G.R. No. L-23145November 29, 1968TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG,ancillary administrator-appellee,vs.BENGUET CONSOLIDATED, INC.,oppositor-appellant.Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.FERNANDO,J.:Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance.The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal.As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations.It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963.Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country."6It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does notex proprio vigorehave any effect beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs."7It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders.Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8finds application. "In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded.2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."10There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled.Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development."11Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times offensive."12Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today."13He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion.3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."15Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed.It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force.The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory.We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly.20There is thus a rejection of Gierke'sgenossenchafttheory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession."21A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.5. One last point. In Viloria v. Administrator of Veterans Affairs,22it was shown that in a guardianship proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States court."23Reconsideration was denied, and the Administrator appealed.In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator."It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country.Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get.That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and honor maintained.WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.RULING:Corporation law; Corporation; Concept and nature.A corporation is an artificial being created by operation of law (Sec. 2, Act No. 1459). A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary. whenever called upon .to do so.A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial icial person distinct and separate from its individual stockholders (1 Fletcher, Cyclopedia Corporations, pp. 19-20). [Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242(1968)]G.R. No. L-17295 July 30, 1962ANG PUE & COMPANY, ET AL.,plaintiffs-appellants,vs.SECRETARY OF COMMERCE AND INDUSTRY,defendant-appellee.Felicisimo E. Escaran for plaintiffs-appellants.Office of the Solicitor General for defendant-appellee.DIZON,J.:Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for five years the term of the partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership."The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180.It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business of general merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials for commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the Securities & Exchange Commission on June 16, 1953.On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of the Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend the term of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the Securities & Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in violation of the aforesaid Act.From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their retail business until the expiration of their term or life.To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.WHEREFORE, the judgment appealed from is affirmed, with costs.RULING:Partnership; To organize not absolute right.To organize a corporation or partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the state may deem necessary to impose. [Ang Pue & Co. vs. Sec. of Commerce and Industry, 5 SCRA 645(1962)]

[G.R. Nos. 84132-33 :December 10, 1990.]192 SCRA 257NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners,vs.PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents.D E C I S I O NCRUZ,J.:This case involves the constitutionality of a presidential decree which, like all other issuances of President Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the touchstone of the fundamental law that even then was supposed to limit presidential action.: rdThe particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix Group of Companies to be administered mainly by the National Development Company. The law outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof providing that "all mortgages and other liens presently attaching to any of the assets of the dissolved corporations are hereby extinguished."Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baos, Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by President Marcos.Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent. For its part, the private respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second case with the same court to stop the foreclosure. The two cases were consolidated.After the submission by the parties of their respective pleadings, the trial court rendered the impugned decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision having been denied, the present petition was filed.: rdThe petition was originally assigned to the Third Division of this Court but because of the constitutional questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist from conducting a public auction sale of the lands in question. After the Solicitor General and the private respondent had filed their comments and the petitioners their reply, the Court gave due course to the petition and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case was deemed submitted.The petitioners contend that the private respondent is now estopped from contesting the validity of the decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also raised but not resolved. The Court, after noting that the petitioners had already filed their claims with the AGRIX Claims Committee created by the decree, had simply dismissed the petition on the ground of estoppel.The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private respondent attacked the validity of the provision. At that stage, however, consistent with Mendoza, the private respondent was already estopped from questioning the constitutionality of the decree.The Court does not agree that the principle of estoppel is applicable.It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under the circumstances but to conform.: nadIt is true that there were a few venturesome souls who dared to question the dictator's decisions before the courts of justice then. The record will show, however, that not a single act or issuance of President Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To rule now that the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life during that repressive time.This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without protest or reservation. The herein private respondent has not been paid a single centavo on its claim, which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the private respondent was estopped from questioning the decree because of its earlier compliance with its provisions.Independently of these observations, there is the consideration that an affront to the Constitution cannot be allowed to continue existing simply because of procedural inhibitions that exalt form over substance.The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized."These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be deprived of life, liberty or property without due course of law nor shall any person be denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be passed."In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation under the police power for the promotion of the common welfare. The contention is that this inherent power of the state may be exercised at any time for this purpose so long as the taking of the property right, even if based on contract, is done with due process of law.This argument is an over-simplification of the problem before us. The police power is not a panacea for all constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for every act of the government depriving a person of his life, liberty or property.A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be assisted. However, the record does not state how many there are of such investors, and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX with vested property rights.:-cralawThe public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or protected. The indispensable link to the welfare of the greater number has not been established. On the contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons not given, have been preferred to the legitimate creditors of AGRIX.Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree. The right to property is dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another private interest.A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under the Constitution.And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to earn interest from the date of the decree, but that still does not justify the cancellation of the interests earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike.Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there should be equality only among equals.- nadOne may also well wonder why AGRIX was singled out for government help, among other corporations where the stockholders or investors were also swindled. It is not clear why other companies entitled to similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less deserving of protection, which they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil eye and an uneven hand."On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that:SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 4The new corporation is neither owned nor controlled by the government. The National Development Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said board can then appoint its own management. The stocks of the new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have been organized under the Corporation Law in accordance with the above-cited constitutional provision.The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent without justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by AGRIX are purely private transactions and have not been shown to be affected with public interest. There was therefore no warrant to amend their provisions and deprive the private respondent of its vested property rights.It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the argument that the claims of laborers should take precedence over all other claims, including those of the government. In arriving at this ruling, the Court recognized the mortgage lien as a property right protected by the due process and contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper exercise of the police power.: nadThe Court reaffirms and applies that ruling in the case at bar.Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new corporation, being neither owned nor controlled by the Government, should have been created only by general and not special law. And insofar as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there is likewise an impairment of the obligation of the contract.With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such authority, the decree must fall just the same because of its violation of the Bill of Rights.WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nadSO ORDERED.RULING:Same; Same; Presidential Decree No. 1717; Presidential Decree 1717 is an invalid exercise of police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method.Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new corporation, being neither owned nor controlled by the Government, should have been created only by general and not special law. And insofar as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there is likewise an impairment of the obligation of the contract. [National Development Company vs. Philippine Veterans Bank, 192 SCRA 257(1990)]G.R. No. 147402 January 14, 2004ENGR. RANULFO C. FELICIANO, in his capacity as General Manager of the Leyte Metropolitan Water District (LMWD), Tacloban City,petitioner,vs.COMMISSION ON AUDIT, Chairman CELSO D. GANGAN, Commissioners RAUL C. FLORES and EMMANUEL M. DALMAN, and Regional Director of COA Region VIII,respondents.

