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G.R. No.

L-23145 November 29, 1968 to paraphrase Frankfurter, arising out of a specific problem, addressed to the
attainment of specific ends by the use of specific remedies, with full and
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. ample support from legal doctrines of weight and significance.
TAYAG, ancillary administrator-appellee,
vs. The facts will explain why. As set forth in the brief of appellant Benguet
BENGUET CONSOLIDATED, INC., oppositor-appellant. Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in
New York City, left among others, two stock certificates covering 33,002
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee. shares of appellant, the certificates being in the possession of the County
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant. Trust Company of New York, which as noted, is the domiciliary administrator
of the estate of the deceased. 2 Then came this portion of the appellant's
FERNANDO, J.: brief: "On August 12, 1960, Prospero Sanidad instituted ancillary
administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he
Confronted by an obstinate and adamant refusal of the domiciliary
was substituted by the appellee Renato D. Tayag. A dispute arose between
administrator, the County Trust Company of New York, United States of
the domiciary administrator in New York and the ancillary administrator in the
America, of the estate of the deceased Idonah Slade Perkins, who died in
Philippines as to which of them was entitled to the possession of the stock
New York City on March 27, 1960, to surrender to the ancillary administrator
certificates in question. On January 27, 1964, the Court of First Instance of
in the Philippines the stock certificates owned by her in a Philippine
Manila ordered the domiciliary administrator, County Trust Company, to
corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of
"produce and deposit" them with the ancillary administrator or with the Clerk
local creditors, the lower court, then presided by the Honorable Arsenio
of Court. The domiciliary administrator did not comply with the order, and on
Santos, now retired, issued on May 18, 1964, an order of this tenor: "After
February 11, 1964, the ancillary administrator petitioned the court to "issue
considering the motion of the ancillary administrator, dated February 11,
an order declaring the certificate or certificates of stocks covering the 33,002
1964, as well as the opposition filed by the Benguet Consolidated, Inc., the
shares issued in the name of Idonah Slade Perkins by Benguet
Court hereby (1) considers as lost for all purposes in connection with the
Consolidated, Inc., be declared [or] considered as lost." 3
administration and liquidation of the Philippine estate of Idonah Slade
Perkins the stock certificates covering the 33,002 shares of stock standing in
her name in the books of the Benguet Consolidated, Inc., (2) orders said It is to be noted further that appellant Benguet Consolidated, Inc. admits that
certificates cancelled, and (3) directs said corporation to issue new "it is immaterial" as far as it is concerned as to "who is entitled to the
certificates in lieu thereof, the same to be delivered by said corporation to possession of the stock certificates in question; appellant opposed the
either the incumbent ancillary administrator or to the Probate Division of this petition of the ancillary administrator because the said stock certificates are
Court."1 in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A...." 4
From such an order, an appeal was taken to this Court not by the domiciliary
administrator, the County Trust Company of New York, but by the Philippine It is its view, therefore, that under the circumstances, the stock certificates
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly cannot be declared or considered as lost. Moreover, it would allege that there
prosper. The challenged order represents a response and expresses a policy,

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was a failure to observe certain requirements of its by-laws before new stock 1. Appellant Benguet Consolidated, Inc. did not dispute the power of the
certificates could be issued. Hence, its appeal. appellee ancillary administrator to gain control and possession of all assets
of the decedent within the jurisdiction of the Philippines. Nor could it. Such a
As was made clear at the outset of this opinion, the appeal lacks merit. The power is inherent in his duty to settle her estate and satisfy the claims of local
challenged order constitutes an emphatic affirmation of judicial authority creditors.5 As Justice Tuason speaking for this Court made clear, it is a
sought to be emasculated by the wilful conduct of the domiciliary "general rule universally recognized" that administration, whether principal or
administrator in refusing to accord obedience to a court decree. How, then, ancillary, certainly "extends to the assets of a decedent found within the state
can this order be stigmatized as illegal? or country where it was granted," the corollary being "that an administrator
appointed in one state or country has no power over property in another state
As is true of many problems confronting the judiciary, such a response was or country."6
called for by the realities of the situation. What cannot be ignored is that
conduct bordering on wilful defiance, if it had not actually reached it, cannot It is to be noted that the scope of the power of the ancillary administrator
without undue loss of judicial prestige, be condoned or tolerated. For the law was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often
is not so lacking in flexibility and resourcefulness as to preclude such a necessary to have more than one administration of an estate. When a person
solution, the more so as deeper reflection would make clear its being dies intestate owning property in the country of his domicile as well as in a
buttressed by indisputable principles and supported by the strongest policy foreign country, administration is had in both countries. That which is granted
considerations. in the jurisdiction of decedent's last domicile is termed the principal
administration, while any other administration is termed the ancillary
It can truly be said then that the result arrived at upheld and vindicated the administration. The reason for the latter is because a grant of administration
honor of the judiciary no less than that of the country. Through this does not ex proprio vigore have any effect beyond the limits of the country in
challenged order, there is thus dispelled the atmosphere of contingent which it is granted. Hence, an administrator appointed in a foreign state has
frustration brought about by the persistence of the domiciliary administrator no authority in the [Philippines]. The ancillary administration is proper,
to hold on to the stock certificates after it had, as admitted, voluntarily whenever a person dies, leaving in a country other than that of his last
submitted itself to the jurisdiction of the lower court by entering its domicile, property to be administered in the nature of assets of the deceased
appearance through counsel on June 27, 1963, and filing a petition for relief liable for his individual debts or to be distributed among his heirs." 7
from a previous order of March 15, 1963.
It would follow then that the authority of the probate court to require that
Thus did the lower court, in the order now on appeal, impart vitality and ancillary administrator's right to "the stock certificates covering the 33,002
effectiveness to what was decreed. For without it, what it had been decided shares ... standing in her name in the books of [appellant] Benguet
would be set at naught and nullified. Unless such a blatant disregard by the Consolidated, Inc...." be respected is equally beyond question. For appellant
domiciliary administrator, with residence abroad, of what was previously is a Philippine corporation owing full allegiance and subject to the
ordained by a court order could be thus remedied, it would have entailed, unrestricted jurisdiction of local courts. Its shares of stock cannot therefore
insofar as this matter was concerned, not a partial but a well-nigh complete be considered in any wise as immune from lawful court orders.
paralysis of judicial authority.
Our holding in Wells Fargo Bank and Union v. Collector of Internal
Revenue8 finds application. "In the instant case, the actual situs of the shares
of stock is in the Philippines, the corporation being domiciled [here]." To the

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force of the above undeniable proposition, not even appellant is insensible. It of truth may be lacking in such a conclusion arrived at. It is to be
does not dispute it. Nor could it successfully do so even if it were so minded. remembered however, again to borrow from Frankfurter, "that fictions which
the law may rely upon in the pursuit of legitimate ends have played an
2. In the face of such incontrovertible doctrines that argue in a rather important part in its development."11
conclusive fashion for the legality of the challenged order, how does
appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy Speaking of the common law in its earlier period, Cardozo could state fictions
burden of persuasion of precisely demonstrating the contrary? It would "were devices to advance the ends of justice, [even if] clumsy and at times
assign as the basic error allegedly committed by the lower court its offensive."12 Some of them have persisted even to the present, that eminent
"considering as lost the stock certificates covering 33,002 shares of Benguet jurist, noting "the quasi contract, the adopted child, the constructive trust, all
belonging to the deceased Idonah Slade Perkins, ..." 9 More specifically, of flourishing vitality, to attest the empire of "as if" today." 13 He likewise noted
appellant would stress that the "lower court could not "consider as lost" the "a class of fictions of another order, the fiction which is a working tool of
stock certificates in question when, as a matter of fact, his Honor the trial thought, but which at times hides itself from view till reflection and analysis
Judge knew, and does know, and it is admitted by the appellee, that the said have brought it to the light."14
stock certificates are in existence and are today in the possession of the
domiciliary administrator in New York."10 What cannot be disputed, therefore, is the at times indispensable role that
fictions as such played in the law. There should be then on the part of the
There may be an element of fiction in the above view of the lower court. That appellant a further refinement in the catholicity of its condemnation of such
certainly does not suffice to call for the reversal of the appealed order. Since judicial technique. If ever an occasion did call for the employment of a legal
there is a refusal, persistently adhered to by the domiciliary administrator in fiction to put an end to the anomalous situation of a valid judicial order being
New York, to deliver the shares of stocks of appellant corporation owned by disregarded with apparent impunity, this is it. What is thus most obvious is
the decedent to the ancillary administrator in the Philippines, there was that this particular alleged error does not carry persuasion.
nothing unreasonable or arbitrary in considering them as lost and requiring
the appellant to issue new certificates in lieu thereof. Thereby, the task 3. Appellant Benguet Consolidated, Inc. would seek to bolster the above
incumbent under the law on the ancillary administrator could be discharged contention by its invoking one of the provisions of its by-laws which would set
and his responsibility fulfilled. forth the procedure to be followed in case of a lost, stolen or destroyed stock
certificate; it would stress that in the event of a contest or the pendency of an
Any other view would result in the compliance to a valid judicial order being action regarding ownership of such certificate or certificates of stock
made to depend on the uncontrolled discretion of the party or entity, in this allegedly lost, stolen or destroyed, the issuance of a new certificate or
case domiciled abroad, which thus far has shown the utmost persistence in certificates would await the "final decision by [a] court regarding the
refusing to yield obedience. Certainly, appellant would not be heard to ownership [thereof]."15
contend in all seriousness that a judicial decree could be treated as a mere
scrap of paper, the court issuing it being powerless to remedy its flagrant Such reliance is misplaced. In the first place, there is no such occasion to
disregard. apply such by-law. It is admitted that the foreign domiciliary administrator did
not appeal from the order now in question. Moreover, there is likewise the
It may be admitted of course that such alleged loss as found by the lower express admission of appellant that as far as it is concerned, "it is
court did not correspond exactly with the facts. To be more blunt, the quality immaterial ... who is entitled to the possession of the stock certificates ..."

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Even if such were not the case, it would be a legal absurdity to impart to such person distinct and separate from its individual stockholders.... It owes its
a provision conclusiveness and finality. Assuming that a contrariety exists existence to law. It is an artificial person created by law for certain specific
between the above by-law and the command of a court decree, the latter is purposes, the extent of whose existence, powers and liberties is fixed by its
to be followed. charter."19 Dean Pound's terse summary, a juristic person, resulting from an
association of human beings granted legal personality by the state, puts the
It is understandable, as Cardozo pointed out, that the Constitution overrides matter neatly.20
a statute, to which, however, the judiciary must yield deference, when
appropriately invoked and deemed applicable. It would be most highly There is thus a rejection of Gierke's genossenchaft theory, the basic theme of
unorthodox, however, if a corporate by-law would be accorded such a high which to quote from Friedmann, "is the reality of the group as a social and
estate in the jural order that a court must not only take note of it but yield to legal entity, independent of state recognition and concession." 21 A corporation
its alleged controlling force. as known to Philippine jurisprudence is a creature without any existence until
it has received the imprimatur of the state according to law. It is logically
The fear of appellant of a contingent liability with which it could be saddled inconceivable therefore that it will have rights and privileges of a higher
unless the appealed order be set aside for its inconsistency with one of its priority than that of its creator. More than that, it cannot legitimately refuse to
by-laws does not impress us. Its obedience to a lawful court order certainly yield obedience to acts of its state organs, certainly not excluding the
constitutes a valid defense, assuming that such apprehension of a possible judiciary, whenever called upon to do so.
court action against it could possibly materialize. Thus far, nothing in the
circumstances as they have developed gives substance to such a fear. As a matter of fact, a corporation once it comes into being, following
Gossamer possibilities of a future prejudice to appellant do not suffice to American law still of persuasive authority in our jurisdiction, comes more
nullify the lawful exercise of judicial authority. often within the ken of the judiciary than the other two coordinate branches. It
institutes the appropriate court action to enforce its right. Correlatively, it is
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is not immune from judicial control in those instances, where a duty under the
fraught with implications at war with the basic postulates of corporate theory. law as ascertained in an appropriate legal proceeding is cast upon it.

