FUNA V. MECO AND COA POLIREV- Art. II, Sec.

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[G.R. No. 193462] [February 4, 2014] [Perez, J.] [Yed]
Petitioner/s: Respondent/s:
DENNIS A.B. FUNA MANILA ECONOMIC AND CULTURAL OFFICE
and the COMMISSION ON AUDIT
Recit Ready Summary

The Philippines formally ended its official diplomatic relations with the Republic of China (ROC),
government in control of Taiwanm, and acceded to the “One China” policy of the People’s Republic of
China (PROC). Nevertheless, the PH Government still kept unofficial relations with Taiwan on a
“people-to-people” basis. MECO was then organized by the Corp Code to maintain such friendly
relations with Taiwan. Under the assumption that MECO was under the operational supervision of the
DTI, petitioner Funa requested for its latest financial audit from COA. Funa alleged that MECO is a
GOCC or at least a government instrumentality whose funds are public funds. COA said that MECO is
not under their jurisdiction. MECO said that while it is not a GOCC nor a GI, one of its accounts
(verifications fees) are subject to the audit jurisdiction of COA.

I: Is COA, under prevailing law, mandated to audit the accounts of the MECO? YES, PARTIALLY.

MECO is not a GOCC or government instrumentality. It is a sui generis private entity especially
entrusted by the government with the facilitation of unofficial relations with the people in Taiwan without
jeopardizing the country's faithful commitment to the One China policy of the PROC. However, despite
its non-governmental character, the MECO handles government funds in the form of the "verification
fees" it collects on behalf of the DOLE and the "consular fees" it collects under Section 2 (6) of EO No.
15, s. 2001. Hence, under existing laws, the accounts of the MECO pertaining to its collection of such
"verification fees" and "consular fees" should be audited by the COA.
Facts

1. The petition is a mandamus to compel the Commission on Audit (COA) to examine the funds of
the Manila Economic and Cultural Office (MECO), and the MECO to submit to such audit and
examination.
2. After the Chinese civil war, China was left with 2 governments in stalemate with competing
assertions of sovereignty. The communist People’s Republic of China (PROC) controls the
mainland, while the nationalist Republic of China (ROC) controls the island of Taiwan. Both
PROC and ROC adhered to the policy of “One China” i.e., there is only one legitimate
government in China, but the differed in the interpretation as to which that government is
3. Because of the conflicting claims, the question arose as to which is deserving of recognition as
the legitimate government. ROC used to enjoy the diplomatic recognition from a majority of the
world’s states partly due to being a founding member of the United Nations (UN). However, this
gradually changes in the 1960s and 70s, most notably after the UN General Assembly adopted
the monumental Resolution 2758 in 1971. Almost all states terminated their official relations
with ROC, in favor of establishing diplomatic relations with PROC. This included the
Philippines, when the latter and PROC expressed mutual recognition thru the Joint
Communiqué of the Government of the Republic of the Philippines and the Government of the
People's Republic of China (Joint Communiqué).
4. Philippines categorically stated that “… there is but one China and that Taiwan is an integral
part of Chinese territory, and decides to remove all its official representations from Taiwan
within one month from the date of signature…” However, this commitment, did not preclude the
country from keeping unofficial relations with Taiwan on a "people-to-people" basis.
Maintaining ties with Taiwan that is permissible by the terms of the Joint Communiqué but any
such relations must be coursed thru offices outside of the official or governmental organs.
5. This unofficial relationship was maintained and facilitated by the offices of the Taipei
Economic and Cultural Office (for Taiwan) and MECO (for the PH).
6. MECO was organized on Dec. 16, 1997 as a non-stock, non-profit corporation under