D E C I S I O N

CARPIO,J.:The CaseThis is a petition forcertiorari1to annul the Commission on Audits ("COA") Resolution dated 3 January 2000 and the Decision dated 30 January 2001 denying the Motion for Reconsideration. The COA denied petitioner Ranulfo C. Felicianos request for COA to cease all audit services, and to stop charging auditing fees, to Leyte Metropolitan Water District ("LMWD"). The COA also denied petitioners request for COA to refund all auditing fees previously paid by LMWD.Antecedent FactsA Special Audit Team from COA Regional Office No. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from COA dated 19 July 1999 requesting payment of auditing fees. As General Manager of LMWD, petitioner sent a reply dated 12 October 1999 informing COAs Regional Director that the water district could not pay the auditing fees. Petitioner cited as basis for his action Sections 6 and 20 of Presidential Decree 198 ("PD 198")2, as well as Section 18 of Republic Act No. 6758 ("RA 6758"). The Regional Director referred petitioners reply to the COA Chairman on 18 October 1999.On 19 October 1999, petitioner wrote COA through the Regional Director asking for refund of all auditing fees LMWD previously paid to COA.On 16 March 2000, petitioner received COA Chairman Celso D. Gangans Resolution dated 3 January 2000 denying his requests. Petitioner filed a motion for reconsideration on 31 March 2000, which COA denied on 30 January 2001.On 13 March 2001, petitioner filed this instant petition. Attached to the petition were resolutions of the Visayas Association of Water Districts (VAWD) and the Philippine Association of Water Districts (PAWD) supporting the petition.The Ruling of the Commission on AuditThe COA ruled that this Court has already settled COAs audit jurisdiction over local water districts inDavao City Water District v. Civil Service Commission and Commission on Audit,3as follows:The above-quoted provision [referring to Section 3(b) PD 198] 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 members of the Board of Directors belong to the local executives of the local subdivision unit where such districts are located. In contrast, the members of the Board of Directors or the trustees of a private corporation are elected from among members or stockholders thereof. It would not be amiss at this point to emphasize 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 who will compose the governing body of their corporation. But this is not the case here and this clearly indicates that petitioners are not private corporations.The COA also denied petitioners request for COA to stop charging auditing fees as well as petitioners request for COA to refund all auditing fees already paid.The IssuesPetitioner contends that COA committed grave abuse of discretion amounting to lack or excess of jurisdiction by auditing LMWD and requiring it to pay auditing fees. Petitioner raises the following issues for resolution:1. Whether a Local Water District ("LWD") created under PD 198, as amended, is a government-owned or controlled corporation subject to the audit jurisdiction of COA;2. Whether Section 20 of PD 198, as amended, prohibits COAs certified public accountants from auditing local water districts; and3. Whether Section 18 of RA 6758 prohibits the COA from charging government-owned and controlled corporations auditing fees.The Ruling of the CourtThe petition lacks merit.The Constitution and existing laws4mandate COA to audit all government agencies, including government-owned and controlled corporations ("GOCCs") with original charters. An LWD is a GOCC with an original charter. Section 2(1), Article IX-D of the Constitution provides for COAs audit jurisdiction, as follows:SECTION 2. (1) The Commission on Audit shall have the power, authority and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities,including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations 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 to 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 pre-audit, 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. (Emphasis supplied)The COAs audit jurisdiction extends not only to government "agencies or instrumentalities," but also to "government-owned and controlled corporations with original charters" as well as "other government-owned or controlled corporations" without original charters.Whether LWDs are Private or Government-Ownedand Controlled Corporations with Original ChartersPetitioner seeks to revive a well-settled issue. Petitioner asks for a re-examination of a doctrine backed by a long line of cases culminating inDavao City Water District v. Civil Service Commission5and just recently reiterated inDe Jesus v. Commission on Audit.6Petitioner maintains that LWDs are not government-owned and controlled corporations with original charters. Petitioner even argues that LWDs are private corporations. Petitioner asks the Court to consider certain interpretations of the applicable laws, which would give a "new perspective to the issue of the true character of water districts."7Petitioner theorizes that what PD 198 created was the Local Waters Utilities Administration ("LWUA") and not the LWDs. Petitioner claims that LWDs are created "pursuant to" and not