Philippine Society for the Prevention of Cruelty to Animals vs. Commission on Audit

A corporation created by special legislation before the 1935 Constitution's proscription on special-chart private corporations is not automatically a government corporation subject to COA audit; the "charter test" operates prospectively and cannot be applied retroactively to entities incorporated under a prior legal regime where no such restriction existed. The true criterion for distinguishing public from private corporations is the totality of the corporation's relationship to the State — whether it was created as the State's own agency or instrumentality to carry out governmental functions.

PSPCA was incorporated on January 19, 1905, by virtue of Act No. 1285, enacted by the Philippine Commission. At that time, no general corporation law existed — the Corporation Law (Act No. 1459) would not be enacted until March 1, 1906 — and the Securities and Exchange Commission had not yet been constituted. The Philippine Bill of 1902 governed the legal regime, and it contained no proscription against the legislature creating private corporations by special law. PSPCA's charter originally endowed it with the power to appoint agents who could make arrests for violations of animal welfare laws and to share one-half of the fines collected through its efforts. These governmental attributes were subsequently revoked by Commonwealth Act No. 148 (approved November 8, 1936) and Executive Order No. 63 (issued November 12, 1936), which transferred enforcement functions to regular peace officers and directed that all fines accrue to the municipality where the offense was committed.

The Philippine Society for the Prevention of Cruelty to Animals (PSPCA) was incorporated as a juridical entity on January 19, 1905, by virtue of Act No. 1285, enacted by the Philippine Commission. At the time of its creation, no general corporation law existed in the Philippines — the Corporation Law, Act No. 1459, would not be enacted until March 1, 1906, over a year later — and the Securities and Exchange Commission had not yet been constituted. The objects of PSPCA, as stated in Section 2 of its charter, were to enforce laws relating to cruelty inflicted upon animals and to promote their welfare. Its charter originally imbued it with the power to appoint agents with police authority to make arrests for violations of animal welfare laws, and it was entitled to share one-half of all fines imposed and collected through its efforts.

Subsequently, Commonwealth Act No. 148, approved on November 8, 1936, amended Section 4 of Act No. 1285, withdrawing from PSPCA's agents the power to make arrests and replacing it with the authority merely to denounce violations to regular peace officers and cooperate in prosecutions. C.A. No. 148 also abolished PSPCA's privilege to share in fines, directing that the full amount of fines collected accrue to the general fund of the municipality where the offense was committed. Immediately thereafter, President Manuel L. Quezon issued Executive Order No. 63 dated November 12, 1936, characterizing the revocation of PSPCA's arrest powers as correcting "a serious defect" in the statute books, and directing the Commissioner of Public Safety, the Provost Marshal General, city mayors, and municipal presidents to organize special police forces to watch, capture, and prosecute offenders against animal welfare laws.

On December 1, 2003, an audit team from the Commission on Audit (COA) visited PSPCA's office to conduct an audit survey pursuant to COA Office Order No. 2003-051. PSPCA demurred, asserting it was a private entity not under COA jurisdiction, citing Section 2(1) of Article IX of the Constitution, which defines COA's general jurisdiction over 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 its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and non-governmental entities receiving subsidy or equity from the government required by law to submit to audit. The COA General Counsel, in a Memorandum dated May 6, 2004, asserted that PSPCA was subject to COA's audit authority. PSPCA filed a Request for Re-evaluation on May 19, 2004, insisting it was a private domestic corporation, but the General Counsel affirmed her earlier opinion in a Memorandum dated July 13, 2004.

PSPCA received on September 27, 2005 the subject COA Office Order No. 2005-021 dated September 14, 2005, which constituted the audit team, as well as the September 23, 2005 COA Letter informing PSPCA that the audit team would conduct a detailed audit of its accounts, operations, and financial transactions. PSPCA then filed the present petition for certiorari and prohibition under Rule 65. The Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor General and the parties to comment on PSPCA's authority to impose fines, the validity of the provisions of Act No. 1285 and C.A. No. 148, and the effect of the 1935 and 1987 Constitutions on whether PSPCA continues to exist or should organize as a private corporation under the Corporation Code. PSPCA averred that it does not have the authority to impose fines and that it continues to exist as a private corporation, while the OSG submitted that PSPCA is a public corporation that has continued to exist since Act No. 1285 and was not repealed by the 1935 and 1987 Constitutions.