We start with the undeniable premise that, "a corporation is an artificial being To assert that it can choose which court order to follow and which to
created by operation of law...."16 It owes its life to the state, its birth being disregard is to confer upon it not autonomy which may be conceded but
purely dependent on its will. As Berle so aptly stated: "Classically, a license which cannot be tolerated. It is to argue that it may, when so minded,
corporation was conceived as an artificial person, owing its existence through overrule the state, the source of its very existence; it is to contend that what
creation by a sovereign power." 17As a matter of fact, the statutory language any of its governmental organs may lawfully require could be ignored at will.
employed owes much to Chief Justice Marshall, who in the Dartmouth So extravagant a claim cannot possibly merit approval.
College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law." 18 5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown
that in a guardianship proceedings then pending in a lower court, the United
The well-known authority Fletcher could summarize the matter thus: "A States Veterans Administration filed a motion for the refund of a certain sum
corporation is not in fact and in reality a person, but the law treats it as of money paid to the minor under guardianship, alleging that the lower court
though it were a person by process of fiction, or by regarding it as an artificial had previously granted its petition to consider the deceased father as not

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entitled to guerilla benefits according to a determination arrived at by its main deplorable consequences attendant on appellant prevailing attest to the
office in the United States. The motion was denied. In seeking a necessity of negative response from us. That is what appellant will get.
reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of That is all then that this case presents. It is obvious why the appeal cannot
law or fact" precluding any other American official to examine the matter succeed. It is always easy to conjure extreme and even oppressive
anew, "except a judge or judges of the United States possibilities. That is not decisive. It does not settle the issue. What carries
court."23 Reconsideration was denied, and the Administrator appealed. weight and conviction is the result arrived at, the just solution obtained,
grounded in the soundest of legal doctrines and distinguished by its
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: correspondence with what a sense of realism requires. For through the
"We are of the opinion that the appeal should be rejected. The provisions of appealed order, the imperative requirement of justice according to law is
the U.S. Code, invoked by the appellant, make the decisions of the U.S. satisfied and national dignity and honor maintained.
Veterans' Administrator final and conclusive when made on claims property
submitted to him for resolution; but they are not applicable to the present WHEREFORE, the appealed order of the Honorable Arsenio Santos, the
case, where the Administrator is not acting as a judge but as a litigant. There Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With
is a great difference between actions against the Administrator (which must costs against oppositor-appelant Benguet Consolidated, Inc.
be filed strictly in accordance with the conditions that are imposed by the
Veterans' Act, including the exclusive review by United States courts), and Makalintal, Zaldivar and Capistrano, JJ., concur.
those actions where the Veterans' Administrator seeks a remedy from our Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in
courts and submits to their jurisdiction by filing actions therein. Our attention the result.
has not been called to any law or treaty that would make the findings of the
Veterans' Administrator, in actions where he is a party, conclusive on our
courts. That, in effect, would deprive our tribunals of judicial discretion and
render them mere subordinate instrumentalities of the Veterans'
Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to
accept as final and conclusive, determinations made by foreign governmental
agencies. It is infinitely worse if through the absence of any coercive power
by our courts over juridical persons within our jurisdiction, the force and
effectivity of their orders could be made to depend on the whim or caprice of
alien entities. It is difficult to imagine of a situation more offensive to the
dignity of the bench or the honor of the country.

Yet that would be the effect, even if unintended, of the proposition to which
appellant Benguet Consolidated seems to be firmly committed as shown by
its failure to accept the validity of the order complained of; it seeks its
reversal. Certainly we must at all pains see to it that it does not succeed. The

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ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.


Office of the Solicitor General for defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang
Pue & Company, Ang Pue and Tan Siong against the Secretary of Commerce
and Industry to secure judgment "declaring that plaintiffs could extend for five
years the term of the partnership pursuant to the provisions of plaintiffs'
Amendment to the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, that the extension
for another five years of the term of the plaintiffs' partnership would be in
violation of the provisions of Republic Act No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese
citizens, organized the partnership Ang Pue & Company for a term of five
years from May 1, 1953, extendible by their mutual consent. The purpose of
the partnership was "to maintain the business of general merchandising,
buying and selling at wholesale and retail, particularly of lumber, hardware
and other construction materials for commerce, either native or foreign." The
corresponding articles of partnership (Exhibit B) were registered in the Office
of the Securities & Exchange Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail
business. It provided, among other things, that, after its enactment, a
partnership not wholly formed by Filipinos could continue to engage in the
retail business until the expiration of its term.

On April 15, 1958 prior to the expiration of the five-year term of the
G.R. No. L-17295 July 30, 1962
partnership Ang Pue & Company, but after the enactment of the Republic Act
1180, the partners already mentioned amended the original articles of part

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ownership (Exhibit B) so as to extend the term of life of the partnership to Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala and
another five years. When the amended articles were presented for Makalintal, JJ., concur.
registration in the Office of the Securities & Exchange Commission on April Bautista Angelo and Reyes, J.B.L., JJ., took no part.
16, 1958, registration was refused upon the ground that the extension was in
violation of the aforesaid Act.

From the decision of the lower court dismissing the action, with costs, the
plaintiffs interposed this appeal.

The question before us is too clear to require an extended discussion. To


organize a corporation or a partnership that could claim a juridical personality
of its own and transact business as such, is not a matter of absolute right but
a privilege which may be enjoyed only under such terms as the State may
deem necessary to impose. That the State, through Congress, and in the
manner provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos
may engage in the retail business can not be seriously disputed. That this
provision was clearly intended to apply to partnership already existing at the
time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the expiration
of their term or life.

To argue that because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions of Republic
Act 1180 cannot be adversely affect appellants herein, is to erroneously
assume that the aforesaid provision constitute a property right of which the
partners can not be deprived without due process or without their consent.
The agreement contain therein must be deemed subject to the law existing at
the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of
partnership, the provisions of Republic Act 1180 were already in force, and
there can be not the slightest doubt that the right claimed by appellants to
extend the original term of their partnership to another five years would be in
violation of the clear intent and purpose of the law aforesaid.
[G.R. Nos. 84132-33 : December 10, 1990.]
WHEREFORE, the judgment appealed from is affirmed, with costs.

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192 SCRA 257 expressed purpose of salvaging this and the other Agrix companies that the
aforementioned decree was issued by President Marcos.
NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC.,
Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-OFFICIO Pursuant thereto, the private respondent filed a claim with the AGRIX Claims
SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff Committee for the payment of its loan credit. In the meantime, the New Agrix,
of Calamba, Laguna, Respondents. Inc. and the National Development Company, petitioners herein, invoking
Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of
Calamba, Laguna, for the cancellation of the mortgage lien in favor of the
private respondent. For its part, the private respondent took steps to
DECISION extrajudicially foreclose the mortgage, prompting the petitioners to file a
second case with the same court to stop the foreclosure. The two cases were
consolidated.

After the submission by the parties of their respective pleadings, the trial
CRUZ, J.:
court rendered the impugned decision. Judge Francisco Ma. Guerrero
annulled not only the challenged provision, viz., Sec. 4 (1), but the entire
Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of
legislative power was a violation of the principle of separation of powers; (2)
This case involves the constitutionality of a presidential decree which, like all the law impaired the obligation of contracts; and (3) the decree violated the
other issuances of President Marcos during his regime, was at that time equal protection clause. The motion for reconsideration of this decision
regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts having been denied, the present petition was filed.: rd
are being tested by the touchstone of the fundamental law that even then
was supposed to limit presidential action.: rd The petition was originally assigned to the Third Division of this Court but
because of the constitutional questions involved it was transferred to the
The particular enactment in question is Pres. Decree No. 1717, which Court en banc. On August 30, 1988, the Court granted the petitioner's prayer
ordered the rehabilitation of the Agrix Group of Companies to be for a temporary restraining order and instructed the respondents to cease
administered mainly by the National Development Company. The law and desist from conducting a public auction sale of the lands in question.
outlined the procedure for filing claims against the Agrix companies and After the Solicitor General and the private respondent had filed their
created a Claims Committee to process these claims. Especially relevant to comments and the petitioners their reply, the Court gave due course to the
this case, and noted at the outset, is Sec. 4(1) thereof providing that "all petition and ordered the parties to file simultaneous memoranda. Upon
mortgages and other liens presently attaching to any of the assets of the compliance by the parties, the case was deemed submitted.
dissolved corporations are hereby extinguished."
The petitioners contend that the private respondent is now estopped from
Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private contesting the validity of the decree. In support of this contention, it cites the
respondent Philippine Veterans Bank a real estate mortgage dated July 7, recent case of Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality
1978, over three (3) parcels of land situated in Los Baos, Laguna. During of Pres. Decree No. 1717 was also raised but not resolved. The Court, after
the existence of the mortgage, AGRIX went bankrupt. It was for the

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noting that the petitioners had already filed their claims with the AGRIX claim, which was kept pending for more than seven years for alleged lack of
Claims Committee created by the decree, had simply dismissed the petition supporting papers. Significantly, the validity of that claim was not questioned
on the ground of estoppel. by the petitioner when it sought to restrain the extrajudicial foreclosure of the
mortgage by the private respondent. The petitioner limited itself to the
The petitioners stress that in the case at bar the private respondent also argument that the private respondent was estopped from questioning the
invoked the provisions of Pres. Decree No. 1717 by filing a claim with the decree because of its earlier compliance with its provisions.
AGRIX Claims Committee. Failing to get results, it sought to foreclose the
real estate mortgage executed by AGRIX in its favor, which had been Independently of these observations, there is the consideration that an
extinguished by the decree. It was only when the petitioners challenged the affront to the Constitution cannot be allowed to continue existing simply
foreclosure on the basis of Sec. 4 (1) of the decree, that the private because of procedural inhibitions that exalt form over substance.
respondent attacked the validity of the provision. At that stage, however,
consistent with Mendoza, the private respondent was already estopped from The Court is especially disturbed by Section 4(1) of the decree, quoted
questioning the constitutionality of the decree. above, extinguishing all mortgages and other liens attaching to the assets of
AGRIX. It also notes, with equal concern, the restriction in Subsection (ii)
The Court does not agree that the principle of estoppel is applicable. thereof that all "unsecured obligations shall not bear interest" and in
Subsection (iii) that "all accrued interests, penalties or charges as of date
It is not denied that the private respondent did file a claim with the AGRIX hereof pertaining to the obligations, whether secured or unsecured, shall not
Claims Committee pursuant to this decree. It must be noted, however, that be recognized."
this was done in 1980, when President Marcos was the absolute ruler of this
country and his decrees were the absolute law. Any judicial challenge to These provisions must be read with the Bill of Rights, where it is clearly
them would have been futile, not to say foolhardy. The private respondent, no provided in Section 1 that "no person shall be deprived of life, liberty or
less than the rest of the nation, was aware of that reality and knew it had no property without due course of law nor shall any person be denied the equal
choice under the circumstances but to conform.: nad protection of the law" and in Section 10 that "no law impairing the obligation
of contracts shall be passed."
It is true that there were a few venturesome souls who dared to question the
dictator's decisions before the courts of justice then. The record will show, In defending the decree, the petitioners argue that property rights, like all
however, that not a single act or issuance of President Marcos was ever rights, are subject to regulation under the police power for the promotion of
declared unconstitutional, not even by the highest court, as long as he was in the common welfare. The contention is that this inherent power of the state
power. To rule now that the private respondent is estopped for having abided may be exercised at any time for this purpose so long as the taking of the
with the decree instead of boldly assailing it is to close our eyes to a cynical property right, even if based on contract, is done with due process of law.
fact of life during that repressive time.
This argument is an over-simplification of the problem before us. The police
This case must be distinguished from Mendoza, where the petitioners, after power is not a panacea for all constitutional maladies. Neither does its mere
filing their claims with the AGRIX Claims Committee, received in settlement invocation conjure an instant and automatic justification for every act of the
thereof shares of stock valued at P40,000.00 without protest or reservation. government depriving a person of his life, liberty or property.
The herein private respondent has not been paid a single centavo on its

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A legislative act based on the police power requires the concurrence of a A mortgage lien is a property right derived from contract and so comes under
lawful subject and a lawful method. In more familiar words, a) the interests of the protection of the Bill of Rights. So do interests on loans, as well as
the public generally, as distinguished from those of a particular class, should penalties and charges, which are also vested rights once they accrue.
justify the interference of the state; and b) the means employed are Private property cannot simply be taken by law from one person and given to
reasonably necessary for the accomplishment of the purpose and not unduly another without compensation and any known public purpose. This is plain
oppressive upon individuals. 2 arbitrariness and is not permitted under the Constitution.