created directly by PD 198. Thus, petitioner concludes that PD 198 is not an "original charter" that would place LWDs within the audit jurisdiction of COA as defined in Section 2(1), Article IX-D of the Constitution. Petitioner elaborates that PD 198 does not create LWDs since it does not expressly direct the creation of such entities, but only provides for their formation on an optional or voluntary basis.8Petitioner adds that the operative act that creates an LWD is the approval of the Sanggunian Resolution as specified in PD 198.Petitioners contention deserves scant consideration.We begin by explaining the general framework under the fundamental law. The Constitution recognizes two classes of corporations. The first refers to private corporations created under a general law. The second refers to government-owned or controlled corporations created by special charters. Section 16, Article XII of the Constitution provides:Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens.9The 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.10In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code,11except that the Cooperative Code governs the incorporation of cooperatives.12The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled.Obviously, LWDs are not private corporations because they are not created under the Corporation Code. LWDs are not registered with the Securities and Exchange Commission. Section 14 of the Corporation Code states that "[A]ll corporations organized under this code shall file with the Securities and Exchange Commission articles of incorporation x x x." LWDs have no articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members to elect the board directors of LWDs as in the case of all corporations registered with the Securities and Exchange Commission. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. This Court has ruled that LWDs are not created under the Corporation Code, thus: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.13(Emphasis supplied)LWDs exist by virtue of PD 198, which constitutes their special charter. Since under the Constitution only government-owned or controlled corporations may have special charters, LWDs can validly exist only if they are government-owned or controlled. To claim that LWDs are private corporations with a special charter is to admit that their existence is constitutionally infirm.Unlike private corporations, which derive their legal existence and power from the Corporation Code, LWDs derive their legal existence and power from PD 198. Sections 6 and 25 of PD 19814provide:Section 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.(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".(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof.(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district.(d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above.(e) The names of the initial directors of the district with the date of expiration of term of office for each.(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 44 of this Title.(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act.If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province.x x xSec. 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. (Emphasis supplied)Clearly, LWDs exist as corporations only by virtue of PD 198, whichexpressly confers on LWDs corporate powers. Section 6 of PD 198 provides that LWDs "shall exercise the powers, rights and privileges given to private corporations under existing laws." Without PD 198, LWDs would have no corporate powers. Thus, PD 198 constitutes the special enabling charter of LWDs. The ineluctable conclusion is that LWDs are government-owned and controlled corporations with a special charter.The phrase "government-owned and controlled corporations with original charters" means GOCCs created under special laws and not under the general incorporation law. There is no difference between the term "original charters" and "special charters." The Court clarified this inNational Service Corporation v. NLRC15by citing the deliberations in the Constitutional Commission, as follows:THE PRESIDING OFFICER(Mr. Trenas). The session is resumed.Commissioner Romulo is recognized.MR. ROMULO.Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.THE PRESIDING OFFICER(Mr. Trenas). What does the Committee say?MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean?MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.MR. FOZ.And not under the general corporation law.MR. ROMULO.That is correct. Mr. Presiding Officer.MR. FOZ.With that understanding and clarification, the Committee accepts the amendment.MR. NATIVIDAD.Mr. Presiding Officer, so those created by the general corporation law are out.MR. ROMULO.That is correct. (Emphasis supplied)Again, inDavao City Water District v. Civil Service Commission,16the Court reiterated the meaning of the phrase "government-owned and controlled corporations with original charters" in this wise: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 of Lumanta 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 the 1986 Constitutional Commission in respect of the intent and meaning of the new phrase with original charter, 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 Corporation Code.In NASECO, the company involved had been organized under the general incorporation statute and was a subsidiary 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)Petitioners contention that the Sangguniang Bayan resolution creates the LWDs assumes that the Sangguniang Bayan has the power to create corporations. This is a patently baseless assumption. The Local Government Code17does not vest in the Sangguniang Bayan the power to create corporations.18What the Local Government Code empowers the Sangguniang Bayan to do is to provide for the establishment of a waterworks system "subject to existing laws." Thus, Section 447(5)(vii) of the Local Government Code provides:SECTION 447. Powers, Duties, Functions and Compensation. (a) The sangguniang