• Inapplicability of the Charter Test: Petitioner argued that the "charter test" cannot be applied because it is predicated on the legal regime established by the 1935 Constitution, which postdated PSPCA's incorporation by thirty years; laws have no retroactive effect unless the contrary is provided, and none of the exceptions to prospectivity are present.
• Absence of Governmental Functions: Petitioner maintained that C.A. No. 148 and E.O. No. 63 effectively deprived it of its power to make arrests and serve processes, and that it lost its operational funding, underscoring that it exercises no governmental function.
• No Public Corporation Designation: Petitioner argued that nowhere in its charter is it indicated that it is a public corporation, unlike Commonwealth Act No. 111 which created the Boy Scouts of the Philippines and specifically stated it was creating a "public corporation."
• Tax Exemption as Private Entity: Petitioner contended that if it were a government body, there would have been no need for the State to grant it tax exemptions under Republic Act No. 1178, and that the fact of such exemption strengthens its position as a private institution.
• SSS Coverage of Employees: Petitioner pointed out that its employees are registered and covered by the Social Security System at the latter's initiative and not through the Government Service Insurance System, which should have been the case had the employees been considered government employees.
• No Government Financial Assistance: Petitioner asserted that it does not receive any form of financial assistance from the government, since C.A. No. 148 directs that the full amount of fines collected shall accrue to the general fund of the municipality where the offense was committed.
• No Government Representation on Board: Petitioner noted that no government appointee or representative sits on its board of trustees.
• No Government Control or Supervision: Petitioner argued that a reading of its charter fails to show that any act or decision is subject to the approval of or control by any government agency, except to the extent that it is governed by the law on private corporations in general.
• Mixed-Sector Committee Membership: Petitioner cited that the Committee on Animal Welfare under the Animal Welfare Act of 1998 includes members from both the private and public sectors, indicating its private character.

• Creation by Special Legislation: Respondents contended that the test to determine whether an entity is a government corporation lies in the manner of its creation, and since PSPCA was created by virtue of a special charter, it is a government corporation subject to COA's auditing power.
• Exercise of Sovereign Powers: Respondents argued that PSPCA exercises "sovereign powers" because it is tasked to enforce laws for the protection and welfare of animals, which ultimately redounds to the public good, making it a government "instrumentality" as defined under the Administrative Code of 1987.
• Presidential Supervision or Control: Respondents maintained that by virtue of Section 23, Title II, Book III of the Administrative Code of 1987, the Office of the President exercises supervision or control over PSPCA.
• Reportorial Requirement to the Civil Governor: Respondents argued that the charter's requirement for PSPCA to render periodic reports to the Civil Governor, whose functions have been inherited by the Office of the President, reflects PSPCA's nature as a government instrumentality.
• Continued Existence Under Special Charter: Respondents pointed out that despite the passage of the Corporation Code, the law creating PSPCA had not been abolished, nor had it been re-incorporated under any general corporation law.
• Membership in Government Committee: Respondents cited that Republic Act No. 8485, the Animal Welfare Act of 1998, designates PSPCA as a member of its Committee on Animal Welfare, which is attached to the Department of Agriculture.

• COA Audit Jurisdiction: Whether PSPCA qualifies as a government agency subject to audit by the Commission on Audit.
• Applicability of the Charter Test: Whether the "charter test" — which treats corporations created by special charter as government corporations — can be applied to PSPCA, which was incorporated in 1905 before the constitutional proscription on special-chart private corporations took effect.
• Nature of PSPCA as a Corporate Entity: Whether PSPCA is a public corporation, a quasi-public corporation, or a private domestic corporation, and what legal regime governs its rights, powers, and duties.

• COA Audit Jurisdiction: No. PSPCA is a private domestic corporation and does not fall within COA's audit jurisdiction under Section 2(1), Article IX of the Constitution.
• Applicability of the Charter Test: No. The charter test cannot be applied retroactively to PSPCA, which was incorporated in 1905 under a legal regime where no constitutional proscription against creating private corporations by special law existed.
• Nature of PSPCA as a Corporate Entity: PSPCA is a quasi-public corporation — a species of private corporation — that renders public service but was not created as the State's own agency or instrumentality to carry out governmental functions. The true criterion is the totality of the corporation's relationship to the State.

• COA Audit Jurisdiction: COA's jurisdiction under Section 2(1), Article IX of the Constitution extends to 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 its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and non-governmental entities receiving subsidy or equity from the government required by law to submit to audit. Since PSPCA was determined to be a private domestic corporation, none of these categories applied. PSPCA received no government subsidy, and its employees were covered by SSS, not GSIS. No government representative sat on its board, and no government agency exercised control or supervision over its operations. Accordingly, COA had no authority to audit PSPCA's fiscal and financial affairs.