Applying these criteria to the case at bar, the Court finds first of all that the And not only is there arbitrary taking, there is discrimination as well. In
interests of the public are not sufficiently involved to warrant the interference extinguishing the mortgage and other liens, the decree lumps the secured
of the government with the private contracts of AGRIX. The decree speaks creditors with the unsecured creditors and places them on the same level in
vaguely of the "public, particularly the small investors," who would be the prosecution of their respective claims. In this respect, all of them are
prejudiced if the corporation were not to be assisted. However, the record considered unsecured creditors. The only concession given to the secured
does not state how many there are of such investors, and who they are, and creditors is that their loans are allowed to earn interest from the date of the
why they are being preferred to the private respondent and other creditors of decree, but that still does not justify the cancellation of the interests earned
AGRIX with vested property rights.:-cralaw before that date. Such interests, whether due to the secured or the
unsecured creditors, are all extinguished by the decree. Even assuming such
The public interest supposedly involved is not identified or explained. It has cancellation to be valid, we still cannot see why all kinds of creditors,
not been shown that by the creation of the New Agrix, Inc. and the extinction regardless of security, are treated alike.
of the property rights of the creditors of AGRIX, the interests of the public as
a whole, as distinguished from those of a particular class, would be promoted Under the equal protection clause, all persons or things similarly situated
or protected. The indispensable link to the welfare of the greater number has must be treated alike, both in the privileges conferred and the obligations
not been established. On the contrary, it would appear that the decree was imposed. Conversely, all persons or things differently situated should be
issued only to favor a special group of investors who, for reasons not given, treated differently. In the case at bar, persons differently situated are similarly
have been preferred to the legitimate creditors of AGRIX. treated, in disregard of the principle that there should be equality only among
equals.- nad
Assuming there is a valid public interest involved, the Court still finds that the
means employed to rehabilitate AGRIX fall far short of the requirement that One may also well wonder why AGRIX was singled out for government help,
they shall not be unduly oppressive. The oppressiveness is patent on the among other corporations where the stockholders or investors were also
face of the decree. The right to property in all mortgages, liens, interests, swindled. It is not clear why other companies entitled to similar concern were
penalties and charges owing to the creditors of AGRIX is arbitrarily not similarly treated. And surely, the stockholders of the private respondent,
destroyed. No consideration is paid for the extinction of the mortgage rights. whose mortgage lien had been cancelled and legitimate claims to accrued
The accrued interests and other charges are simply rejected by the decree. interests rejected, were no less deserving of protection, which they did not
The right to property is dissolved by legislative fiat without regard to the get. The decree operated, to use the words of a celebrated case, 3 "with an
private interest violated and, worse, in favor of another private interest. evil eye and an uneven hand."

10
On top of all this, New Agrix, Inc. was created by special decree take precedence over all other claims, including those of the government. In
notwithstanding the provision of Article XIV, Section 4 of the 1973 arriving at this ruling, the Court recognized the mortgage lien as a property
Constitution, then in force, that: right protected by the due process and contract clauses notwithstanding the
argument that the amendment in Section 110 of the Labor Code was a
SEC. 4. The Batasang Pambansa shall not, except by general law, provide proper exercise of the police power.: nad
for the formation, organization, or regulation of private corporations, unless
such corporations are owned or controlled by the Government or any The Court reaffirms and applies that ruling in the case at bar.
subdivision or instrumentality thereof. 4
Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of
The new corporation is neither owned nor controlled by the government. The the police power, not being in conformity with the traditional requirements of
National Development Corporation was merely required to extend a loan of a lawful subject and a lawful method. The extinction of the mortgage and
not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, other liens and of the interest and other charges pertaining to the legitimate
NDC would undertake the management of the corporation, but with the creditors of AGRIX constitutes taking without due process of law, and this is
obligation of making periodic reports to the Agrix board of directors. After compounded by the reduction of the secured creditors to the category of
payment of the loan, the said board can then appoint its own management. unsecured creditors in violation of the equal protection clause. Moreover, the
The stocks of the new corporation are to be issued to the old investors and new corporation, being neither owned nor controlled by the Government,
stockholders of AGRIX upon proof of their claims against the abolished should have been created only by general and not special law. And insofar as
corporation. They shall then be the owners of the new corporation. New the decree also interferes with purely private agreements without any
Agrix, Inc. is entirely private and so should have been organized under the demonstrated connection with the public interest, there is likewise an
Corporation Law in accordance with the above-cited constitutional provision. impairment of the obligation of the contract.

The Court also feels that the decree impairs the obligation of the contract With the above pronouncements, we feel there is no more need to rule on
between AGRIX and the private respondent without justification. While it is the authority of President Marcos to promulgate Pres. Decree No. 1717
true that the police power is superior to the impairment clause, the principle under Amendment No. 6 of the 1973 Constitution. Even if he had such
will apply only where the contract is so related to the public welfare that it will authority, the decree must fall just the same because of its violation of the Bill
be considered congenitally susceptible to change by the legislature in the of Rights.
interest of the greater number. 5 Most present-day contracts are of that
nature. But as already observed, the contracts of loan and mortgage WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is
executed by AGRIX are purely private transactions and have not been shown declared UNCONSTITUTIONAL. The temporary restraining order dated
to be affected with public interest. There was therefore no warrant to amend August 30, 1988, is LIFTED. Costs against the petitioners.- nad
their provisions and deprive the private respondent of its vested property
rights. SO ORDERED.

It is worth noting that only recently in the case of the Development Bank of Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco Padilla, Bidin,
the Philippines v. NLRC, 6 we sustained the preference in payment of a Sarmiento, Grio-Aquino, Medialdea and Regalado, JJ., concur.
mortgage creditor as against the argument that the claims of laborers should

11
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA
392 (1980), a portion of the second paragraph of section 4 of Batas
Pambansa Blg. 52 was declared null and void for being
unconstitutional.

Feliciano, J., is on leave.

12
13
b) Interest at 12% per annum 5,706.14
G.R. No. L-19891 July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J.


BELTRAN, petitioners, c) Liquidated damages at 7% per annum 3,330.58
vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila
and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of d) Costs of suit 135.60
Manila, respondents.

Felipe N. Aurea for petitioners.


Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc. e) Attorney's fees 2,000.00

PAREDES, J.:
2) WHEREAS, the DEFENDANTS bind themselves, jointly and
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, severally, and hereby promise to pay their aforementioned obligation
an establishment duly franchised by the Congress of the Philippines, to to the PLAINTIFF at its business address at 301-305 Banquero St.,
conduct a messenger and delivery express service. On July 12, 1961, the (Ground Floor), Regina Building, Escolta, Manila, within sixty (60)
respondent Imperial Insurance, Inc., presented with the CFI of Manila a days from March 16, 1962 or on or before May 14, 1962;
complaint (Civ. Case No. 47520), for sum of money against the petitioner
corporation. After the defendants therein have submitted their Answer, the 3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the
parties entered into a Compromise Agreement, assisted by their respective total amount of PESOS SIXTY ONE THOUSAND ONE HUNDRED
counsels, the pertinent portions of which recite: SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any
reason whatsoever, on May 14, 1962, the PLAINTIFF shall be
1) WHEREAS, the DEFENDANTS admit and confess their joint and entitled, as a matter of right, to move for the execution of the
solidary indebtedness to the PLAINTIFF in the full sum of PESOS decision to be rendered in the above-entitled case by this Honorable
SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & Court based on this COMPROMISE AGREEMENT.
32/100 (P61,172.32), Philippine Currency, itemized as follows:
On March 17, 1962, the lower court rendered judgment embodying the
contents of the said compromise agreement, the dispositive portion of which
a) Principal P50,000.00reads

WHEREFORE, the Court hereby approves the above-quoted


compromise agreement and renders judgment in accordance

14
therewith, enjoining the parties to comply faithfully and strictly with within the next ten (10) days, and they would be able to discharge the
the terms and conditions thereof, without special pronouncement as judgment debt. Respondents opposed the said motion and on June 21, 1962,
to costs. the lower court denied the motion for postponement of the auction sale.

Wherefore, the parties respectfully pray that the foregoing stipulation In the sale which was conducted in the premises of the JRS Business
of facts be admitted and approved by this Honorable Court, without Corporation at 1341 Perez St., Paco, Manila, all the properties of said
prejudice to the parties adducing other evidence to prove their case corporation contained in the Notices of Sale dated May 26, 1962, and June
not covered by this stipulation of facts. 1wph1.t 2, 1962 (the latter notice being for the whole capital stocks of the defendant,
JRS Business Corporation, the business name, right of operation, the whole
On May 15, 1962, one day after the date fixed in the compromise agreement, assets, furnitures and equipments, the total liabilities and Net Worth, books
within which the judgment debt would be paid, but was not, respondent of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc.,
Imperial Insurance Inc., filed a "Motion for the Insurance of a Writ of for P10,000.00, which was the highest bid offered. Immediately after the sale,
Execution". On May 23, 1962, a Writ of Execution was issued by respondent respondent Insurance Company took possession of the proper ties and
Sheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the started running the affairs and operating the business of the JRS Business
auction of the personal properties of the petitioner J.R.S. Business Corporation. Hence, the present appeal.
Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of
the defendants JRS Business Corporation, the business name, right of It would seem that the matters which need determination are (1) whether the
operation, the whole assets, furnitures and equipments, the total liabilities, respondent Judge acted without or in excess of his jurisdiction or with grave
and Net Worth, books of accounts, etc., etc." of the petitioner corporation abuse of discretion in promulgating the Order of June 21, 1962, denying the
was, handed down. On June 9, the petitioner, thru counsel, presented an motion for postponement of the scheduled sale at public auction, of the
"Urgent Petition for Postponement of Auction Sale and for Release of Levy properties of petitioner; and (2) whether the business name or trade name,
on the Business Name and Right to Operate of Defendant JRS Business franchise (right to operate) and capital stocks of the petitioner are properties
Corporation", stating that petitioners were busy negotiating for a loan with or property rights which could be the subject of levy, execution and sale.
which to pay the judgment debt; that the judgment was for money only and,
therefore, plaintiff (respondent Insurance Company) was not authorized to The respondent Court's act of postponing the scheduled sale was within the
take over and appropriate for its own use, the business name of the discretion of respondent Judge, the exercise of which, one way or the other,
defendants; that the right to operate under the franchise, was not did not constitute grave abuse of discretion and/or excess of jurisdiction.
transferable and could not be considered a personal or immovable, property, There was a decision rendered and the corresponding writ of execution was
subject to levy and sale. On June 10, 1962, a Supplemental Motion for issued. Respondent Judge had jurisdiction over the matter and erroneous
Release of Execution, was filed by counsel of petitioner JRS Business conclusions of law or fact, if any, committed in the exercise of such
Corporation, claiming that the capital stocks thereof, could not be levied upon jurisdiction are merely errors of judgment, not correctible by certiorari (Villa
and sold under execution. Under date of June 20, 1962, petitioner's counsel Rey Transit v. Bello, et al., L-18957, April 23, 1963, and cases cited therein.)
presented a pleading captioned "Very Urgent Motion for Postponement of
Public Auction Sale and for Ruling on Motion for Release of Levy on The corporation law, on forced sale of franchises, provides
the Business Name, Right to Operate and Capital Stocks of JRS Business
Corporation". The auction sale was set for June 21, 1962. In said motion,
petitioners alleged that the loan they had applied for, was to be secured