bayan, as the legislative body of the municipality, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the municipality as provided for under Section 22 of this Code, and shall:x x x(vii)Subject to existing laws,provide for the establishment, operation, maintenance, and repair of an efficient waterworks system to supply water for the inhabitants; regulate the construction, maintenance, repair and use of hydrants, pumps, cisterns and reservoirs; protect the purity and quantity of the water supply of the municipality and, for this purpose, extend the coverage of appropriate ordinances over all territory within the drainage area of said water supply and within one hundred (100) meters of the reservoir, conduit, canal, aqueduct, pumping station, or watershed used in connection with the water service; and regulate the consumption, use or wastage of water;x x x. (Emphasis supplied)The Sangguniang Bayan may establish a waterworks system only in accordance with the provisions of PD 198. The Sangguniang Bayan has no power to create a corporate entity that will operate its waterworks system. However, the Sangguniang Bayan may avail of existing enabling laws, like PD 198, to form and incorporate a water district. Besides, even assuming for the sake of argument that the Sangguniang Bayan has the power to create corporations, the LWDs would remain government-owned or controlled corporations subject to COAs audit jurisdiction. The resolution of the Sangguniang Bayan would constitute an LWDs special charter, making the LWD a government-owned and controlled corporation with an original charter. In any event, the Court has already ruled inBaguio Water District v. Trajano19that the Sangguniang Bayan resolution is not the special charter of LWDs, thus: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.Petitioner further contends that a law must create directly and explicitly a GOCC in order that it may have an original charter. In short, petitioner argues that one special law cannot serve as enabling law for several GOCCs but only for one GOCC. Section 16, Article XII of the Constitution mandates that "Congressshall not, except by general law,"20provide for the creation of private corporations. Thus, the Constitutionprohibitsone special law to create one private corporation, requiring instead a "general law" to create private corporations. In contrast, the same Section 16 states that "Government-owned or controlled corporationsmaybe created or established by special charters." Thus, the ConstitutionpermitsCongress to create a GOCC with a special charter. There is, however, no prohibition on Congress to create several GOCCs of the same class under one special enabling charter.The rationale behind the prohibition on private corporations having special charters does not apply to GOCCs. There is no danger of creating special privileges to certain individuals, families or groups if there is one special law creating each GOCC. Certainly, such danger will not exist whether one special law creates one GOCC, or one special enabling law creates several GOCCs. Thus, Congress may create GOCCs either by special charters specific to each GOCC, or by one special enabling charter applicable to a class of GOCCs, like PD 198 which applies only to LWDs.Petitioner also contends that LWDs are private corporations because Section 6 of PD 19821declares that LWDs "shall be considered quasi-public" in nature. Petitioners rationale is that only private corporations may be deemed "quasi-public" and not public corporations. Put differently, petitioner rationalizes that a public corporation cannot be deemed "quasi-public" because such corporation is already public. Petitioner concludes that the term "quasi-public" can only apply to private corporations. Petitioners argument is inconsequential.Petitioner forgets that the constitutional criterion on the exercise of COAs audit jurisdiction depends on the governments ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-public, or public is immaterial.The Constitution vests in the COA audit jurisdiction over "government-owned and controlled corporations with original charters," as well as "government-owned or controlled corporations" without original charters. GOCCs with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA post-audit. GOCCs without original charters refer to corporations created under the Corporation Code but are owned or controlled by the government. The nature or purpose of the corporation is not material in determining COAs audit jurisdiction. Neither is the manner of creation of a corporation, whether under a general or special law.The determining factor of COAs audit jurisdiction isgovernment ownership or controlof the corporation. InPhilippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Bank,22the Court even ruled that the criterion of ownership and control is more important than the issue of original charter, thus:This point is important because the Constitution provides in its Article IX-B, Section 2(1) that "the Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters."As the Bank is not owned or controlled by the Government although it does have an original charter in the form of R.A. No. 3518,23it clearly does not fall under the Civil Service and should be regarded as an ordinary commercial corporation. Section 28 of the said law so provides. The consequence is that the relations of the Bank with its employees should be governed by the labor laws, under which in fact they have already been paid some of their claims. (Emphasis supplied)Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is no private party involved as co-owner in the creation of an LWD. Just prior to the creation of LWDs, the national or local government owns and controls all their assets. The government controls LWDs because under PD 198 the municipal or city mayor, or the provincial governor, appoints all the board directors of an LWD for a fixed term of six years.24The board directors of LWDs are not co-owners of the LWDs. LWDs have no private