duties to be followed by agencies and offices exempt from coverage of the rules and regulations of the Office of Compensation and Position Classification. The intention, therefore, was to provide a compensation standardization scheme such that notwithstanding any exemptions from the coverage of the Office of Compensation and Position Classification, the exempt government entity or office is still required to observe the policies and guidelines issued by the President and to submit a report to the Budget Commission on matters concerning position classification and compensation plans, policies, rates and other related details. This ought to be the interpretation if the avowed policy of compensation standardization in government is to be given full effect. The policy of "equal pay for substantially equal work" will be an empty directive if government entities exempt from the coverage of the Office of Compensation and Position Classification may freely impose any type of salary scheme, benefit or monetary incentive to its employees in any amount, without regard to the compensation plan implemented in the other government agencies or entities. Thus, even prior to the passage of R.A No. 6758, consistent with the salary standardization laws in effect, the compensation and benefits scheme of PRA is subject to the review of the Department of Budget and Management. Private respondents argue, however, that by virtue of the effectivity of R.A. No. 6758, they are entitled to receive

"It should be emphasized that the review by the DBM of any PPC resolution affecting the compensation structure of its personnel should not be interpreted to mean that the DBM can dictate upon the PPC Board of Directors and deprive the latter of its discretion on the matter. Rather, the DBMs function is merely to ensure that the action taken by the Board of Directors complies with the requirements of the law, specifically that PPCs compensation system "conforms as closely as possible with that provided for under R.A. No. 6758." (emphasis supplied) Similarly, under P.D. No. 1037, PRA was granted the power and authority to "establish and fix, review, revise and adjust the appropriate compensation scheme of the officers and employees of [PRA] with reasonable allowances, bonuses and other incentives as may be recommended by the Chief Executive Officer/General Manager of the [PRA]."19 Further, Section 13 of P.D. No. 1037 also exempts officers and employees of PRA from the rules and regulations of the Office of Compensation and Position Classification.20 In accordance with the ruling of this Court in Intia, we agree with petitioner PRA that these provisions should be read together with P.D. No. 985 and P.D. No. 1597, particularly Section 6 of P.D. No. 1597.21 Thus, notwithstanding exemptions from the authority of the Office of Compensation and Position Classification granted to PRA under its charter, PRA is still required to 1) observe the policies and guidelines issued by the President with respect to position classification, salary rates, levels of allowances, project and other honoraria, overtime rates, and other forms of compensation and fringe benefits and 2) report to the President, through

the compensation and allowances previously granted to them as the transitory provisions in the said law allow the continued payment of compensation and allowances to incumbents as of July 1, 1989. They allege that by being incumbents as of said date, the transitory provisions of R.A. No. 6758 should apply. The pertinent provisions are Sections 12 and 17 of R.A. No. 6758, viz: "Section 12. Consolidation of Allowances and Compensation.All allowances, except for representation and transportation allowances, clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may determined by the [Department of Budget and Management], shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized. . Section 17. Salaries of Incumbents.Incumbents of positions presently receiving salaries and additional compensation/fringe benefits including those absorbed from local government units and other emoluments, the aggregate of which exceeds the standardized salary rate as herein prescribed, shall continue to receive such excess compensation, which shall be referred to as transition allowance. The transition allowance shall be reduced by the amount of salary adjustment that the incumbent shall receive in the future. ." The transitory provisions embody the legislative intent to protect incumbents who are receiving salaries and allowances in excess of those granted under R.A. No. 6758 under the principle of non-diminution of pay and consistent with the rule that laws should only be applied prospectively in the spirit of justice and fair play.23However, we subscribe to petitioners view that the foregoing transitory provisions do not contemplate a situation where the grant of unauthorized or irregular compensation and benefits would be continued or subsequently authorized by the passage of the law. It is a settled principle that in construing legislative enactments, it is presumed that the legislature never intended undesirable consequences or absurd results.24 Statutes must receive a sensible construction that will give effect to the legislative intention and avoid an unjust or absurd conclusion.25 Consequently, despite the passage of R.A. No. 6758 providing for the continued grant of salaries and benefits to incumbents as of July 1, 1989, private respondents are not entitled to receive salaries, benefits and allowances that were granted without the prior review and approval of the Department of Budget and Management.

