LIBAN v.

GORDON

Doctrines:
1. To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. The PNRC does not have
government assets and does not receive any appropriation from the Philippine
Congress.
2. The government does not control the PNRC. Majority of four-fifths of the PNRC
Board are elected or chosen by the private sector members of the PNRC.
3. The PNRC Board exercises all corporate powers of the PNRC. The PNRC is
controlled by private sector individuals.

Topic: special corporation

G.R. NO. 175352 : July 15, 2009

CARPIO, J.:

Petitioners: Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari — o cers of

the Board of Directors of the Quezon City Red Cross Chapter

Respondent: Richard J. Gordon — Chairman of the Philippine National Red Cross

(PNRC) Board of Governors

FACTS:

1. During respondent's incumbency as a member of the Senate of the Philippines, he

was elected Chairman of the PNRC.

2. Petitioners alleged that by accepting the chairmanship of the PNRC Board of

Governors, respondent has ceased to be a member of the Senate as provided in
Section 13, Article VI of the Constitution1

3. Petitioners cite Camporedondo v. NLRC, which held that the PNRC is a

government-owned or controlled corporation. Also in Flores v. Drilon, it was held
that incumbent national legislators lose their elective posts upon their appointment
to another government o ce.

4. Respondent insists that the PNRC is not a government-owned or controlled

corporation and that the prohibition under Section 13, Article VI of the Constitution
does not apply in the present case since volunteer service to the PNRC is neither
an o ce nor an employment.

ISSUES:

1. Whether or not Philippine National Red Cross (PNRC) is a government - owned or

controlled corporation. NO

1SEC. 13. No Senator or Member of the House of Representatives may hold any other o ce or employment in the
Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any
o ce which may have been created or the emoluments thereof increased during the term for which he was elected.
ffi
ffi

ffi

ffi

ffi
2. Whether or not the PNRC Charter violates the Constitutional Proscription against
the Creation of Private Corporations by Special Law. YES

RULING:

1. No, Philippine National Red Cross (PNRC) is not a government - owned or

controlled corporation.

FIRST REASON:

The PNRC is a member National Society of the International Red Cross and Red
Crescent Movement (Movement). The Movement is united and guided by its seven
Fundamental Principles.2 The PNRC, as a member National Society of the Movement,
has the duty to uphold the Fundamental Principles and ideals of the Movement. In
order to be recognized as a National Society, the PNRC has to be autonomous
and must operate in conformity with the Fundamental Principles of the
Movement. The reason for this autonomy is fundamental.

In the Philippines where there is a communist insurgency and a Muslim separatist

rebellion, the PNRC cannot be seen as government-owned or controlled, and neither
can the PNRC volunteers be identi ed as government personnel or as instruments of
government policy. Otherwise, the insurgents or separatists will treat PNRC volunteers
as enemies when the volunteers tend to the wounded in the battle eld or the displaced
civilians in con ict areas.

To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. The Philippine government
does not own the PNRC. The PNRC does not have government assets and does
not receive any appropriation from the Philippine Congress. The PNRC is nanced
primarily by contributions from private individuals and private entities obtained through
solicitation campaigns organized by its Board of Governors, as provided under Section
11 of the PNRC Charter.3

SECOND REASON:

The government does not control the PNRC. Majority of four- fths of the PNRC
Board are elected or chosen by the private sector members of the PNRC.

- Under the PNRC Charter, as amended, only six (6) of the thirty (30) members of the
PNRC Board of Governors are appointed by the President of the Philippines. Thus,
twenty-four members, or four- fths (4/5), of the PNRC Board of Governors are not
appointed by the President.

2 Humanity, Impartiality, Neutrality, Independence, Voluntary Service, Unity, and Universality

3SECTION 11. As a national voluntary organization, the Philippine National Red Cross shall be nanced primarily by
contributions obtained through solicitation campaigns throughout the year which shall be organized by the Board of
Governors and conducted by the Chapters in their respective jurisdictions. These fund raising campaigns shall be
conducted independently of other fund drives by other organizations.
fl
fi
fi
fi
fi
fi
fi
 - Of the twenty-four members of the PNRC Board, eighteen are elected by the chapter
delegates of the PNRC, and six are elected by the twenty-four members already
chosen - a select group where the private sector members have three-fourths
majority.

- The PNRC Board of Governors, which exercises all corporate powers of the PNRC,
elects the PNRC Chairman and all other o cers of the PNRC. The incumbent
Chairman of PNRC, respondent Senator Gordon, was elected by a private sector-
controlled PNRC Board four- fths of whom are private sector members of the
PNRC. The PNRC Chairman is not appointed by the President or by any subordinate
government o cial.

- Thus, the PNRC Chairman is not an o cial or employee of the Executive branch
since his appointment does not fall under Section 16, Article VII of the Constitution4.
Certainly, the PNRC Chairman is not an o cial or employee of the Judiciary or
Legislature.