stockholders or members. The board directors and other personnel of LWDs are government employees subject to civil service laws25and anti-graft laws.26While Section 8 of PD 198 states that "[N]o public official shall serve as director" of an LWD, it only means that the appointees to the board of directors of LWDs shall come from the private sector. Once such private sector representatives assume office as directors, they become public officials governed by the civil service law and anti-graft laws. Otherwise, Section 8 of PD 198 would contravene Section 2(1), Article IX-B of the Constitution declaring that the civil service includes "government-owned or controlled corporations with original charters."If LWDs are neither GOCCs with original charters nor GOCCs without original charters, then they would fall under the term "agencies or instrumentalities" of the government and thus still subject to COAs audit jurisdiction. However, the stark and undeniable fact is that the government owns LWDs. Section 4527of PD 198 recognizes government ownership of LWDs when Section 45 states that the board of directors may dissolve an LWD only on the condition that "another public entityhas acquired the assets of the district and has assumed all obligations and liabilities attached thereto." The implication is clear that an LWD is a public and not a private entity.Petitioner does not allege that some entity other than the government owns or controls LWDs. Instead, petitioner advances the theory that the "Water Districts owner is the District itself."28Assuming for the sake of argument that an LWD is "self-owned,"29as petitioner describes an LWD, the government in any event controls all LWDs. First, government officials appoint all LWD directors to a fixed term of office. Second, anyper diemof LWD directors in excess ofP50 is subject to the approval of the Local Water Utilities Administration, and directors can receive no other compensation for their services to the LWD.30Third, the Local Water Utilities Administration can require LWDs to merge or consolidate their facilities or operations.31This element of government control subjects LWDs to COAs audit jurisdiction.Petitioner argues that upon the enactment of PD 198, LWDs became private entities through the transfer of ownership of water facilities from local government units to their respective water districts as mandated by PD 198. Petitioner is grasping at straws. Privatization involves the transfer of government assets to a private entity. Petitioner concedes that the owner of the assets transferred under Section 6 (c) of PD 198 is no other than the LWD itself.32The transfer of assets mandated by PD 198 is a transfer of the water systems facilities "managed, operated by or under the control of such city, municipality or province to such (water) district."33In short, the transfer is from one government entity to another government entity. PD 198 is bereft of any indication that the transfer is to privatize the operation and control of water systems.Finally, petitioner claims that even on the assumption that the government owns and controls LWDs, Section 20 of PD 198 prevents COA from auditing LWDs.34Section 20 of PD 198 provides:Sec. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe and define by resolution a system of business administration and accounting for the district, which shall be patterned upon and conform to the standards established by the Administration.Auditing shall be performed by a certified public accountant not in the government service. The Administration may, however, conduct annual audits of the fiscal operations of the district to be performed by an auditor retained by the Administration. Expenses incurred in connection therewith shall be borne equally by the water district concerned and the Administration.35(Emphasis supplied)Petitioner argues that PD 198 expressly prohibits COA auditors, or any government auditor for that matter, from auditing LWDs. Petitioner asserts that this is the import of the second sentence of Section 20 of PD 198 when it states that "[A]uditing shall be performed by a certified public accountant not in the government service."36PD 198 cannot prevail over the Constitution. No amount of clever legislation can exclude GOCCs like LWDs from COAs audit jurisdiction. Section 3, Article IX-C of the Constitution outlaws any scheme or devise to escape COAs audit jurisdiction, thus:Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiaryin any guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit. (Emphasis supplied)The framers of the Constitution added Section 3, Article IX-D of the Constitution precisely to annul provisions of Presidential Decrees, like that of Section 20 of PD 198, that exempt GOCCs from COA audit. The following exchange in the deliberations of the Constitutional Commission elucidates this intent of the framers:MR. OPLE:I propose to add a new section on line 9, page 2 of the amended committee report which reads: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.May I explain my reasons on record.We know that a number of entities of the government took advantage of the absence of a legislature in the past to obtain presidential decrees exempting themselves from the jurisdiction of the Commission on Audit, one notable example of which is the Philippine National Oil Company which is really an empty shell. It is a holding corporation by itself, and strictly on its own account. Its funds were not very impressive in quantity but underneath that shell there were billions of pesos in a multiplicity of companies. The PNOC the empty shell under a presidential decree was covered by the jurisdiction of the Commission on Audit, but the billions of pesos invested in different corporations underneath it were exempted from the coverage of the Commission on Audit.Another example is the United Coconut Planters Bank. The Commission on Audit has determined that the coconut levy is a form of taxation; and that, therefore, these funds attributed to the shares of 1,400,000 