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 Batas Pambansa Blg. 68 or the Corporation Code. It became the corporate entity
"entrusted" by the Philippine government with the responsibility of fostering "friendly" and
"unofficial" relations with the people of Taiwan, particularly in the areas of trade, economic
cooperation, investment, cultural, scientific and educational exchanges. It was "authorized" by
the government to perform certain "consular and other functions" that relates to the promotion,
protection and facilitation of Philippine interests in Taiwan. Currently, it oversees the rights and
interests of Overseas Filipino Workers (OFWs) in Taiwan; promotes the Philippines as a tourist
and investment destination for the Taiwanese; and facilitates the travel of Filipinos and
Taiwanese from Taiwan to the Philippines, and vice versa.
7. On Aug. 23, 2010, petitioner sent a letter to COA requesting for a "copy of the latest financial
and audit report" of the MECO invoking his "constitutional right to information on matters of
public concern." He believed that MECO, being under the "operational supervision" of the
Department of Trade and Industry (DTI), is a government owned and controlled corporation
(GOCC) and thus subject to the audit jurisdiction of the COA.
8. COA Asst. Commissioner Naranjo referred the request to COA Asst. Comm Espina for further
disposition but stated in her memorandum that MECO was not among the agencies audited by
the Corporate Government Sector.
9. Petitioner filed the suit in his capacities as taxpayer, concerned citizen, a member of the
Philippine Bar and law book author.
Point/s of Contention [Main contentions are highlighted]

[FUNA]
1. By failing to audit the accounts of the MECO, COA is neglecting its duty under Section 2 (1),
Article IX-D of the Constitution to audit the accounts of an otherwise bona fide GOCC or
government instrumentality.
2. MECO is a GOCC without an original charter or, at least, a government instrumentality,
the funds of which partake the nature of public funds:
a. it is a non-stock corporation vested with governmental functions relating to public
needs, equivalent to those of an embassy or a consulate of the Philippine government;
b. it is controlled by the government thru a board of directors appointed by the President
of the Philippines thru “desire letters” addressed to the board of directors. An
illustration of this is the assumption of Antonio Basilio as chairman thru PGMA’s
memorandum stating her “desire” to accomplish such; and
c. while not integrated within the executive departmental framework, it is nonetheless
under the operational and policy supervision of the DTI.
3. In the United States of America, the American Institute in Taiwan (AIT) — the counterpart entity
of the MECO in the United States — is supposedly audited by that country's Comptroller
General. This practice had been confirmed in a decision of the United States Court of Appeals
for the District of Columbia Circuit, in the case of Wood, Jr., ex rel. United States of America v.
The American Institute in Taiwan, et al.

[MECO]
1. The mandamus was prematurely filed. A cause of action for mandamus to compel the
performance of a ministerial duty required by law only ripens once there has been a refusal by
the tribunal, board or officer concerned to perform such a duty. There is no such refusal in this
case. The only “demand” here was the request to COA for a copy of the latest financial and
audit report, which was yet to be fully disposed.
2. MECO is not a GOCC nor a government instrumentality. While it performs government
functions, it is not owned or controlled by the government and its funds are private
funds:
a. The President of the Philippines does not appoint its board of directors. The "desire
letter" is merely recommendatory and not binding. As a corporation organized under
the Corporation Code, matters relating to the election of its directors and officers, as
well as its membership, are governed by the appropriate provisions of the said code,
its articles of incorporation and its by-laws. It is the directors who elect the corporation's
officers; the members who elect the directors; and the directors who admit the

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 members by way of a unanimous resolution. All of its officers, directors, and members
are private individuals and are not government officials.
b. The government only has policy supervision, a lesser form of supervision where the
oversight is limited to ensuring that the activities are in tune with the commitments
under the One China policy of PROC
3. Categorizing it as a GOCC or a government instrumentality can potentially violate the country's
commitment to the One China policy of the PROC.