• Applicability of the Charter Test: The charter test provides that corporations created by their own charter for the exercise of a public function are government corporations, while those incorporated under the general corporation law are private. However, the textual foundation of this test first appeared in Section 7, Article XIII of the 1935 Constitution, which prohibited the National Assembly from providing for the formation, organization, or regulation of private corporations except by general law, unless owned or controlled by the Government. This proscription was carried over to the 1973 and 1987 Constitutions. Since PSPCA was incorporated in 1905 under the Philippine Bill of 1902 — a legal regime containing no such restriction — the charter test cannot apply retroactively. The general principle of prospectivity of laws applies, and none of the recognized exceptions (when the law itself provides for retroactivity, remedial statutes, curative statutes, laws interpreting others, or laws creating new rights) are present. Even the Corporation Law (Act No. 1459), enacted in 1906, respected the rights of juridical entities organized beforehand, providing that they could continue business as such corporations or reorganize under the new law at their option. Both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws not inconsistent with them until amended, modified, or repealed. In a legal regime where the charter test cannot be applied, the mere fact that a corporation was created by special law does not necessarily qualify it as a public corporation.

• Nature of PSPCA as a Corporate Entity: The fact that a juridical entity is impressed with public interest does not alone make it a public corporation, as a corporation may be private although its charter contains provisions of a public character incorporated solely for the public good. PSPCA falls within the class of quasi-public corporations — private corporations that render public service, supply public wants, or pursue eleemosynary objectives. A quasi-public corporation is a species of private corporation; the qualifying factor is the type of service rendered to the public. The purpose alone of the corporation cannot be taken as a safe guide, since almost all corporations are created to promote the interest or convenience of the public. The true criterion to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State: if the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then it is public; otherwise, it is private. Applying this test, the amendments introduced by C.A. No. 148 revoked PSPCA's powers to arrest offenders and serve processes, and E.O. No. 63 characterized this revocation as correcting "a serious defect." No government representative sits on PSPCA's board, its successors are determined voluntarily by PSPCA in accordance with its by-laws, and its employees are covered by SSS, not GSIS. The reportorial requirement to the Civil Governor is applicable to all corporations of whatever nature as creatures of the State and does not indicate governmental status. PSPCA was therefore declared a private domestic corporation.

• Charter Test (Prospective Application) — The charter test provides that the test to determine whether a corporation is government-owned or controlled, or private in nature, is whether it was created by its own charter for the exercise of a public function, or by incorporation under the general corporation law; those with special charters are government corporations. The Court held that this test is predicated on the legal regime established by the 1935 Constitution and cannot be applied retroactively to corporations created before that date under a legal regime where no such proscription existed. Laws have no retroactive effect unless the contrary is provided, and none of the exceptions to prospectivity were present.

• Quasi-Public Corporation — A quasi-public corporation is a species of private corporation that renders public service, supplies public wants, or pursues eleemosynary objectives. While purposely organized for the gain or benefit of its members, it is required by law to discharge functions for the public benefit. Examples include utility, railroad, warehouse, telegraph, telephone, water supply corporations, and transportation companies. The qualifying factor is the type of service the corporation renders to the public: if it performs a public service, it becomes a quasi-public corporation, but it remains private in nature.

• True Criterion for Public vs. Private Corporations — The true criterion to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. The purpose alone of the corporation cannot be taken as a safe guide, since almost all corporations are nowadays created to promote the interest, good, or convenience of the public. Provinces, chartered cities, and barangays exemplify public corporations, as they are created by the State as its own device and agency for the accomplishment of parts of its own public works.

• Reportorial Requirement as Inherent State Power — By virtue of the fiction that all corporations owe their existence and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature — public, quasi-public, or private. As creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to determine whether it acted within its powers. The reportorial requirement is the principal means by which the State may see to it that its creature acted according to the powers and functions conferred upon it, and does not by itself indicate governmental status.

• "In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been created by virtue of a special law does not necessarily qualify it as a public corporation." — This passage articulates the Court's central reasoning that the charter test cannot be mechanically applied to pre-1935 entities, and that special-law creation alone does not establish governmental character.

• "The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latter's own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private." — This is the canonical formulation of the test for distinguishing public from private corporations, frequently cited in subsequent jurisprudence on corporate identity and COA jurisdiction.

• "Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on the danger of imposing legal concepts of a later date on facts of an earlier date." — This passage captures the Court's methodological caution against anachronistic application of constitutional doctrines to historical facts, a principle with broad applicability beyond corporate law.