Upon the effectivity of R.A. No. 6758, it is not disputed that government-owned and controlled corporations are included in the Compensation and Position Classification System provided in R.A. No. 6758. Section 16 thereof repeals "[a]ll laws, decrees, executive orders, corporate charters, and other issuances or parts thereof that exempt agencies from the coverage of the [Compensation and Position Classification] System, or that authorize and fix position classification, salaries, pay rates or allowances of specified positions, or groups of officials and employees or of agencies."26 Although the applicable legal regime with respect to salary standardization for governmentowned and controlled corporations is clear, the resolution of the instant controversy would not be complete without a discussion on the application of DBM-CCC No. 10 implementing the provisions of R.A No. 6758, initially issued by the Department of Budget and Management and made effective on November 1, 1989. It appears that one of the grounds for the disallowance of particular items in PRAs Corporate Operating Budget for calendar year 1992 relied upon by the Office of the President in its letters dated December 29, 1992 and November 11, 1993, which triggered the present controversy, are the provisions of DBM-CCC No. 10.27 In the case of De Jesus v. Commission on Audit,28 this Court held that DBM-CCC No. 10 is without legal force and effect due to the absence of prior publication in the Official Gazette or in a newspaper of general circulation. The Court further ruled that such prior publication is a condition sine qua non to the effectiveness and enforceability of DBM-CCC No. 10.29 As a result of its nullification, DBM-CCC No. 10 was subsequently reissued in its entirety on February 15, 1999 and was published in the Official Gazette on March 1, 1999.30 As to the legal effect of the nullification of DBM-CCC No. 10 and its subsequent re-issuance and publication, this Court, in Philippine International Trading Corporation v. Commission on Audit,31 ruled that the re-issuance and publication of DBM-CCC No. 10 does not cure its previous defect and hence, cannot have retroactive effect. The Court cited precisely the reason that publication is a condition precedent to the effectivity of the law to inform the public of its contents before their rights are affected by the same.32 Consequently, disallowances made by the Commission on Audit in the said case that were based on DBM-CCC No. 10, prior to its re-issuance and publication, were nullified by this Court. Although cited as basis for the disallowance of particular benefits granted to private respondents, the records of the case at bar do not clearly show what particular items contested by private respondents are disallowed on the basis of DBM-CCC No. 10. At any rate, for a complete resolution of the present controversy and to prevent any confusion or misapplication, in accordance with this Courts ruling in Philippine International Trading Corporation v. Commission on Audit,33 with respect to particular items of allowances or benefits that have been disallowed by the Office of the President based on the

provisions of DBM-CCC No. 10 prior to its re-issuance and publication, the said items of disallowance cannot be given legal effect in view of the nullity of DBM-CCC No. 10. In sum, this Court rules that prior to R.A. No. 6758, the compensation and benefits scheme of petitioner PRA is subject to the review authority of the Department of Budget and Management. Hence, compensation, allowances and other benefits received by PRA officials and employees without the requisite approval or authority of the Department of Budget and Management are unauthorized and irregular and this defect cannot be cured by the transitory provisions in R.A No. 6758. However, the function of the Department of Budget and Management in this regard is simply to ensure that the proposed compensation and benefits scheme complies with the requirements of applicable laws, rules and regulations. With respect to particular items of allowances and benefits that have been disallowed in the Corporate Operating Budget of PRA for Calendar Year 1992, which disallowance is based solely on particular provisions of DBM-CCC No. 10, the said disallowances cannot be given legal effect in view of the nullity of DBMCCC No. 10 prior to its re-issuance and publication. WHEREFORE, the decision of the Court of Appeals in CAG.R. SP No. 47818 is MODIFIED as follows: (a) Compensation and allowances granted to private respondents prior to the effectivity of R.A. No. 6758 without the authority or approval of the Department of Budget and Management are unauthorized and disallowed; and (b) Particular items of disallowance of the Corporate Operating Budget of PRA for Calendar Year 1992 representing various allowances and benefits in the amount of P1,324,822.00 based solely on particular provisions of DBM-CCC No. 10, in view of the nullity of DBM-CCC No. 10, are void. The Department of Budget and Management is directed to effect the necessary adjustments in the compensation, allowances and other benefits of private respondents in accordance with the foregoing pronouncements. SO ORDERED.