[COA]
1. The petition should be dismissed on procedural grounds and on the ground of mootness
2. Procedural defects:
a. Locus standi: petitioner has not shown, at least in a concrete manner, that he had been
aggrieved or prejudiced by its failure to audit
b. Doctrine of hierarchy of courts: petition could have been presented, at the first
instance, before the Court of Appeals or any Regional Trial Court. Petitioner was not
able to provide compelling reasons to justify a direct resort to the Supreme Court
3. The petition became moot when COA Chairperson Maria Pulido-Tan issued an office order
directing a team of auditors to proceed to Taiwan, specifically for the purpose of auditing the
accounts of, among other government agencies based therein, the MECO.
4. While conceding that it has audit jurisdiction over MECO accounts, MECO is not a
GOCC or a GI. Notwithstanding, MECO may still be audited with respect to the
"verification fees" for overseas employment documents that it collects from Taiwanese
employers on behalf of the DOLE.
a. MECO is mandated to remit to the Department of Labor and Employment (DOLE) a
portion of such "verification fees ." It is a non-governmental entity "required to pay . . .
government share" subject to a partial audit of its accounts under Section 26 of the
Presidential Decree No. 1445 or the State Audit Code of the Philippines (Audit Code).
Issue/s Ruling
1. Whether the petition is moot 1. No
2. Whether petitioner has standing 2. Yes
3. Whether the principle of hierarchy of courts was violated 3. Waived
4. Whether COA is mandated to audit the accounts of MECO 4. Yes,
partially
Rationale [Jump to #4 for the merits]

1. SC declined to dismiss the petition on the ground of mootness.

a. GR: A case is deemed moot and academic when, by reason of the occurrence of a
supervening event, it ceases to present any justiciable controversy. Such cases are, as
a rule, dismissible.
b. XPNs1: Courts will decide cases, otherwise moot and academic if:
i. there is a grave violation of the Constitution;
ii. exceptional character of the situation and the paramount public interest is
involved;
iii. constitutional issue raised requires formulation of controlling principles to guide
the bench, the bar, and the public; and
iv. the case is capable of repetition yet evading review.
c. The issuance of the office order qualifies as a supervening event that renders the issue
moot and academic but the mandamus petition was able to craft substantial issues
presupposing the commission of a grave violation of the Constitution and involving
paramount public interest , which need to be resolved.
d. SC invokes it symbolic function: for the formulation of controlling principles for the
education of the bench, bar and the public in general.

2. Petitioner has standing as a concerned citizen.

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 a. Taxpayers, voters, concerned citizens, and legislators may be accorded standing to
sue, provided that the following requirements are met:
i. cases involve constitutional issues;
ii. for taxpayers , there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional;
iii. for voters , there must be a showing of obvious interest in the validity of the
election law in question;
iv. for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early;
v. and for legislators , there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.2
b. The petition raises issues of transcendental importance and petitioner does not need to
make any prior demand on the MECO or the COA to maintain the instant petition.

3. In view of the transcendental importance of issues raised, the Court waived this
procedural issue in favor of resolution of the merits.

4. Some of the accounts of MECO are subject to the audit jurisdiction of COA. It is not a
GOCC or a GI— it is sui generis.
a. Art. IX-D, Sec. 2(1) of the Constitution vests COA with the power, authority and duty to
"examine, audit and settle" the "accounts" of the following entities:
i. The government, or any of its subdivisions, agencies, and instrumentalities;
ii. GOCCs with original charters;
iii. GOCCs without original charters;
iv. Constitutional bodies, commissions and offices that have been granted fiscal
autonomy under the Constitution; and
v. Non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or
the granting institution to submit to the COA for audit as a condition of subsidy
or equity.
b. “Accounts” pertains to "revenue," "receipts," "expenditures," and "uses of funds and
property" of the above entities.
c. The audit Code likewise grants COA visitorial authority over non-governmental entities
subsidized by the government, required to pay levy or government share, that have
received counterpart funds from the government, and partly funded by donations
through the government. The same Code limits the audit only to “funds… coming from
or through the government.”
d. MECO is not a GOCC or GI. Government instrumentalities are agencies of the national
government that, by reason of some special function or jurisdiction they perform or
exercise, are allotted operational autonomy and are not integrated within the
department framework. Subsumed under the rubric government instrumentality are
regulatory agencies, chartered institutions, government corporate entities or
government instrumentalities with corporate powers (GCE/GICP), and GOCC.
e. GOCCs are stock or non-stock corporations vested with functions relating to public
needs that are owned by the Government directly or through its instrumentalities.
Three attributes thus make an entity a GOCC:
i. its organization as stock or non-stock corporation;
ii. the public character of its function; and
iii. government ownership over the same.
f. MECO possesses the first and second attributes but lacks the third.
g. MECO is organized as a non-stock corporation. It is also non-profit, as established by
its purposes.3 None of its income is distributable to the members, directors, or officers.