coconut farmers are, in effect, public funds. And that was, I think, the basis of the PCGG in undertaking that last major sequestration of up to 94 percent of all the shares in the United Coconut Planters Bank. The charter of the UCPB, through a presidential decree, exempted it from the jurisdiction of the Commission on Audit, it being a private organization.So these are the fetuses of future abuse that we are slaying right here with this additional section.May I repeat the amendment, Madam President: NO LAW SHALL BE PASSED EXEMPTING ANY ENTITY OF THE GOVERNMENT OR ITS SUBSIDIARY IN ANY GUISE WHATEVER, OR ANY INVESTMENTS OF PUBLIC FUNDS, FROM THE JURISDICTION OF THE COMMISSION ON AUDIT.THE PRESIDENT:May we know the position of the Committee on the proposed amendment of Commissioner Ople?MR. JAMIR:If the honorable Commissioner will change the number of the section to 4, we will accept the amendment.MR. OPLE:Gladly, Madam President. Thank you.MR. DE CASTRO:Madam President, point of inquiry on the new amendment.THE PRESIDENT:Commissioner de Castro is recognized.MR. DE CASTRO:Thank you. May I just ask a few questions of Commissioner Ople.Is that not included in Section 2 (1) where it states: "(c) government-owned or controlled corporations and their subsidiaries"? So that if these government-owned and controlled corporations and their subsidiaries are subjected to the audit of the COA, any law exempting certain government corporations or subsidiaries will be already unconstitutional.So I believe, Madam President, that the proposed amendment is unnecessary.MR. MONSOD:Madam President, since this has been accepted, we would like to reply to the point raised by Commissioner de Castro.THE PRESIDENT:Commissioner Monsod will please proceed.MR. MONSOD:I think the Commissioner is trying to avoid the situation that happened in the past, because the same provision was in the 1973 Constitution and yet somehow a law or a decree was passed where certain institutions were exempted from audit. We are just reaffirming, emphasizing, the role of the Commission on Audit so that this problem will never arise in the future.37There is an irreconcilable conflict between the second sentence of Section 20 of PD 198 prohibiting COA auditors from auditing LWDs and Sections 2(1) and 3, Article IX-D of the Constitution vesting in COA the power to audit all GOCCs. We rule that the second sentence of Section 20 of PD 198 is unconstitutional since it violates Sections 2(1) and 3, Article IX-D of the Constitution.On the Legality of COAsPractice of Charging Auditing FeesPetitioner claims that the auditing fees COA charges LWDs for audit services violate the prohibition in Section 18 of RA 6758,38which states:Sec. 18. Additional Compensation of Commission on Audit Personnel and of other Agencies. In order to preserve the independence and integrity of the Commission on Audit (COA), its officials and employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, government-owned or controlled corporations, and government financial institutions,except those compensation paid directly by COA out of its appropriations andcontributions.Government entities, including government-owned or controlled corporations including financial institutions and local government units are hereby prohibited from assessing or billing other government entities, including government-owned or controlled corporations including financial institutions or local government units for services rendered by its officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees. (Emphasis supplied)Claiming that Section 18 is "absolute and leaves no doubt,"39petitioner asks COA to discontinue its practice of charging auditing fees to LWDs since such practice allegedly violates the law.Petitioners claim has no basis.Section 18 of RA 6758 prohibits COA personnel from receiving any kind of compensation from any government entity except "compensation paid directly by COA out of its appropriations and contributions." Thus, RA 6758 itself recognizes an exception to the statutory ban on COA personnel receiving compensation from GOCCs. InTejada v. Domingo,40the Court declared:There can be no question that Section 18 of Republic Act No. 6758 is designed to strengthen further the policy x x x to preserve the independence and integrity of the COA, by explicitly PROHIBITING: (1) COA officials and employees from receiving salaries, honoraria, bonuses, allowances or other emoluments from any government entity, local government unit, GOCCs and government financial institutions,except such compensation paid directly by the COA out of its appropriations and contributions, and (2) government entities, including GOCCs, government financial institutions and local government units from assessing or billing other government entities, GOCCs, government financial institutions or local government units for services rendered by the latters officials and employees as part of their regular functions for purposes of paying additional compensation to said officials and employees.x x xThe first aspect of the strategy is directed to the COA itself, while the second aspect is addressed directly against the GOCCs and government financial institutions.Under the first, COA personnel assigned to auditing units of GOCCs or government financial institutions can receive only such salaries, allowances or fringe benefits paid directly by the COA out of its appropriations and contributions. The contributions referred to are the cost of audit services earlier mentioned which cannot include the extra emoluments or benefits now claimed by petitioners. The COA is further barred from assessing or billing GOCCs and government financial institutions for services rendered by its personnel as part of their regular audit functions for purposes of paying additional compensation to such personnel. x x x. (Emphasis supplied)InTejada, the Court explained the meaning of the word "contributions" in Section 18 of RA 6758, which allows COA to charge GOCCs the cost of its audit services:x x x