- The PNRC Chairman is not an o cial or employee of the Philippine Government. Not
being a government o cial or employee, the PNRC Chairman, as such, does not
hold a government o ce or employment.

THIRD REASON:

The PNRC Board exercises all corporate powers of the PNRC. The PNRC is
controlled by private sector individuals.
- Decisions or actions of the PNRC Board are not reviewable by the President.

- The President cannot reverse or modify the decisions or actions of the PNRC Board.
Neither can the President reverse or modify the decisions or actions of the PNRC
Chairman.

- It is the PNRC Board that can review, reverse or modify the decisions or actions of
the PNRC Chairman. This proves again that the o ce of the PNRC Chairman is a
private o ce, not a government o ce.

The PNRC is not government-owned but privately owned. The vast majority of the
thousands of PNRC members are private individuals, including students. Under the
PNRC Charter, those who contribute to the annual fund campaign of the PNRC are
entitled to membership in the PNRC for one year. Thus, the PNRC is a privately
owned, privately funded, and privately run charitable organization. The PNRC is
not a government-owned or controlled corporation.

4 The President shall nominate and, with the consent of the Commission on Appointments, appoint the heads of the
executive departments, ambassadors, other public ministers and consuls, or o cers of the armed forces from the
rank of colonel or naval captain, and other o cers whose appointments are vested in him in this Constitution. He
shall also appoint all other o cers of the Government whose appointments are not otherwise provided for by law,
and those whom he may be authorized by law to appoint. The Congress may, by law, vest the appointment of other
o cers lower in rank in the President alone, in the courts, or in the heads of departments, agencies, commissions,
or boards.

The President shall have the power to make appointments during the recess of the Congress, whether voluntary or
compulsory, but such appointments shall be e ective only until after disapproval by the Commission on
Appointments or until the next adjournment of the Congress.
ffi
ffi
ffi
ffi
ffi
ffi
fi
ffi
ffi
ffi
ff
ffi
ffi
ffi
ffi
ffi
Note: Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,
which ruled that the PNRC is a government-owned or controlled corporation. Since the
PNRC was created under a special charter, the Court then ruled that it is a government
corporation. However, the Camporedondo ruling failed to consider the de nition of a
government-owned or controlled corporation as provided under Section 2(13) of the
Introductory Provisions of the Administrative Code of 19875

A government-owned or controlled corporation must be owned by the government,

and in the case of a stock corporation, at least a majority of its capital stock must be
owned by the government. In the case of a non-stock corporation, by analogy at least
a majority of the members must be government o cials holding such
membership by appointment or designation by the government. Under this
criterion, the government does not own or control PNRC.

2. Yes, the PNRC Charter violates the Constitutional Proscription against the Creation
of Private Corporations by Special Law.

The 1935 Constitution, as amended, was in force when the PNRC was created by
special charter. Section 7, Article XIV of the 1935 Constitution, as amended, reads:

SEC. 7. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such
corporations are owned or controlled by the Government or any subdivision or
instrumentality thereof.

Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Only corporations created under a general law
can qualify as private corporations. Under existing laws, the general law is the
Corporation Code, except that the Cooperative Code governs the incorporation of
cooperatives. 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.

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.

5 SEC. 2. General Terms De ned. —

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or where applicable as in the case of
stock corporations, to the extent of at least fty-one (51) percent of its capital stock: Provided, That government-
owned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers,
functions and responsibilities with respect to such corporations.
fi
fi
ffi
fi
 In this case, PNRC was created through a special charter. However, the elements of
government ownership and control are clearly lacking in the PNRC. Thus, although the
PNRC is created by a special charter, it cannot be considered a government-owned or
controlled corporation in the absence of the essential elements of ownership and
control by the government.

In creating the PNRC as a corporate entity, Congress was in fact creating a private
corporation. However, the constitutional prohibition against the creation of private
corporations by special charters provides no exception even for non-pro t or charitable
corporations. Consequently, the PNRC Charter, insofar as it creates the PNRC as a
private corporation and grants it corporate powers, is void for being unconstitutional. 1,
2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the PNRC Charter, as amended, are void.

The Court held that the o ce of the PNRC Chairman is not a government o ce or an
o ce in a government-owned or controlled corporation for purposes of the prohibition
in Section 13, Article VI of the 1987 Constitution.6 However, since the PNRC Charter is
void insofar as it creates the PNRC as a private corporation, the PNRC should
incorporate under the Corporation Code and register with the Securities and Exchange
Commission if it wants to be a private corporation.

Note:

Two classes of corporations.

1) private corporations created under a general law.

2) 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.

6 SECTION 13. No Senator or Member of the House of Representatives may hold any other o ce or employment in
the Government, or any subdivision, agency, or instrumentality thereof, including government-owned or controlled
corporations or their subsidiaries, during his term without forfeiting his seat. Neither shall he be appointed to any
o ce which may have been created or the emoluments thereof increased during the term for which he was elected.
ffi
ffi
ffi
ffi
fi
ffi