15
Any franchise granted to a corporation to collect tolls or to occupy, 160; Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28 So.
enjoy, or use public property or any portion of the public domain or 956, 77 Miss. 253, 60 L.R.A. 33 et seq.
any right of way over public property or the public domain, and any
rights and privileges acquired under such franchise may be levied The primary franchise of a corporation that is, the right to exist as
upon and sold under execution, together with the property necessary such, is vested "in the individuals who compose the corporation and
for the enjoyment, the exercise of the powers, and the receipt of the not in the corporation itself" (14 C.J. pp. 160, 161; Adams v.
proceeds of such franchise or right of way, in the same manner and Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3
with like effect as any other property to satisfy any judgment against Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and cannot
the corporation: Provided, That the sale of the franchise or right of be conveyed in the absence of a legislative authority so to do (14A
way and the property necessary for the enjoyment, the exercise of CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R.
the powers, and the receipt of the proceeds of said franchise or right Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg
of way is especially decreed and ordered in the judgment: And Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d.
provided, further, That the sale shall not become effective until 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9
confirmed by the court after due notice. (Sec. 56, Corporation Law.) Smedes & M. 394, 48 Am. Dec. 719), but the specify or secondary
franchises of a corporation are vested in the corporation and may
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was ordinarily be conveyed or mortgaged under a general power granted
held to a corporation to dispose of its property (Adams v. Railroad, supra;
14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec.
The first question then for decision is the meaning of the word 2909), except such special or secondary franchises as are charged
"franchise" in the statute. with a public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3
Thompson on Corp. [2d Ed.] sec. 2908; Arthur v. Commercial & R.R.
"A franchise is a special privilege conferred by governmental Bank, supra; McAllister v. Plant, 54 Miss. 106).
authority, and which does not belong to citizens of the
country generally as a matter of common right. ... Its The right to operate a messenger and express delivery service, by virtue of a
meaning depends more or less upon the connection in which legislative enactment, is admittedly a secondary franchise (R.A. No. 3260,
the word is employed and the property and corporation to entitled "An Act granting the JRS Business Corporation a franchise to
which it is applied. It may have different significations. conduct a messenger and express service)" and, as such, under our
corporation law, is subject to levy and sale on execution together and
"For practical purposes, franchises, so far as relating to including all the property necessary for the enjoyment thereof. The law,
corporations, are divisible into (1) corporate or general however, indicates the procedure under which the same (secondary
franchises; and (2) special or secondary franchises. The franchise and the properties necessary for its enjoyment) may be sold under
former is the franchise to exist as a corporation, while the execution. Said franchise can be sold under execution, when such sale is
latter are certain rights and privileges conferred upon especially decreed and ordered in the judgment and it becomes effective
existing corporations, such as the right to use the streets of a only when the sale is confirmed by the Court after due notice (Sec. 56, Corp.
municipality to lay pipes or tracks, erect poles or string Law). The compromise agreement and the judgment based thereon, do not
wires." 2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. contain any special decree or order making the franchise answerable for the
judgment debt. The same thing may be stated with respect to petitioner's

16
trade name or business name and its capital stock. Incidentally, the trade
name or business name corresponds to the initials of the President of the
petitioner corporation and there can be no serious dispute regarding the fact
that a trade name or business name and capital stock are necessarily
included in the enjoyment of the franchise. Like that of a franchise, the law
mandates, that property necessary for the enjoyment of said franchise, can
only be sold to satisfy a judgment debt if the decision especially so provides.
As We have stated heretofore, no such directive appears in the decision.
Moreover, a trade name or business name cannot be sold separately from
the franchise, and the capital stock of the petitioner corporation or any other
corporation, for the matter, represents the interest and is the property of
stockholders in the corporation, who can only be deprived thereof in the
manner provided by law (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In
re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and Phrases,
109).

It, therefore, results that the inclusion of the franchise, the trade name and/or
business name and the capital stock of the petitioner corporation, in the sale
of the properties of the JRS Business Corporation, has no justification. The
sale of the properties of petitioner corporation is set aside, in so far as it
authorizes the levy and sale of its franchise, trade name and capital stocks.
Without pronouncement as to costs.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Regala


and Makalintal, JJ., concur.

17
G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER,


GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.

Araneta and Araneta for appellee.


Jose A. Buendia for appellant.

REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal,


Quezon City Branch, to recover possesion of registered land situated in
barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint
described the land as a portion of a lot registered in plaintiff's name under
Transfer Certificate of Title No. 37686 of the land record of Rizal Province
and as containing an area of 13 hectares more or less. But the complaint
was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed
and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the
area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial,
after defendant's surveyor and witness, Quirino Feria, had testified that the
area occupied and claimed by defendant was about 13 hectares, as shown in
his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to
make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in

18
dispute) under claim of ownership, adverse to the entire world by defendant VIII. The trial court erred in not ordering the plaintiff to reconvey the
and his predecessor in interest" from "time in-memorial". The answer further land in litigation to the defendant.
alleges that registration of the land in dispute was obtained by plaintiff or its
predecessors in interest thru "fraud or error and without knowledge (of) or As to the first assigned error, there is nothing to the contention that the
interest either personal or thru publication to defendant and/or predecessors present action is not brought by the real party in interest, that is, by J. M.
in interest." The answer therefore prays that the complaint be dismissed with Tuason and Co., Inc. What the Rules of Court require is that an action be
costs and plaintiff required to reconvey the land to defendant or pay its value. brought in the name of, but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the
After trial, the lower court rendered judgment for plaintiff, declaring defendant action, that is to file the complaint, in the name of the plaintiff. That practice
to be without any right to the land in question and ordering him to restore appears to have been followed in this case, since the complaint is signed by
possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
from January, 1940, until he vacates the land, and also to pay the costs. with the statement "comes now plaintiff, through its undersigned counsel." It
is true that the complaint also states that the plaintiff is "represented herein
Appealing directly to this court because of the value of the property involved, by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
defendant makes the following assignment or errors: there is nothing against one corporation being represented by another
person, natural or juridical, in a suit in court. The contention that Gregorio
I. The trial court erred in not dismissing the case on the ground that Araneta, Inc. can not act as managing partner for plaintiff on the theory that it
the case was not brought by the real property in interest. is illegal for two corporations to enter into a partnership is without merit, for
the true rule is that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where
II. The trial court erred in admitting the third amended complaint.
the nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing
III. The trial court erred in denying defendant's motion to strike. 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that
the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its
IV. The trial court erred in including in its decision land not involved in managing partner" is not in line with the corporate business of either of them.
the litigation.
Errors II, III, and IV, referring to the admission of the third amended
V. The trial court erred in holding that the land in dispute is covered complaint, may be answered by mere reference to section 4 of Rule 17,
by transfer certificates of Title Nos. 37686 and 37677. Rules of Court, which sanctions such amendment. It reads:

Vl. The trial court erred in not finding that the defendant is the true Sec. 4. Amendment to conform to evidence. When issues not
and lawful owner of the land. raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been
VII. The trial court erred in finding that the defendant is liable to pay raised in the pleadings. Such amendment of the pleadings as may
the plaintiff the amount of P132.62 monthly from January, 1940, until be necessary to cause them to conform to the evidence and to raise
he vacates the premises. these issues may be made upon motion of any party at my time,
even of the trial of these issues. If evidence is objected to at the trial

19
on the ground that it is not within the issues made by the pleadings, title No. 37677 of the land records of the same province, both lots having
the court may allow the pleadings to be amended and shall be so been originally registered on July 8, 1914 under original certificate of title No.
freely when the presentation of the merits of the action will be 735. The identity of the lots was established by the testimony of Antonio
subserved thereby and the objecting party fails to satisfy the court Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the
that the admission of such evidence would prejudice him in portion thereof claimed by defendant was established by the testimony of his
maintaining his action or defense upon the merits. The court may own witness, Quirico Feria. The combined testimony of these three
grant a continuance to enable the objecting party to meet such witnesses clearly shows that the portion claimed by defendant is made up of
evidence. a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the
area covered by the two transfer certificates of title already mentioned. This
Under this provision amendment is not even necessary for the purpose of fact also appears admitted in defendant's answer to the third amended
rendering judgment on issues proved though not alleged. Thus, commenting complaint.
on the provision, Chief Justice Moran says in this Rules of Court:
As the land in dispute is covered by plaintiff's Torrens certificate of title and
Under this section, American courts have, under the New Federal was registered in 1914, the decree of registration can no longer be impugned
Rules of Civil Procedure, ruled that where the facts shown entitled on the ground of fraud, error or lack of notice to defendant, as more than one
plaintiff to relief other than that asked for, no amendment to the year has already elapsed from the issuance and entry of the decree. Neither
complaint is necessary, especially where defendant has himself court the decree be collaterally attacked by any person claiming title to, or
raised the point on which recovery is based, and that the appellate interest in, the land prior to the registration proceedings. (Sorogon vs.
court treat the pleadings as amended to conform to the evidence, Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of
although the pleadings were not actually amended. (I Moran, Rules that of plaintiff, the registered owner, be acquired by prescription or adverse
of Court, 1952 ed., 389-390.) possession. (Section 46, Act No. 496.) Adverse, notorious and continuous
possession under claim of ownership for the period fixed by law is ineffective
Our conclusion therefore is that specification of error II, III, and IV are without against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz.,
merit.. Supp. 9, p. 43.) And it is likewise settled that the right to secure possession
under a decree of registration does not prescribed. (Francisco vs. Cruz, 43
Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is
Let us now pass on the errors V and VI. Admitting, though his attorney, at the
that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil.,
early stage of the trial, that the land in dispute "is that described or
796. This disposes of the alleged errors V and VI.
represented in Exhibit A and in Exhibit B enclosed in red pencil with the name
Quirino Bolaos," defendant later changed his lawyer and also his theory and
tried to prove that the land in dispute was not covered by plaintiff's certificate As to error VII, it is claimed that `there was no evidence to sustain the finding
of title. The evidence, however, is against defendant, for it clearly establishes that defendant should be sentenced to pay plaintiff P132.62 monthly from
that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio January, 1940, until he vacates the premises.' But it appears from the record
Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or that that reasonable compensation for the use and occupation of the
less, covered by transfer certificate of title No. 37686 of the land records of premises, as stipulated at the hearing was P10 a month for each hectare and
Rizal province, and of lot No. 4-B-4, situated in the same barrio, having an that the area occupied by defendant was 13.2619 hectares. The total rent to
area of 74,789 square meters, more or less, covered by transfer certificate of be paid for the area occupied should therefore be P132.62 a month. It is
appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco

20
that as early as 1939 an action of ejectment had already been filed against
defendant. And it cannot be supposed that defendant has been paying rents,
for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and
public and notorious possession and under claim of ownership adverse to the
entire world by defendant and his predecessors in interest.' This assignment
of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for
further consideration.