• "A quasi-public corporation is a species of private corporations, but the qualifying factor is the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public corporation." — This defines the concept of quasi-public corporation and clarifies that it remains private in nature, distinguished only by the public character of the service it renders.

• Baluyot vs. Holganza, 382 Phil. 131 (2000) — Cited as the source of the "charter test" formulation, which provides that corporations created by their own charter for the exercise of a public function are government corporations subject to Civil Service Commission jurisdiction and GSIS coverage, while those incorporated under the general corporation law are private.
• Camporedondo vs. National Labor Relations Commission, 370 Phil. 901 (1999) — Cited alongside Baluyot as authority for the charter test doctrine.
• Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government, 150 SCRA 181 (1987) — Cited for the principle that all corporations, as creatures of the State, are subject to reportorial requirements and cannot invoke the right against self-incrimination when the State demands production of corporate books and papers; the reportorial requirement is the principal means by which the State ensures its creature acted within its powers.
• Montilla vs. Agustinian Corporation, 24 Phil. 220 (1913) — Cited via Tolentino's Commentaries for the principle that statutes are construed as having only prospective operation unless retrospective intent is expressly declared or necessarily implied.

• Section 2(1), Article IX, 1987 Constitution — Defines COA's general jurisdiction 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 its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and non-governmental entities receiving subsidy or equity from the government required by law to submit to audit. The Court held that PSPCA does not fall within any of these categories.
• Section 16, Article XII, 1987 Constitution — Provides that Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, and that government-owned or controlled corporations may be created by special charters in the interest of the common good. The Court identified this as a re-enactment of the 1935 Constitution's proscription that forms the textual foundation of the charter test, and held it cannot apply retroactively to PSPCA.
• Section 7, Article XIII, 1935 Constitution — The original constitutional proscription against creating private corporations by special law, which the Court identified as the textual foundation of the charter test. Since PSPCA was incorporated in 1905, thirty years before this provision, the charter test cannot apply.
• Act No. 1285 (1905) — PSPCA's charter, enacted by the Philippine Commission on January 19, 1905. Originally granted PSPCA the power to appoint agents with police authority to make arrests and the privilege to share one-half of fines collected through its efforts. The Court held that its creation by special law, under the legal regime then prevailing, did not make PSPCA a public corporation.
• Commonwealth Act No. 148 (1936) — Amended Section 4 of Act No. 1285, withdrawing PSPCA agents' power to make arrests and abolishing its privilege to share in fines collected. The Court treated this as a curative statute confirming PSPCA's private character, and gave it retroactive effect to remove any doubt as to PSPCA's classification.
• Executive Order No. 63 (1936) — Issued by President Quezon, characterizing the revocation of PSPCA's arrest powers as correcting "a serious defect" and directing regular police forces to enforce animal welfare laws. The Court cited this as further confirmation that PSPCA was not a government agency.
• Act No. 1459 (Corporation Law, 1906) — The general corporation law enacted March 1, 1906, over a year after PSPCA's incorporation. Section 75 thereof respected the rights of juridical entities organized beforehand, allowing them to continue as corporations or reorganize under the new law at their option.
• Section 23, Title II, Book III, Administrative Code of 1987 — Defines agencies under the Office of the President. Respondents invoked this to argue presidential supervision over PSPCA; the Court found this argument inconclusive.
• Republic Act No. 1161, as amended by Republic Act No. 8282 (Social Security Act of 1997) — Defines "employer" to exclude the Government and its political subdivisions, branches, or instrumentalities, including corporations owned or controlled by the Government. The Court noted that PSPCA's employees are covered by SSS, not GSIS, indicating private status.
• Article 4, Civil Code of the Philippines (Republic Act No. 386) — Provides that laws shall have no retroactive effect unless the contrary is provided. The Court applied this principle to hold that the charter test cannot operate retroactively.
• Section 3, Article XVIII, 1987 Constitution (Transitory Provisions) — Provides that all existing laws, decrees, executive orders, and other issuances not inconsistent with the Constitution shall remain operative until amended, repealed, or revoked. The OSG cited this to argue that PSPCA's charter was not repealed by the 1987 Constitution.

Chief Justice Reynato S. Puno, and Associate Justices Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Angelina Sandoval-Gutierrez, Antonio T. Carpio, Renato C. Corona, Conchita Carpio-Morales, Adolfo S. Azcuna, Dante O. Tinga, Minita V. Chico-Nazario, Cancio C. Garcia, Presbitero J. Velasco, Jr., Antonio Eduardo B. Nachura, and Ruben T. Reyes concurred.