CORPORATION AND SECURITIES LAW CASE DIGEST ATTY.

CO-PUA

I. SHORT TITLE: LIBAN V. GORDON

II. FULL TITLE: Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari versus
Richard J. Gordon; Philippine National Red Cross (Intervenor) – G. R. No.
175352, January 18, 2011, J. Leonardo-De Castro

III: TOPIC: Classes of Corporations – Government Corporation

IV. STATEMENT OF FACTS:

In the July 15, 2009 Decision of the Supreme Court in Liban v. Gordon, the Court held that Richard
Gordon did not forfeit his seat in the Senate when he accepted the chairmanship of the Philippine
National Red Cross (PNRC) Board of Governors, as "the office of the PNRC Chairman is not a
government office or an office in a government-owned or controlled corporation for purposes of the
prohibition in Section 13, Article VI of the 1987 Constitution." The Decision, however, further
declared void the PNRC Charter "insofar as it creates the PNRC as a private corporation" and
consequently ruled that "the PNRC should incorporate under the Corporation Code and register
with the Securities and Exchange Commission if it wants to be a private corporation.

In the present case, PNRC asks the Court to sustain the Constitutionality of its Charter. Among
others, the PNRC argues that PNRC’s structure is sui generis; it is a class of its own. While it is
performing humanitarian functions as an auxiliary to government, it is a neutral entity separate and
independent of government control, yet it does not qualify as strictly private in character.

V. STATEMENT OF THE CASE:

After the Supreme Court promulgated its July 15, 2009 in Liban v. Gordon, Richard Gordon filed
a Motion for Clarification and/or for Reconsideration on August 10, 2009. Meanwhile, movant-
intervenor, PNRC, filed a Motion for Partial Reconsideration on August 27, 2009 and a
Manifestation and Motion to Admit Attached Position Paper on December 23, 2009.

VI. ISSUE:
Whether or not the Philippine National Red Cross is a private corporation.

VII. RULING:
No. The Philippine Red Cross is not a private corporation, nor is it a government corporation. It is
sui generis.

Under Section 16, Article XII of the 1987 Constitution, it is provided that “The Congress shall not,
except by general law, provide for the formation, organization, or regulation of private
corporations.”. Similar provisions were present in the 1935 and 1973 Constitutions. Since its
enactment, the PNRC Charter was amended several times. The passage of several laws relating to
the PNRC’s corporate existence, notwithstanding the effectivity of the constitutional proscription on
the creation of private corporations by law, is a recognition that the PNRC is not strictly in the nature
of a private corporation contemplated by the aforesaid constitutional ban.

A closer look at the nature of the PNRC would show that there is none like it not just in terms of
structure, but also in terms of history, public service and official status accorded to it by the State and
CORPORATION AND SECURITIES LAW CASE DIGEST ATTY. CO-PUA

the international community. Therefore, there is merit in PNRC’s contention that its structure is sui
generis.

The provisions of R.A. No. 95, as amended, show the historical background and legal basis of the
creation of the PNRC by legislative fiat, as a voluntary organization impressed with public interest.
The PNRC succeeded the chapter of the American Red Cross which was in existence in the
Philippines since 1917. It was created by an Act of Congress after the Republic of the Philippines
became an independent nation on July 6, 1946 and proclaimed on February 14, 1947 its adherence
to the Convention of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded
and Sick of Armies in the Field (the "Geneva Red Cross Convention").

By that action the Philippines indicated its desire to participate with the nations of the world in
mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for
that purpose and like other volunteer organizations established in other countries which have ratified
the Geneva Conventions, to promote the health and welfare of the people in peace and in war.

The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the
International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the
International Red Cross and Red Crescent Movement (the Movement). National Societies such as
the PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian field
and provide a range of services including disaster relief and health and social programmes.

A National Society partakes of a sui generis character. It is a protected component of the Red Cross
movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed
conflict. These provisions require that the staff of a National Society shall be respected and protected
in all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary
private entities or even non-governmental organizations (NGOs). This sui generis character is also
emphasized by the Fourth Geneva Convention which holds that an Occupying Power cannot require
any change in the personnel or structure of a National Society. National societies are therefore
organizations that are directly regulated by international humanitarian law, in contrast to other
ordinary private entities, including NGOs.

Moreover, National Societies are not only officially recognized by their public authorities as
voluntary aid societies, auxiliary to the public authorities in the humanitarian field, but also benefit
from recognition at the International level. This is considered to be an element distinguishing
National Societies from other organizations (mainly NGOs) and other forms of humanitarian
response.

Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the
humanitarian field. The auxiliary status of a Red Cross Society means that it is at one and the same
time a private institution and a public service organization because the very nature of its work implies
cooperation with the authorities, a link with the State. In carrying out their major functions, Red
Cross Societies give their humanitarian support to official bodies, in general having larger resources
than the Societies, working towards comparable ends in a given sector. No other organization has a
duty to be its government’s humanitarian partner while remaining independent.
CORPORATION AND SECURITIES LAW CASE DIGEST ATTY. CO-PUA

The purpose of the constitutional provision prohibiting Congress from creating private corporations
was to prevent the granting of special privileges to certain individuals, families, or groups, which were
denied to other groups. On this basis, it can be seen that the PNRC Charter does not come within
the spirit of this constitutional provision, as it does not grant special privileges to a particular
individual, family, or group, but creates an entity that strives to serve the common good.

Consequently, a strict and mechanical interpretation of Article XII, Section 16 of the 1987
Constitution will hinder the State in adopting measures that will serve the public good or national
interest. It should be noted that a special law, R.A. No. 9520, the Philippine Cooperative Code of
2008, and not the general corporation code, vests corporate power and capacities upon cooperatives
which are private corporations, in order to implement the State’s avowed policy.

By requiring the PNRC to organize under the Corporation Code just like any other private
corporation, the Decision of July 15, 2009 lost sight of the PNRC’s special status under international
humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations
under the Geneva Conventions. Although the PNRC is called to be independent under its
Fundamental Principles, it interprets such independence as inclusive of its duty to be the
government’s humanitarian partner. To be recognized in the International Committee, the PNRC
must have an autonomous status, and carry out its humanitarian mission in a neutral and impartial
manner.

The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can
neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as
well as its independence, nor strictly as a private corporation since it is regulated by international
humanitarian law and is treated as an auxiliary of the State.

In view of the foregoing, the sui generis status of the PNRC is now sufficiently established. Although
PNRC is neither a subdivision, agency, or instrumentality of the government, nor a government-
owned or -controlled corporation or a subsidiary thereof, the 2009 Decision allowing Richard
Gordon to hold his position as Chairman of the PNRC concurrently while he served as a Senator,
does not ipso facto imply that the PNRC is a "private corporation" within the contemplation of the
provision of the Constitution, that must be organized under the Corporation Code. As correctly
mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach
controversies involving the PNRC on a case-to-case basis.

VIII. DISPOSITIVE PORTION:

WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is
not a government office or an office in a government-owned or controlled corporation for purposes
of the prohibition in Section 13, Article VI of the 1987 Constitution.

PREPARED BY: Francine Blaise M. Loja