During the pendency of this case in this Court appellant, thru other counsel,
has filed a motion to dismiss alleging that there is pending before the Court
of First Instance of Rizal another action between the same parties and for the
same cause and seeking to sustain that allegation with a copy of the
complaint filed in said action. But an examination of that complaint reveals
that appellant's allegation is not correct, for the pretended identity of parties
and cause of action in the two suits does not appear. That other case is one
for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show that such is
really the case. On the contrary, it appears that the action seeks relief for
each individual plaintiff and not relief for and on behalf of others. The motion
for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the
plaintiff.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador,


and Concepcion, JJ., concur.

21
22
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

G.R. No. 75875 December 15, 1989 These consolidated petitions seek the review of the amended decision of the
Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and earlier decision dated June 5, 1986, of the then Intermediate Appellate Court
CHARLES CHAMSAY, petitioners, and directed that in all subsequent elections for directors of Sanitary Wares
vs. Manufacturing Corporation (Saniwares), American Standard Inc. (ASI)
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. cannot nominate more than three (3) directors; that the Filipino stockholders
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, shall not interfere in ASI's choice of its three (3) nominees; that, on the other
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. hand, the Filipino stockholders can nominate only six (6) candidates and in
CRUZ, respondents. the event they cannot agree on the six (6) nominees, they shall vote only
among themselves to determine who the six (6) nominees will be, with
G.R. No. 75951 December 15, 1989 cumulative voting to be allowed but without interference from ASI.

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. The antecedent facts can be summarized as follows:
LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners, In 1961, Saniwares, a domestic corporation was incorporated for the primary
vs. purpose of manufacturing and marketing sanitary wares. One of the
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO European or American who could help in its expansion plans. On August 15,
SALAZAR, respondents. 1962, ASI, a foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino investors
G.R. Nos. 75975-76 December 15, 1989 whereby ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china
LUCIANO E. SALAZAR, petitioner,
and sanitary wares. The parties agreed that the business operations in the
vs.
Philippines shall be carried on by an incorporated enterprise and that the
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
name of the corporation shall initially be "Sanitary Wares Manufacturing
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
Corporation."
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V.
CRUZ and the COURT OF APPEALS, respondents.
The Agreement has the following provisions relevant to the issues in these
cases on the nomination and election of the directors of the corporation:
Belo, Abiera & Associates for petitioners in 75875.

23
3. Articles of Incorporation their desire to expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint joint venture groups
(a) The Articles of Incorporation of the Corporation shall be in the countries where Philippine exports were contemplated. On March 8,
substantially in the form annexed hereto as Exhibit A and, 1983, the annual stockholders' meeting was held. The meeting was presided
insofar as permitted under Philippine law, shall specifically by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz.
provide for After disposing of the preliminary items in the agenda, the stockholders then
proceeded to the election of the members of the board of directors. The ASI
(1) Cumulative voting for directors: group nominated three persons namely; Wolfgang Aurbach, John Griffin and
David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George
xxx xxx xxx
F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The
5. Management chairman, Baldwin Young ruled the last two nominations out of order on the
basis of section 5 (a) of the Agreement, the consistent practice of the parties
(a) The management of the Corporation shall be vested in a during the past annual stockholders' meetings to nominate only nine persons
Board of Directors, which shall consist of nine individuals. As as nominees for the nine-member board of directors, and the legal advice of
long as American-Standard shall own at least 30% of the Saniwares' legal counsel. The following events then, transpired:
outstanding stock of the Corporation, three of the nine
directors shall be designated by American-Standard, and the ... There were protests against the action of the Chairman
other six shall be designated by the other stockholders of the and heated arguments ensued. An appeal was made by the
Corporation. (pp. 51 & 53, Rollo of 75875) ASI representative to the body of stockholders present that a
vote be taken on the ruling of the Chairman. The Chairman,
At the request of ASI, the agreement contained provisions designed to Baldwin Young, declared the appeal out of order and no vote
protect it as a minority group, including the grant of veto powers over a on the ruling was taken. The Chairman then instructed the
number of corporate acts and the right to designate certain officers, such as Corporate Secretary to cast all the votes present and
a member of the Executive Committee whose vote was required for represented by proxy equally for the 6 nominees of the
important corporate transactions. Philippine Investors and the 3 nominees of ASI, thus
effectively excluding the 2 additional persons nominated,
Later, the 30% capital stock of ASI was increased to 40%. The corporation namely, Luciano E. Salazar and Charles Chamsay. The ASI
was also registered with the Board of Investments for availment of incentives representative, Mr. Jaqua protested the decision of the
with the condition that at least 60% of the capital stock of the corporation Chairman and announced that all votes accruing to ASI
shall be owned by Philippine nationals. shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three ASI
The joint enterprise thus entered into by the Filipino investors and the nominees and Charles Chamsay, and instructed the
American corporation prospered. Unfortunately, with the business successes, Secretary to so vote. Luciano E. Salazar and other proxy
there came a deterioration of the initially harmonious relations between the holders announced that all the votes owned by and or
two groups. According to the Filipino group, a basic disagreement was due to represented by them 467,197 shares (p. 27, Rollo, AC-G.R.

24
SP No. 05617) were being voted cumulatively in favor of positions of directors and that the body decided not to break
Luciano E. Salazar. The Chairman, Baldwin Young, the tie. (pp. 37-39, Rollo of 75975-76)
nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang These incidents triggered off the filing of separate petitions by the parties
Aurbach, John Griffin and David Whittingham and the six with the Securities and Exchange Commission (SEC). The first petition filed
originally nominated by Rogelio Vinluan, namely, Ernesto was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin
Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
Enrique Lagdameo, George F. Lee, and Baldwin Young. The George F. Lee against Luciano Salazar and Charles Chamsay. The case was
Secretary then certified for the election of the following denominated as SEC Case No. 2417. The second petition was for quo
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto warranto and application for receivership by Wolfgang Aurbach, John Griffin,
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, David Whittingham, Luciano E. Salazar and Charles Chamsay against the
George F. Lee, Raul A. Boncan, Baldwin Young. The group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
representative of ASI then moved to recess the meeting Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of
which was duly seconded. There was also a motion to parties except for Avelino Cruz claimed to be the legitimate directors of the
adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to corporation.
adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the The two petitions were consolidated and tried jointly by a hearing officer who
meeting adjourned. Protests against the adjournment were rendered a decision upholding the election of the Lagdameo Group and
registered and having been ignored, Mr. Jaqua the ASI dismissing the quo warranto petition of Salazar and Chamsay. The ASI
representative, stated that the meeting was not adjourned Group and Salazar appealed the decision to the SEC en banc which affirmed
but only recessed and that the meeting would be the hearing officer's decision.
reconvened in the next room. The Chairman then threatened
to have the stockholders who did not agree to the decision of
The SEC decision led to the filing of two separate appeals with the
the Chairman on the casting of votes bodily thrown out. The
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
ASI Group, Luciano E. Salazar and other stockholders,
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604)
allegedly representing 53 or 54% of the shares of
and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The
Saniwares, decided to continue the meeting at the elevator
petitions were consolidated and the appellate court in its decision ordered the
lobby of the American Standard Building. The continued
remand of the case to the Securities and Exchange Commission with the
meeting was presided by Luciano E. Salazar, while Andres
directive that a new stockholders' meeting of Saniwares be ordered
Gatmaitan acted as Secretary. On the basis of the
convoked as soon as possible, under the supervision of the Commission.
cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay. Luciano E. Upon a motion for reconsideration filed by the appellees Lagdameo Group)
Salazar voted for himself, thus the said five directors were the appellate court (Court of Appeals) rendered the questioned amended
certified as elected directors by the Acting Secretary, Andres decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham
Gatmaitan, with the explanation that there was a tie among and Charles Chamsay in G.R. No. 75875 assign the following errors:
the other six (6) nominees for the four (4) remaining

25
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE I
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF THE AMENDED DECISION OF THE RESPONDENT
SANIWARES WHEN IN FACT THERE WAS NO ELECTION COURT, WHILE RECOGNIZING THAT THE
AT ALL. STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO
TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
II. THE COURT OF APPEALS PROHIBITS THE INTENT OF THE AGREEMENT AND THE LAW.
STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF II
SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY THE AMENDED DECISION DOES NOT CATEGORICALLY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
DUE PROCESS OF LAW. DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF
III. THE COURT OF APPEALS IMPOSES CONDITIONS SANTWARES. (P. 24, Rollo-75951)
AND READS PROVISIONS INTO THE AGREEMENT OF
THE PARTIES WHICH WERE NOT THERE, WHICH The issues raised in the petitions are interrelated, hence, they are discussed
ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875) jointly.

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended The main issue hinges on who were the duly elected directors of Saniwares
decision on the following grounds: for the year 1983 during its annual stockholders' meeting held on March 8,
1983. To answer this question the following factors should be determined: (1)
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard the nature of the business established by the parties whether it was a joint
of binding contractual agreements entered into by venture or a corporation and (2) whether or not the ASI Group may vote their
stockholders and the replacement of the conditions of such additional 10% equity during elections of Saniwares' board of directors.
agreements with terms never contemplated by the
stockholders but merely dictated by the CA . The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation
11.2. The Amended decision would likewise sanction the depends upon their actual intention which is determined in accordance with
deprivation of the property rights of stockholders without due the rules governing the interpretation and construction of contracts. (Terminal
process of law in order that a favored group of stockholders Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal
may be illegally benefitted and guaranteed a continuing Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
monopoly of the control of a corporation. (pp. 14-15, Rollo-
75975-76) The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the
actual intention of the parties should be viewed strictly on the "Agreement"
On the other hand, the petitioners in G.R. No. 75951 contend that:

26
dated August 15,1962 wherein it is clearly stated that the parties' intention Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in
was to form a corporation and not a joint venture. their Reply and Answer to Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the parties, to wit:
They specifically mention number 16 under Miscellaneous Provisions which
states: xxx xxx xxx

xxx xxx xxx 4. While certain provisions of the Agreement would make it
appear that the parties thereto disclaim being partners or
c) nothing herein contained shall be construed to constitute joint venturers such disclaimer is directed at third parties and
any of the parties hereto partners or joint venturers in is not inconsistent with, and does not preclude, the existence
respect of any transaction hereunder. (At P. 66, Rollo-GR of two distinct groups of stockholders in Saniwares one of
No. 75875) which (the Philippine Investors) shall constitute the majority,
and the other ASI shall constitute the minority stockholder. In
They object to the admission of other evidence which tends to show that the any event, the evident intention of the Philippine Investors
parties' agreement was to establish a joint venture presented by the and ASI in entering into the Agreement is to enter into ajoint
Lagdameo and Young Group on the ground that it contravenes the parol venture enterprise, and if some words in the Agreement
evidence rule under section 7, Rule 130 of the Revised Rules of Court. appear to be contrary to the evident intention of the parties,
According to them, the Lagdameo and Young Group never pleaded in their the latter shall prevail over the former (Art. 1370, New Civil
pleading that the "Agreement" failed to express the true intent of the parties. Code). The various stipulations of a contract shall be
interpreted together attributing to the doubtful ones that
sense which may result from all of them taken jointly (Art.
The parol evidence Rule under Rule 130 provides:
1374, New Civil Code). Moreover, in order to judge the
intention of the contracting parties, their contemporaneous
Evidence of written agreements-When the terms of an and subsequent acts shall be principally considered. (Art.
agreement have been reduced to writing, it is to be 1371, New Civil Code). (Part I, Original Records, SEC Case
considered as containing all such terms, and therefore, there No. 2417)
can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the
It has been ruled:
contents of the writing, except in the following cases:

In an action at law, where there is evidence tending to prove


(a) Where a mistake or imperfection of the writing, or its
that the parties joined their efforts in furtherance of an
failure to express the true intent and agreement of the
enterprise for their joint profit, the question whether they
parties or the validity of the agreement is put in issue by the
intended by their agreement to create a joint adventure, or to
pleadings.
assume some other relation is a question of fact for the jury.
(Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa
(b) When there is an intrinsic ambiguity in the writing.