the contributions from the GOCCs are limited to the cost of audit services which are based on the actual cost of the audit function in the corporation concerned plus a reasonable rate to cover overhead expenses. The actual audit cost shall include personnel services, maintenance and other operating expenses, depreciation on capital and equipment and out-of-pocket expenses. In respect to the allowances and fringe benefits granted by the GOCCs to the COA personnel assigned to the formers auditing units, the same shall be directly defrayed by COA from its own appropriations x x x.41COA may charge GOCCs "actual audit cost" but GOCCs must pay the same directly to COA and not to COA auditors. Petitioner has not alleged that COA charges LWDs auditing fees in excess of COAs "actual audit cost." Neither has petitioner alleged that the auditing fees are paid by LWDs directly to individual COA auditors. Thus, petitioners contention must fail.WHEREFORE,the Resolution of the Commission on Audit dated 3 January 2000 and the Decision dated 30 January 2001 denying petitioners Motion for Reconsideration are AFFIRMED. The second sentence of Section 20 of Presidential Decree No. 198 is declared VOID for being inconsistent with Sections 2 (1) and 3, Article IX-D of the Constitution. No costs.RULING:Corporation Law; Congress cannot enact a law creating a private corporation with a special charter; Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled.In short, Congress cannot enact a law creating a private corporation with a special charter. Such legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only corporations created under a general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code, except that the Cooperative Code governs the incorporation of cooperatives. The Constitution authorizes Congress to create government-owned or controlled corporations through special charters. Since private corporations cannot have special charters, it follows that Congress can create corporations with special charters only if such corporations are government-owned or controlled. [Feliciano vs. Commission on Audit, 419 SCRA 363(2004)]SO ORDERED.G.R. No. L-19891 July 31, 1964J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN,petitioners,vs.IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila andHON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila,respondents.Felipe N. Aurea for petitioners.Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc.PAREDES,J.:Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly franchised by the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. After the defendants therein have submitted their Answer, the parties entered into a Compromise Agreement, assisted by their respective counsels, the pertinent portions of which recite:1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency, itemized as follows:a) PrincipalP50,000.00

b) Interest at 12% per annum5,706.14

c) Liquidated damages at 7% per annum3,330.58

d) Costs of suit135.60

e) Attorney's fees2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May 14, 1962;3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any reason whatsoever, on May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the execution of the decision to be rendered in the above-entitled case by this Honorable Court based on this COMPROMISE AGREEMENT.On March 17, 1962, the lower court rendered judgment embodying the contents of the said compromise agreement, the dispositive portion of which reads WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders judgment in accordance therewith, enjoining the parties to comply faithfully and strictly with the terms and conditions thereof, without special pronouncement as to costs.Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts.1wph1.tOn May 15, 1962, one day after the date fixed in the compromise agreement, within which the judgment debt would be paid, but was not, respondent Imperial Insurance Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of the personal properties of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the petitioner, thru counsel, presented an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and Right to Operate of Defendant JRS Business Corporation", stating that petitioners were busy negotiating for a loan with which to pay the judgment debt; that the judgment was for money only and, therefore, plaintiff (respondent Insurance Company) was not authorized to take over and appropriate for its own use, the business name of the defendants; that the right to operate under the franchise, was not transferable and could not be considered a personal or immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the capital stocks thereof, could not be levied upon and sold under execution. Under date of June 20, 1962, petitioner's counsel presented a pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on theBusiness Name, Right to Operate and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21, 1962. In said motion, petitioners alleged that the loan they had applied for, was to be secured within the next ten (10) days, and they would be able to discharge the judgment debt. Respondents opposed the said motion and on June 21, 1962, the lower court denied the motion for postponement of the auction sale.In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco, Manila, all the properties of said corporation contained in the Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company took possession of the proper ties and started running the affairs and operating the business of the JRS Business Corporation. Hence, the present appeal.It would seem that the matters which need determination are (1) whether the respondent Judge acted without or in excess of his jurisdiction or with grave abuse of discretion in promulgating the Order of June 21, 1962, denying the motion for postponement of the scheduled sale at public auction, of the properties of petitioner; and (2) whether the business name or trade name, franchise (right to oper