CASE DIGEST

Liban v. Gordon
Corpo

Court Supreme Court En Banc

Citation G.R. No. 174352
Date April 15, 2005
Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari
Respondents Richard J. Gordon
Ponente Carpio, J.
Special Corporations
“The Constitution emphatically prohibits the creation of private corporations except
by general law applicable to all citizens. The purpose of this constitutional provision
is to ban private corporations created by special charters, which historically gave
Relevant topic
certain individuals, families or groups special privileges denied to other citizens.
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.”
Prepared by Giliane Remee M. Guadalupe

CASE SUMMARY:

KEYWORDS: The Constitution forbids Congress from creating private corporations

The officers of the Board of Directors of the Quezon City Red Cross Chapter filed a petition to declare Gordon as having
forfeited his seat in the senate for accepting the position of being the chairman of the Philippine Red Cross during his
incumbency. The petitioners asserted that such act is violative of Sec 13 Art. 6 of the Constitution which prohibits
senators from holding other employment position in the government and in GOCCs:
a. SEC. 13. No Senator or Member of the House of Representatives may hold any other office 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 office which may have been created or the emoluments
thereof increased during the term for which he was elected.

The SC held that the PNRC is not a GOCC/controlled and/or by the government and is unconstitutional.

The PNRC Charter is unconstitutional insofar as it creates the PNRC as a private corporation. The Constitution
emphatically prohibits the creation of private corporations except by general law applicable to all citizens. The purpose
of this constitutional provision is to ban private corporations created by special charters, which historically gave certain
individuals, families or groups special privileges denied to other citizens. 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.

Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local Water
Districts, 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.

FACTS:

2. The officers of the Board of Directors of the Quezon City Red Cross Chapter filed a petition to declare Gordon
as having forfeited his seat in the senate for accepting the position of being the chairman of the Philippine Red
Cross during his incumbency. The petitioners asserted that such act is violative of Sec 13 Art. 6 of the
Constitution which prohibits senators from holding other employment position in the government and in GOCCs:
a. SEC. 13. No Senator or Member of the House of Representatives may hold any other office 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 office which may have been created or the emoluments
thereof increased during the term for which he was elected.
3. Petitioners cite Camporedondo v. NLRC which held that the PNRC is a government-owned or controlled
corporation. Petitioners claim that in accepting and holding the position of Chairman of the PNRC Board of
Governors, respondent has automatically forfeited his seat in the Senate, pursuant to Flores v. Drilon, which
held that incumbent national legislators lose their elective posts upon their appointment to another government
office
4. They also claim that the suit is a taxpayer’s suit instituted to question the unlawful disbursement of funds from
which Gordon’s salary as senator is drawn from. Gordon refuted these allegations by saying that this case is in

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Liban v. Gordon
Corpo
the nature of a quo warranto suit since it alleges that Gordon committed an act constituting a ground for forfeiture
of his public office.
5. Respondent Gordon 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 office nor an employment. He has already served as chairman and senator
in the past. The case could also not be a taxpayer’s suit since PNRC is not a GOCC.
6.
ISSUE – HELD – RATIO:

ISSUES:
1. WON PNRC is a GOCC/controlled and/or by the government/constitutional (NO)

HELD-RATIO:
1. NO. PNRC is not a GOCC. To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. To be accepted by warring belligerents as neutral workers
during international or internal armed conflicts, the PNRC volunteers must not be seen as belonging to any side
of the armed conflict. 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 identified 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 battlefield
or the displaced civilians in conflict areas.
2. The government does not control the PNRC. Under the PNRC Charter, as amended, only six of the thirty
members of the PNRC Board of Governors are appointed by the President of the Philippines. Clearly, an
overwhelming majority of four-fifths of the PNRC Board are elected or chosen by the private sector members of
the PNRC.

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

Under Section 17, Art. VII of the Constitution, the President exercises control over all government offices in the
Executive Branch. If an office is legally not under the control of the President, then such office is not part of the
Executive Branch.

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 officials holding such
membership by appointment or designation by the government. Under this criterion, and as discussed earlier,
the government does not own or control PNRC.
3. PNRC is not owned by the government. The PNRC does not have government assets and does not receive
any appropriation from the Philippine Congress The PNRC is financed primarily by contributions from private
individuals and private entities obtained through solicitation campaigns organized by its Board of Governor

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, any one between 6 and 65
years of age can be a PNRC member for one year upon contributing ₱35, ₱100, ₱300, ₱500 or ₱1,000 for the
year. Even foreigners, whether residents or not, can be members of the PNRC.
4. The PNRC Charter is unconstitutional insofar as it creates the PNRC as a private corporation. The
Constitution emphatically prohibits the creation of private corporations except by general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters,
which historically gave certain individuals, families or groups special privileges denied to other citizens.
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.

Just like the Local Water Districts, the PNRC was created through a special charter. However, unlike the Local
Water Districts, 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.

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Liban v. Gordon
Corpo
In sum, we hold that 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. 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.

RULING:

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. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of
the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643,
are VOID because they create the PNRC as a private corporation or grant it corporate powers.

RELEVANCE TO THE TOPIC:

Information from commentary, other definitions, provisions/laws

Separate opinion:
KEYWORDS: Pacto de retro is a cover up. [Thesis statement of the opinion]

- Dissenting opinion