27
v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 agreed to provide technology and know-how to Saniwares
Wyo, 423, 200 P 96 33 C.J. p. 871) and the latter paid royalties for the same. (At p. 2).

In the instant cases, our examination of important provisions of the xxx xxx xxx
Agreement as well as the testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to establish a joint venture It is pertinent to note that the provisions of the Agreement
and not a corporation. The history of the organization of Saniwares and the requiring a 7 out of 9 votes of the board of directors for
unusual arrangements which govern its policy making body are all consistent certain actions, in effect gave ASI (which designates 3
with a joint venture and not with an ordinary corporation. As stated by the directors under the Agreement) an effective veto power.
SEC: Furthermore, the grant to ASI of the right to designate certain
officers of the corporation; the super-majority voting
According to the unrebutted testimony of Mr. Baldwin Young, requirements for amendments of the articles and by-laws;
he negotiated the Agreement with ASI in behalf of the and most significantly to the issues of tms case, the
Philippine nationals. He testified that ASI agreed to accept provision that ASI shall designate 3 out of the 9 directors and
the role of minority vis-a-vis the Philippine National group of the other stockholders shall designate the other 6, clearly
investors, on the condition that the Agreement should indicate that there are two distinct groups in Saniwares,
contain provisions to protect ASI as the minority. namely ASI, which owns 40% of the capital stock and the
Philippine National stockholders who own the balance of
An examination of the Agreement shows that certain 60%, and that 2) ASI is given certain protections as the
provisions were included to protect the interests of ASI as minority stockholder.
the minority. For example, the vote of 7 out of 9 directors is
required in certain enumerated corporate acts [Sec. 3 (b) (ii) Premises considered, we believe that under the Agreement
(a) of the Agreement]. ASI is contractually entitled to there are two groups of stockholders who established a
designate a member of the Executive Committee and the corporation with provisions for a special contractual
vote of this member is required for certain transactions [Sec. relationship between the parties, i.e., ASI and the other
3 (b) (i)]. stockholders. (pp. 4-5)

The Agreement also requires a 75% super-majority vote for Section 5 (a) of the agreement uses the word "designated" and not
the amendment of the articles and by-laws of Saniwares "nominated" or "elected" in the selection of the nine directors on a six to three
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to ratio. Each group is assured of a fixed number of directors in the board.
designate the president and plant manager [Sec. 5 (6)]. The
Agreement further provides that the sales policy of Moreover, ASI in its communications referred to the enterprise as joint
Saniwares shall be that which is normally followed by ASI venture. Baldwin Young also testified that Section 16(c) of the Agreement
[Sec. 13 (a)] and that Saniwares should not export that "Nothing herein contained shall be construed to constitute any of the
"Standard" products otherwise than through ASI's Export parties hereto partners or joint venturers in respect of any transaction
Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI

28
hereunder" was merely to obviate the possibility of the enterprise being determined in accordance with a procedure agreed upon by
treated as partnership for tax purposes and liabilities to third parties. them.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and Appellants contend that the above provision is included in
manufacturing capacities of a local firm are constrained to seek the the Corporation Code's chapter on close corporations and
technology and marketing assistance of huge multinational corporations of Saniwares cannot be a close corporation because it has 95
the developed world. Arrangements are formalized where a foreign group stockholders. Firstly, although Saniwares had 95
becomes a minority owner of a firm in exchange for its manufacturing stockholders at the time of the disputed stockholders
expertise, use of its brand names, and other such assistance. However, there meeting, these 95 stockholders are not separate from each
is always a danger from such arrangements. The foreign group may, from the other but are divisible into groups representing a single
start, intend to establish its own sole or monopolistic operations and merely Identifiable interest. For example, ASI, its nominees and
uses the joint venture arrangement to gain a foothold or test the Philippine lawyers count for 13 of the 95 stockholders. The
waters, so to speak. Or the covetousness may come later. As the Philippine YoungYutivo family count for another 13 stockholders, the
firm enlarges its operations and becomes profitable, the foreign group Chamsay family for 8 stockholders, the Santos family for 9
undermines the local majority ownership and actively tries to completely or stockholders, the Dy family for 7 stockholders, etc. If the
predominantly take over the entire company. This undermining of joint members of one family and/or business or interest group are
ventures is not consistent with fair dealing to say the least. To the extent that considered as one (which, it is respectfully submitted, they
such subversive actions can be lawfully prevented, the courts should extend should be for purposes of determining how closely held
protection especially in industries where constitutional and legal Saniwares is there were as of 8 March 1983, practically only
requirements reserve controlling ownership to Filipino citizens. 17 stockholders of Saniwares. (Please refer to discussion in
pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
The Lagdameo Group stated in their appellees' brief in the Court of Appeal December 1984 and Annex "A" thereof).

In fact, the Philippine Corporation Code itself recognizes the Secondly, even assuming that Saniwares is technically not a
right of stockholders to enter into agreements regarding the close corporation because it has more than 20 stockholders,
exercise of their voting rights. the undeniable fact is that it is a close-held corporation.
Surely, appellants cannot honestly claim that Saniwares is a
Sec. 100. Agreements by stockholders.- public issue or a widely held corporation.

xxx xxx xxx In the United States, many courts have taken a realistic
approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for
2. An agreement between two or more stockholders, if in
public issue corporations. These courts have indicated that
writing and signed by the parties thereto, may provide that in
express arrangements between corporate joint ventures
exercising any voting rights, the shares held by them shall
should be construed with less emphasis on the ordinary
be voted as therein provided, or as they may agree, or as
rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement

29
between the joint venturers (Please see Wabash Ry v. Paragraph 2 refers to pooling and voting agreements in
American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & particular. Does this provision necessarily imply that these
St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; agreements can be valid only in close corporations as
Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. defined by the Code? Suppose that a corporation has twenty
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d five stockholders, and therefore cannot qualify as a close
903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, corporation under section 96, can some of them enter into
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The an agreement to vote as a unit in the election of directors? It
Legal Status of Joint Venture Corporations", 11 Vand Law is submitted that there is no reason for denying stockholders
Rev. p. 680,1958). These American cases dealt with legal of corporations other than close ones the right to enter into
questions as to the extent to which the requirements arising not voting or pooling agreements to protect their interests, as
from the corporate form of joint venture corporations should long as they do not intend to commit any wrong, or fraud on
control, and the courts ruled that substantial justice lay with the other stockholders not parties to the agreement. Of
those litigants who relied on the joint venture agreement course, voting or pooling agreements are perhaps more
rather than the litigants who relied on the orthodox principles useful and more often resorted to in close corporations. But
of corporation law. they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal
As correctly held by the SEC Hearing Officer: meaning of close corporations to those which comply with
the requisites laid down by section 96, it is entirely possible
It is said that participants in a joint venture, in organizing the that a corporation which is in fact a close corporation will not
joint venture deviate from the traditional pattern of come within the definition. In such case, its stockholders
corporation management. A noted authority has pointed out should not be precluded from entering into contracts like
that just as in close corporations, shareholders' agreements voting agreements if these are otherwise valid. (Campos &
in joint venture corporations often contain provisions which Lopez-Campos, op cit, p. 405)
do one or more of the following: (1) require greater than
majority vote for shareholder and director action; (2) give In short, even assuming that sec. 5(a) of the Agreement
certain shareholders or groups of shareholders power to relating to the designation or nomination of directors restricts
select a specified number of directors; (3) give to the the right of the Agreement's signatories to vote for directors,
shareholders control over the selection and retention of such contractual provision, as correctly held by the SEC, is
employees; and (4) set up a procedure for the settlement of valid and binding upon the signatories thereto, which include
disputes by arbitration (See I O' Neal, Close Corporations, appellants. (Rollo No. 75951, pp. 90-94)
1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16) In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court
Thirdly paragraph 2 of Sec. 100 of the Corporation Code of Appeals correctly stated:
does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close As in other joint venture companies, the extent of ASI's
corporations. As Campos and Lopez-Campos explain: participation in the management of the corporation is spelled

30
out in the Agreement. Section 5(a) hereof says that three of In our decision sought to be reconsidered, we opted to
the nine directors shall be designated by ASI and the uphold the second over the first. Upon further reflection, we
remaining six by the other stockholders, i.e., the Filipino feel that the proper and just solution to give due
stockholders. This allocation of board seats is obviously in consideration to both factors suggests itself quite clearly.
consonance with the minority position of ASI. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold
Having entered into a well-defined contractual relationship, it the right of the stockholders within each group to cumulative
is imperative that the parties should honor and adhere to voting in the process of determining who the group's
their respective rights and obligations thereunder. Appellants nominees would be. In practical terms, as suggested by
seem to contend that any allocation of board seats, even in appellant Luciano E. Salazar himself, this means that if the
joint venture corporations, are null and void to the extent that Filipino stockholders cannot agree who their six nominees
such may interfere with the stockholder's rights to cumulative will be, a vote would have to be taken among the Filipino
voting as provided in Section 24 of the Corporation Code. stockholders only. During this voting, each Filipino
This Court should not be prepared to hold that any stockholder can cumulate his votes. ASI, however, should
agreement which curtails in any way cumulative voting not be allowed to interfere in the voting within the Filipino
should be struck down, even if such agreement has been group. Otherwise, ASI would be able to designate more than
freely entered into by experienced businessmen and do not the three directors it is allowed to designate under the
prejudice those who are not parties thereto. It may well be Agreement, and may even be able to get a majority of the
that it would be more cogent to hold, as the Securities and board seats, a result which is clearly contrary to the
Exchange Commission has held in the decision appealed contractual intent of the parties.
from, that cumulative voting rights may be voluntarily waived
by stockholders who enter into special relationships with Such a ruling will give effect to both the allocation of the
each other to pursue and implement specific purposes, as in board seats and the stockholder's right to cumulative voting.
joint venture relationships between foreign and local Moreover, this ruling will also give due consideration to the
stockholders, so long as such agreements do not adversely issue raised by the appellees on possible violation or
affect third parties. circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the
In any event, it is believed that we are not here called upon Constitution and the laws if ASI is allowed to nominate more
to make a general rule on this question. Rather, all that than three directors. (Rollo-75875, pp. 38-39)
needs to be done is to give life and effect to the particular
contractual rights and obligations which the parties have The ASI Group and petitioner Salazar, now reiterate their theory that the ASI
assumed for themselves. Group has the right to vote their additional equity pursuant to Section 24 of
the Corporation Code which gives the stockholders of a corporation the right
On the one hand, the clearly established minority position of to cumulate their votes in electing directors. Petitioner Salazar adds that this
ASI and the contractual allocation of board seats Cannot be right if granted to the ASI Group would not necessarily mean a violation of
disregarded. On the other hand, the rights of the the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section
stockholders to cumulative voting should also be protected. 2-a thereof which provides:

31
And provided finally that the election of aliens as members of distinction between these two business forms, and has held
the board of directors or governing body of corporations or that although a corporation cannot enter into a partnership
associations engaging in partially nationalized activities shall contract, it may however engage in a joint venture with
be allowed in proportion to their allowable participation or others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954])
share in the capital of such entities. (amendments introduced (Campos and Lopez-Campos Comments, Notes and
by Presidential Decree 715, section 1, promulgated May 28, Selected Cases, Corporation Code 1981)
1975)
Moreover, the usual rules as regards the construction and operations of
The ASI Group's argument is correct within the context of Section 24 of the contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14
Corporation Code. The point of query, however, is whether or not that App. Dev. (167) 43 NYS 556).
provision is applicable to a joint venture with clearly defined agreements:
Bearing these principles in mind, the correct view would be that the
The legal concept of ajoint venture is of common law origin. resolution of the question of whether or not the ASI Group may vote their
It has no precise legal definition but it has been generally additional equity lies in the agreement of the parties.
understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 Necessarily, the appellate court was correct in upholding the agreement of
[1920]) It is in fact hardly distinguishable from the the parties as regards the allocation of director seats under Section 5 (a) of
partnership, since their elements are similar community of the "Agreement," and the right of each group of stockholders to cumulative
interest in the business, sharing of profits and losses, and a voting in the process of determining who the group's nominees would be
mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5
498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; (a) of the Agreement relates to the manner of nominating the members of the
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. board of directors while Section 3 (a) (1) relates to the manner of voting for
2d. 242 [1955]). The main distinction cited by most opinions these nominees.
in common law jurisdictions is that the partnership
contemplates a general business with some degree of This is the proper interpretation of the Agreement of the parties as regards
continuity, while the joint venture is formed for the execution the election of members of the board of directors.
of a single transaction, and is thus of a temporary nature.
(Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
To allow the ASI Group to vote their additional equity to help elect even a
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates
Filipino director who would be beholden to them would obliterate their
v. Megargel 266 Fed. 811 [1920]). This observation is not
minority status as agreed upon by the parties. As aptly stated by the
entirely accurate in this jurisdiction, since under the Civil
appellate court:
Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore ... ASI, however, should not be allowed to interfere in the
that under Philippine law, a joint venture is a form of voting within the Filipino group. Otherwise, ASI would be
partnership and should thus be governed by the law of able to designate more than the three directors it is allowed
partnerships. The Supreme Court has however recognized a to designate under the Agreement, and may even be able to

32
get a majority of the board seats, a result which is clearly On the other hand, the Lagdameo and Young Group (petitioners in G.R. No.
contrary to the contractual intent of the parties. 75951) object to a cumulative voting during the election of the board of
directors of the enterprise as ruled by the appellate court and submits that
Such a ruling will give effect to both the allocation of the the six (6) directors allotted the Filipino stockholders should be selected by
board seats and the stockholder's right to cumulative voting. consensus pursuant to section 5 (a) of the Agreement which uses the word
Moreover, this ruling will also give due consideration to the "designate" meaning "nominate, delegate or appoint."
issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as They also stress the possibility that the ASI Group might take control of the
amended) and the nationalization requirements of the enterprise if the Filipino stockholders are allowed to select their nominees
Constitution and the laws if ASI is allowed to nominate more separately and not as a common slot determined by the majority of their
than three directors. (At p. 39, Rollo, 75875) group.

Equally important as the consideration of the contractual intent of the parties Section 5 (a) of the Agreement which uses the word designates in the
is the consideration as regards the possible domination by the foreign allocation of board directors should not be interpreted in isolation. This
investors of the enterprise in violation of the nationalization requirements should be construed in relation to section 3 (a) (1) of the Agreement. As we
enshrined in the Constitution and circumvention of the Anti-Dummy Act. In stated earlier, section 3(a) (1) relates to the manner of voting for these
this regard, petitioner Salazar's position is that the Anti-Dummy Act allows nominees which is cumulative voting while section 5(a) relates to the manner
the ASI group to elect board directors in proportion to their share in the of nominating the members of the board of directors. The petitioners in G.R.
capital of the entity. It is to be noted, however, that the same law also limits No. 75951 agreed to this procedure, hence, they cannot now impugn its
the election of aliens as members of the board of directors in proportion to legality.
their allowance participation of said entity. In the instant case, the foreign
Group ASI was limited to designate three directors. This is the allowable The insinuation that the ASI Group may be able to control the enterprise
participation of the ASI Group. Hence, in future dealings, this limitation of six under the cumulative voting procedure cannot, however, be ignored. The
to three board seats should always be maintained as long as the joint validity of the cumulative voting procedure is dependent on the directors thus
venture agreement exists considering that in limiting 3 board seats in the 9- elected being genuine members of the Filipino group, not voters whose
man board of directors there are provisions already agreed upon and interest is to increase the ASI share in the management of Saniwares. The
embodied in the parties' Agreement to protect the interests arising from the joint venture character of the enterprise must always be taken into account,
minority status of the foreign investors. so long as the company exists under its original agreement. Cumulative
voting may not be used as a device to enable ASI to achieve stealthily or
With these findings, we the decisions of the SEC Hearing Officer and SEC indirectly what they cannot accomplish openly. There are substantial
which were impliedly affirmed by the appellate court declaring Messrs. safeguards in the Agreement which are intended to preserve the majority
Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, status of the Filipino investors as well as to maintain the minority status of the
Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique foreign investors group as earlier discussed. They should be maintained.
Lagdameo, and George F. Lee as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting. WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The

33
amended decision of the Court of Appeals is MODIFIED in that Messrs.
Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo,
Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

34
understandable, and interpretative American jurisprudence is found in
abundance, yet the issue submitted is not lightly to be resolved. The
question, flatly presented, is, whether Act. No. 2761 of the Philippine
Legislature is valid or, more directly stated, whether the Government of
the Philippine Islands, through its Legislature, can deny the registry of
vessels in its coastwise trade to corporations having alien stockholders.

FACTS.

Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the
laws of the Philippine Islands. A majority of its stockholders are British
subjects. It is the owner of a motor vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen tons gross The Bato was
brought to Cebu in the present year for the purpose of transporting plaintiff's
merchandise between ports in the Islands. Application was made at Cebu,
the home port of the vessel, to the Collector of Customs for a certificate of
Philippine registry. The Collector refused to issue the certificate, giving as his
G.R. No. 15574 September 17, 1919 reason that all the stockholders of Smith, Bell & Co., Ltd., were not citizens
either of the United States or of the Philippine Islands. The instant action is
SMITH, BELL & COMPANY (LTD.), petitioner, the result.
vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of LAW.
Cebu, respondent.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30,
Ross and Lawrence for petitioner. 1906 but reenacting a portion of section 3 of this Law, and still in force,
Attorney-General Paredes for respondent. provides in its section 1:

MALCOLM, J.: That until Congress shall have authorized the registry as vessels of
the United States of vessels owned in the Philippine Islands, the
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Government of the Philippine Islands is hereby authorized to adopt,
Natividad, Collector of Customs of the port of Cebu, Philippine Islands, to from time to time, and enforce regulations governing the
compel him to issue a certificate of Philippine registry to the petitioner for its transportation of merchandise and passengers between ports or
motor vessel Bato. The Attorney-General, acting as counsel for respondent, places in the Philippine Archipelago. (35 Stat. at L., 70; Section
demurs to the petition on the general ground that it does not state facts 3912, U. S. Comp Stat. [1916]; 7 Pub. Laws, 364.)
sufficient to constitute a cause of action. While the facts are thus admitted,
and while, moreover, the pertinent provisions of law are clear and

35
The Act of Congress of August 29, 1916, commonly known as the Jones coinage laws of the Philippines become a law until it has been
Law, still in force, provides in section 3, (first paragraph, first sentence), 6, 7, approved by the President of the United States: Provided
8, 10, and 31, as follows. further, That the President shall approve or disapprove any act
mentioned in the foregoing proviso within six months from and after
SEC. 3. That no law shall be enacted in said Islands which shall its enactment and submission for his approval, and if not
deprive any person of life, liberty, or property without due process of disapproved within such time it shall become a law the same as if it
law, or deny to any person therein the equal protection of the laws. . . had been specifically approved.
.
SEC. 31. That all laws or parts of laws applicable to the Philippines
SEC. 6. That the laws now in force in the Philippines shall continue in not in conflict with any of the provisions of this Act are hereby
force and effect, except as altered, amended, or modified herein, continued in force and effect." (39 Stat at L., 546.)
until altered, amended, or repealed by the legislative authority herein
provided or by Act of Congress of the United States. On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The
first section of this law amended section 1172 of the Administrative Code to
SEC. 7. That the legislative authority herein provided shall have read as follows:
power, when not inconsistent with this Act, by due enactment to
amend, alter modify, or repeal any law, civil or criminal, continued in SEC. 1172. Certificate of Philippine register. Upon registration of a
force by this Act as it may from time to time see fit vessel of domestic ownership, and of more than fifteen tons gross, a
certificate of Philippine register shall be issued for it. If the vessel is
This power shall specifically extend with the limitation herein of domestic ownership and of fifteen tons gross or less, the taking of
provided as to the tariff to all laws relating to revenue provided as to the certificate of Philippine register shall be optional with the owner.
the tariff to all laws relating to revenue and taxation in effect in the
Philippines. "Domestic ownership," as used in this section, means ownership
vested in some one or more of the following classes of persons: (a)
SEC. 8. That general legislative power, except as otherwise herein Citizens or native inhabitants of the Philippine Islands; (b) citizens of
provided, is hereby granted to the Philippine Legislature, authorized the United States residing in the Philippine Islands; (c) any
by this Act. corporation or company composed wholly of citizens of the
Philippine Islands or of the United States or of both, created under
SEC. 10. That while this Act provides that the Philippine government the laws of the United States, or of any State thereof, or of thereof, or
shall have the authority to enact a tariff law the trade relations the managing agent or master of the vessel resides in the Philippine
between the islands and the United States shall continue to be Islands
governed exclusively by laws of the Congress of the United
States: Provided, That tariff acts or acts amendatory to the tariff of Any vessel of more than fifteen gross tons which on February eighth,
the Philippine Islands shall not become law until they shall receive nineteen hundred and eighteen, had a certificate of Philippine
the approval of the President of the United States, nor shall any act register under existing law, shall likewise be deemed a vessel of
of the Philippine Legislature affecting immigration or the currency or domestic ownership so long as there shall not be any change in the

36
ownership thereof nor any transfer of stock of the companies or whole or in part whether the Government of the Philippine Islands, through
corporations owning such vessel to person not included under the its Legislature, can deny the registry of vessel in its coastwise trade to
last preceding paragraph. corporations having alien stockholders .

Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the OPINION.
Administrative Code to read as follows:
1. Considered from a positive standpoint, there can exist no measure of
SEC. 1176. Investigation into character of vessel. No application doubt as to the power of the Philippine Legislature to enact Act No. 2761.
for a certificate of Philippine register shall be approved until the The Act of Congress of April 29, 1908, with its specific delegation of authority
collector of customs is satisfied from an inspection of the vessel that to the Government of the Philippine Islands to regulate the transportation of
it is engaged or destined to be engaged in legitimate trade and that it merchandise and passengers between ports or places therein, the liberal
is of domestic ownership as such ownership is defined in section construction given to the provisions of the Philippine Bill, the Act of Congress
eleven hundred and seventy-two of this Code. of July 1, 1902, by the courts, and the grant by the Act of Congress of August
29, 1916, of general legislative power to the Philippine Legislature, are
The collector of customs may at any time inspect a vessel or certainly superabundant authority for such a law. While the Act of the local
examine its owner, master, crew, or passengers in order to ascertain legislature may in a way be inconsistent with the Act of Congress regulating
whether the vessel is engaged in legitimate trade and is entitled to the coasting trade of the Continental United States, yet the general rule that
have or retain the certificate of Philippine register. only such laws of the United States have force in the Philippines as are
expressly extended thereto, and the abnegation of power by Congress in
SEC. 1202. Limiting number of foreign officers and engineers on favor of the Philippine Islands would leave no starting point for convincing
board vessels. No Philippine vessel operating in the coastwise argument. As a matter of fact, counsel for petitioner does not assail
trade or on the high seas shall be permitted to have on board more legislative action from this direction (See U. S. vs. Bull [1910], 15 Phil., 7;
than one master or one mate and one engineer who are not citizens Sinnot vs. Davenport [1859] 22 How., 227.)
of the United States or of the Philippine Islands, even if they hold
licenses under section one thousand one hundred and ninety-nine 2. It is from the negative, prohibitory standpoint that counsel argues against
hereof. No other person who is not a citizen of the United States or the constitutionality of Act No. 2761. The first paragraph of the Philippine Bill
of the Philippine Islands shall be an officer or a member of the crew of Rights of the Philippine Bill, repeated again in the first paragraph of the
of such vessel. Any such vessel which fails to comply with the terms Philippine Bill of Rights as set forth in the Jones Law, provides "That no law
of this section shall be required to pay an additional tonnage tax of shall be enacted in said Islands which shall deprive any person of life, liberty,
fifty centavos per net ton per month during the continuance of said or property without due process of law, or deny to any person therein the
failure. equal protection of the laws." Counsel says that Act No. 2761 denies to
Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect,
ISSUES. prohibits the corporation from owning vessels, and because classification of
corporations based on the citizenship of one or more of their stockholders is
capricious, and that Act No. 2761 deprives the corporation of its properly
Predicated on these facts and provisions of law, the issues as above stated
without due process of law because by the passage of the law company was
recur, namely, whether Act No 2761 of the Philippine Legislature is valid in

