THE VETERANS FEDERATION OF THE PHILIPPINES REPRESENTED BY ESMERALDO R. ACORDA, PETITIONER, VS. HON. ANGELO T. REYES IN HIS CAPACITY AS SECRETARY OF NATIONAL DEFENSE; AND HON. ED…

Veterans Federation of the Philippines versus Reyes

The Case

This is a special civil action for certiorari and prohibition, filed directly with the Supreme Court under Rule 65 of the 1997 Rules of Civil Procedure, by the Veterans Federation of the Philippines against the Secretary of National Defense and the Undersecretary for Civil Relations and Administration. The petitioner asks the Court to declare void Department Circular Number 04, issued by the Secretary on 10 June 2002, and to stop the management audit of its books that the Department had begun. The case matters because it settles the juridical character of the Veterans Federation of the Philippines — whether it is a private corporation beyond the reach of a department secretary, or a public corporation lawfully subject to the control and supervision of the Secretary of National Defense.

Procedural History

The petitioner went straight to the Supreme Court as an original action, invoking the Court's original jurisdiction over petitions for certiorari and prohibition. It acknowledged that the Regional Trial Court and the Court of Appeals also exercise original jurisdiction over such writs, but argued that the urgency, the substantive importance of the question, and the public interest involved justified direct resort to the Supreme Court. The Court noted that the petition did not specifically and sufficiently set forth the special and important reasons required by the hierarchy of courts, as held in Commissioner of Internal Revenue versus Leal. Nevertheless, taking judicial notice that the persons who stand to lose in protracted litigation are war veterans, many with little time left to enjoy the benefits of the Federation, the Court resolved to give due course to the petition and decide it on the merits.

Facts

The Veterans Federation of the Philippines was created by Republic Act Number 2640, approved on 18 June 1960, and registered with the Securities and Exchange Commission. On 15 April 2002, its president received a letter dated 13 April 2002 from the Secretary of National Defense, who wrote that in preparing a briefing for the Cabinet and the President he had come across legal bases showing an organizational and management relationship between the Federation and the Philippine Veterans Bank, and he requested information and reports about the two corporate bodies.

On 10 June 2002, the Secretary issued Department Circular Number 04, entitled Further Implementing the Provisions of Sections 1 and 2 of Republic Act Number 2640. The circular defined supervision and control, power of control, and supervision; declared the relationship between the Department and the Federation; required the submission of reports, documents, and papers; directed that financial transactions follow the government auditing code; and subjected the Federation and its officials to the penal provisions applicable to attached agencies of the government. On 6 August 2002, the Secretary reiterated his instructions. On 23 August 2002, the Undersecretary informed the Federation's president that Department Order Number 129 had directed a management audit of the Federation, and requested a briefing and documents on personnel, projects, and finances.

The Secretary General of the Federation wrote to complain that the audit's scope was too broad and asked that it be suspended until specific areas were agreed upon. The Undersecretary denied the request on 4 September 2002, because a specific timeframe had been set. The Federation then filed this petition, praying for a temporary restraining order and injunctive writs, for a declaration that the circular is void for being ultra vires, and for the writs to be made permanent.

Issues

• Whether or not the challenged department circular was issued in the valid exercise of the respondent Secretary's power of control and supervision.
• Whether or not the department circular could validly lay down standards classifying the Veterans Federation of the Philippines, an essentially civilian organization, within the ambit of statutes applying only to government entities.
• Whether or not the department circular, which grants the respondent direct management control over the Federation, unduly encroaches on the prerogatives of the Federation's governing body.
• Whether or not the Veterans Federation of the Philippines is a private corporation.

Applicable Provisions

Section 7 of the 1935 Constitution, the organic act controlling when the Federation was created in 1960, provides:

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

This provision bars Congress from regulating private corporations by special law, so the grant of control over the Federation to a public official would be impermissible unless the Federation is a public corporation or a government-owned or controlled corporation.

Section 4 of the 1973 Constitution provides:

Section 4. The National Assembly 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.

This is the counterpart of the 1935 provision and carries the same limitation on the regulation of private corporations by special law.

Section 16 of the 1987 Constitution provides:

Section 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned and 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.

This provision confirms that special charters are reserved for government-owned and controlled corporations, which is why the character of the Federation determines the validity of the circular.

Ruling

On the first three issues, the Court held that the circular was a valid exercise of the Secretary's authority, because the Federation is a public corporation and may lawfully be placed under the control and supervision of the Secretary of National Defense. The Court defined the power of control as the power of an officer to alter or modify or nullify or set aside what a subordinate has done in the performance of his duties and to substitute the judgment of the former to that of the latter. The power of supervision means overseeing, or the power or authority of an officer to see that subordinate officers perform their duties. The Court found these definitions synonymous with those in the assailed circular, and the other provisions mere consequences of control and supervision so defined.

On the central issue, the Court ruled that the Federation is in fact a public corporation. It gave the evident reasons: Republic Act Number 2640 is entitled An Act to Create a Public Corporation to be Known as the Veterans Federation of the Philippines, Defining its Powers, and for Other Purposes; any action or decision of the Federation or of the Supreme Council is subject to the approval of the Secretary of Defense; the Federation must submit annual reports of its proceedings, including a full, complete and itemized report of receipts and expenditures, to the President or the Secretary of National Defense; under Executive Order Number 37 dated 2 December 1992, the Federation was listed among the government-owned and controlled corporations that will not be privatized; and in Ang Bagong Bayani, the Court held that the Veterans Federation Party is an adjunct of the government, being merely an incarnation of the Veterans Federation of the Philippines.

The Court rejected the petitioner's arguments that its funds are private, that membership is voluntary, and that it is governed by the Labor Code and the Social Security System Law rather than the Civil Service Law. It explained that the constitutional provisions prohibit regulation by special law of private corporations, except government-owned or controlled corporations, so it would be impermissible for the law to grant control of the Federation to a public official if it were neither a public corporation, an unincorporated governmental entity, nor a government-owned or controlled corporation.

Doctrine

The Veterans Federation of the Philippines is a public corporation, created by special charter and placed under the control and supervision of the Secretary of National Defense. The power of control is the power to alter, modify, nullify, or set aside what a subordinate has done and to substitute the judgment of the superior; the power of supervision is the power to oversee and see to it that subordinates perform their duties. Under the 1935, 1973, and 1987 Constitutions, Congress may not, except by general law, provide for the formation, organization, or regulation of private corporations, unless they are owned or controlled by the government; government-owned and controlled corporations may be created by special charters. Because the Federation is a public corporation, a department circular implementing the charter and defining the Secretary's control and supervision is a valid administrative issuance, not an ultra vires act.

Disposition

The Supreme Court gave due course to the petition but denied it, upholding the validity of Department Circular Number 04 and allowing the management audit to proceed.

Remember This

Memorize the line that the Veterans Federation of the Philippines is a public corporation under the control and supervision of the Secretary of National Defense, not a private organization. Examiners use this case to test the distinction between the power of control and the power of supervision, and the constitutional rule that private corporations cannot be regulated by special law.