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Purposes: (1) to establish and develop the commercial and industrial interests of Filipino nationals here and
abroad and assist on all measures designed to promote and maintain the trade relations of the country with the

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 h. It performs functions with a public aspect. MECO, on behalf of the people of the
Philippines, currently facilitates official relations with the people in Taiwan. It was
"authorized" by the Philippine government to perform certain "consular and other
functions" relating to the promotion, protection and facilitation of Philippine interests in
Taiwan. Its functions as similar to some of the functions typically performed by the DFA
itself, through the latter's diplomatic and consular missions.
i. MECO is not owned or controlled by the government. The government owns a stock or
non-stock corporation if it has controlling interest. In a stock corporation, the controlling
interest of the government is assured by its ownership of at least 51% of the corporate
capital stock. In a non-stock corporation, like the MECO, the controlling interest is
affirmed when at least majority of the members are government officials holding such
membership by appointment or designation or there is otherwise substantial
participation of the government in the selection of the corporation's governing board.
j. The fact of the incorporation of the MECO under the Corporation Code is key. It is
governed by the appropriate provisions of the said code, its articles of incorporation
and its by-laws. Here, it is the by-laws of the MECO that stipulates that its directors are
elected by its members; its officers are elected by its directors; and its members, other
than the original incorporators, are admitted by way of a unanimous board resolution.
k. None of the original incorporators of the MECO were shown to be government officials
at the time of the corporation's organization. Indeed, none of the members, officers or
board of directors of the MECO, from its incorporation up to the present day, were
established as government appointees or public officers designated by reason of their
office. There is, in fact, no law or executive order that authorizes such an appointment
or designation. The presidential "desire letters" pointed out by petitioner — if such
letters even exist outside of the case of Mr. Basilio — are, no matter how strong its
persuasive effect may be, merely recommendatory.
l. MECO is not a GI; it is a sui generis entity. The categorical exclusion of the MECO
from a GOCC makes it easier to exclude the same from any other class of government
instrumentality. Despite its private origins, and perhaps deliberately so, the MECO was
entrusted by the government with the delicate and precarious responsibility of pursuing
unofficial relations with the people of a foreign land whose government the Philippines
is bound not to recognize.
m. The intricacy involved in such undertaking is the possibility that, at any given time in
fulfilling the purposes for which it was incorporated, the MECO may find itself engaged
in dealings or activities that can directly contradict the Philippines' commitment to the
One China policy of the PROC. Such a scenario can only be avoided if the executive
department exercises some form of oversight, no matter how limited.
n. The accounts of the MECO pertaining to the Verification Fees and Consular Fees
may be audited by the COA.
i. MECO receives the verification fees by reason of being the collection agent of
the DOLE — a government agency. Out of its collections, the MECO is
required, by agreement, to remit a portion thereof to the DOLE. Hence, the
MECO is accountable to the government for its collections of such "verification
fees" and, for that purpose, may be audited by the COA
ii. Likewise, the "consular fees" are also received by the MECO through the
government, having been derived from the exercise of consular functions
entrusted to the MECO by the government. Hence, the MECO remains
accountable to the government for its collections of "consular fees" and, for
that purpose, may be audited by the COA.
Disposition

citizens of other foreign countries; (2) to receive and accept grants and subsidies that are reasonably necessary in
carrying out the corporate purposes provided they are not subject to conditions defeatist for or incompatible with
said purpose; (3) to acquire by purchase, lease or by any gratuitous title real and personal properties as may be
necessary for the use and need of the corporation, and in like manner when they are; (4) to do and perform any
and all acts which are deemed reasonably necessary to carry out the purposes.

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Petition partly granted. MECO declared a non-governmental entity but the accounts pertaining to
verification fees and consular fees are subject to the audit jurisdiction of COA.

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