37
automatically deprived of every beneficial attribute of ownership in Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
the Bato and left with the naked title to a boat it could not use . Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of
aliens by private corporations.)
The guaranties extended by the Congress of the United States to the
Philippine Islands have been used in the same sense as like provisions A literal application of general principles to the facts before us would, of
found in the United States Constitution. While the "due process of law and course, cause the inevitable deduction that Act No. 2761 is unconstitutional
equal protection of the laws" clause of the Philippine Bill of Rights is couched by reason of its denial to a corporation, some of whole members are
in slightly different words than the corresponding clause of the Fourteenth foreigners, of the equal protection of the laws. Like all beneficient
Amendment to the United States Constitution, the first should be interpreted propositions, deeper research discloses provisos. Examples of a denial of
and given the same force and effect as the latter. (Kepner vs. U.S. [1904], rights to aliens notwithstanding the provisions of the Fourteenth Amendment
195 U. S., 100; Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull could be cited. (Tragesser vs. Gray [1890], 73 Md., 250, licenses to sell
[1910], 15 Phil., 7.) The meaning of the Fourteenth Amendment has been spirituous liquors denied to persons not citizens of the United States;
announced in classic decisions of the United States Supreme Court. Even at Commonwealth vs. Hana [1907], 195 Mass , 262, excluding aliens from the
the expense of restating what is so well known, these basic principles must right to peddle; Patsone vs. Commonwealth of Pennsylvania [1914], 232 U.
again be set down in order to serve as the basis of this decision. S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized
foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in
The guaranties of the Fourteenth Amendment and so of the first paragraph of favor of citizens with reference to the taking for private use of the common
the Philippine Bill of Rights, are universal in their application to all person property in fish and oysters found in the public waters of the State;
within the territorial jurisdiction, without regard to any differences of race, Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New York [1915], 239
color, or nationality. The word "person" includes aliens. (Yick Wo vs. Hopkins U. S., 195, limiting employment on public works by, or for, the State or a
[1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.) Private municipality to citizens of the United States.)
corporations, likewise, are "persons" within the scope of the guaranties in so
far as their property is concerned. (Santa Clara County vs. Southern Pac. R. One of the exceptions to the general rule, most persistent and far reaching in
R. Co. [1886], 118.U. S., 394; Pembina Mining Co. vs. Pennsylvania influence is, that neither the Fourteenth Amendment to the United States
[1888],.125 U. S., 181 Covington & L. Turnpike Road Co. vs. Sandford Constitution, broad and comprehensive as it is, nor any other amendment,
[1896], 164 U. S., 578.) Classification with the end in view of providing "was designed to interfere with the power of the State, sometimes termed its
diversity of treatment may be made among corporations, but must be based `police power,' to prescribe regulations to promote the health, peace, morals,
upon some reasonable ground and not be a mere arbitrary selection (Gulf, education, and good order of the people, and legislate so as to increase the
Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.) Examples industries of the State, develop its resources and add to its wealth and
of laws held unconstitutional because of unlawful discrimination against prosperity. From the very necessities of society, legislation of a special
aliens could be cited. Generally, these decisions relate to statutes which had character, having these objects in view, must often be had in certain
attempted arbitrarily to forbid aliens to engage in ordinary kinds of business districts." (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas
to earn their living. (State vs. Montgomery [1900], 94 Maine, 192, peddling Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same police
but see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board power which the United States Supreme Court say "extends to so dealing
of Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick with the conditions which exist in the state as to bring out of them the
Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; greatest welfare in of its people." (Bacon vs. Walker [1907], 204 U.S., 311.)
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; For quite similar reasons, none of the provision of the Philippine Organic Law

38
could could have had the effect of denying to the Government of the undesirable foreigners. The Government has thus assumed to act for the all-
Philippine Islands, acting through its Legislature, the right to exercise that sufficient and primitive reason of the benefit and protection of its own citizens
most essential, insistent, and illimitable of powers, the sovereign police and of the self-preservation and integrity of its dominion. (In re Patterson
power, in the promotion of the general welfare and the public interest. (U. [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and Crossfield [1910], 16 Phil.,
S. vs. Toribio [1910], 15 Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 534;.228 U.S., 549; In re McCulloch Dick [1918], 38 Phil., 41.) Boats owned
Phil., 580; Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) by foreigners, particularly by such solid and reputable firms as the instant
Another notable exception permits of the regulation or distribution of the claimant, might indeed traverse the waters of the Philippines for ages without
public domain or the common property or resources of the people of the doing any particular harm. Again, some evilminded foreigner might very
State, so that use may be limited to its citizens. (Ex parte Gilleti [1915], 70 easily take advantage of such lavish hospitality to chart Philippine waters, to
Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391; obtain valuable information for unfriendly foreign powers, to stir up
Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.) Still insurrection, or to prejudice Filipino or American commerce. Moreover, under
another exception permits of the limitation of employment in the construction the Spanish portion of Philippine law, the waters within the domestic
of public works by, or for, the State or a municipality to citizens of the United jurisdiction are deemed part of the national domain, open to public use.
States or of the State. (Atkin vs. Kansas [1903],191 U. S., 207; (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866,
Heim vs. McCall [1915], 239 U.S., 175; Crane vs. New York [1915], 239 U. arts 1, 2, 3.) Common carriers which in the Philippines as in the United
S., 195.) Even as to classification, it is admitted that a State may classify with States and other countries are, as Lord Hale said, "affected with a public
reference to the evil to be prevented; the question is a practical one, interest," can only be permitted to use these public waters as a privilege and
dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania under such conditions as to the representatives of the people may seem
[1914], 232 U. S., 138.) wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)

To justify that portion of Act no. 2761 which permits corporations or In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a
companies to obtain a certificate of Philippine registry only on condition that case herein before mentioned, Justice Holmes delivering the opinion of the
they be composed wholly of citizens of the Philippine Islands or of the United United States Supreme Court said:
States or both, as not infringing Philippine Organic Law, it must be done
under some one of the exceptions here mentioned This must be done, This statute makes it unlawful for any unnaturalized foreign-born
moreover, having particularly in mind what is so often of controlling effect in resident to kill any wild bird or animal except in defense of person or
this jurisdiction our local experience and our peculiar local conditions. property, and `to that end' makes it unlawful for such foreign-born
person to own or be possessed of a shotgun or rifle; with a penalty of
To recall a few facts in geography, within the confines of Philippine $25 and a forfeiture of the gun or guns. The plaintiff in error was
jurisdictional limits are found more than three thousand islands. Literally, and found guilty and was sentenced to pay the abovementioned fine. The
absolutely, steamship lines are, for an Insular territory thus situated, the judgment was affirmed on successive appeals. (231 Pa., 46; 79 Atl.,
arteries of commerce. If one be severed, the life-blood of the nation is lost. If 928.) He brings the case to this court on the ground that the statute
on the other hand these arteries are protected, then the security of the is contrary to the 14th Amendment and also is in contravention of the
country and the promotion of the general welfare is sustained. Time and treaty between the United States and Italy, to which latter country the
again, with such conditions confronting it, has the executive branch of the plaintiff in error belongs .
Government of the Philippine Islands, always later with the sanction of the
judicial branch, taken a firm stand with reference to the presence of

39
Under the 14th Amendment the objection is twofold; unjustifiably corporations such as Smith, Bell &. Co. Ltd., the right to register vessels in
depriving the alien of property, and discrimination against such aliens the Philippines coastwise trade, does not belong to that vicious species of
as a class. But the former really depends upon the latter, since it class legislation which must always be condemned, but does fall within
hardly can be disputed that if the lawful object, the protection of wild authorized exceptions, notably, within the purview of the police power, and so
life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct. does not offend against the constitutional provision.
Rep., 600), warrants the discrimination, the, means adopted for
making it effective also might be adopted. . . . This opinion might well be brought to a close at this point. It occurs to us,
however, that the legislative history of the United States and the Philippine
The discrimination undoubtedly presents a more difficult question. Islands, and, probably, the legislative history of other countries, if we were to
But we start with reference to the evil to be prevented, and that if the take the time to search it out, might disclose similar attempts at restriction on
class discriminated against is or reasonably might be considered to the right to enter the coastwise trade, and might thus furnish valuable aid by
define those from whom the evil mainly is to be feared, it properly which to ascertain and, if possible, effectuate legislative intention.
may be picked out. A lack of abstract symmetry does not matter. The
question is a practical one, dependent upon experience. . . . 3. The power to regulate commerce, expressly delegated to the
Congress by the Constitution, includes the power to nationalize ships
The question therefore narrows itself to whether this court can say built and owned in the United States by registries and enrollments,
that the legislature of Pennsylvania was not warranted in assuming and the recording of the muniments of title of American vessels. The
as its premise for the law that resident unnaturalized aliens were the Congress "may encourage or it may entirely prohibit such commerce,
peculiar source of the evil that it desired to prevent. and it may regulate in any way it may see fit between these two
(Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. extremes." (U.S. vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden
Ct. Rep., 692.) [1824], 9 Wheat., 1; The Passenger Cases [1849], 7 How., 283.)

Obviously the question, so stated, is one of local experience, on Acting within the purview of such power, the first Congress of the United
which this court ought to be very slow to declare that the state States had not been long convened before it enacted on September 1, 1789,
legislature was wrong in its facts (Adams vs. Milwaukee, 228 U.S., "An Act for Registering and Clearing Vessels, Regulating the Coasting Trade,
572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.) If we might and for other purposes." Section 1 of this law provided that for any ship or
trust popular speech in some states it was right; but it is enough that vessel to obtain the benefits of American registry, it must belong wholly to a
this court has no such knowledge of local conditions as to be able to citizen or citizens of the United States "and no other." (1 Stat. at L., 55.) That
say that it was manifestly wrong. . . . Act was shortly after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287,
Judgment affirmed. 305.).Section 4 of the Act of 1792 provided that in order to obtain the registry
of any vessel, an oath shall be taken and subscribed by the owner, or by one
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation of the owners thereof, before the officer authorized to make such registry,
having alien stockholders, is entitled to the protection afforded by the due- declaring, "that there is no subject or citizen of any foreign prince or state,
process of law and equal protection of the laws clause of the Philippine Bill of directly or indirectly, by way of trust, confidence, or otherwise, interested in
Rights, nevertheless, Act No. 2761 of the Philippine Legislature, in denying to such vessel, or in the profits or issues thereof." Section 32 of the Act of 1793
even went so far as to say "that if any licensed ship or vessel shall be

40
transferred to any person who is not at the time of such transfer a citizen of of the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917,
and resident within the United States, ... every such vessel with her tackle, sec. 1172). And now Act No. 2761 has returned to the restrictive idea of the
apparel, and furniture, and the cargo found on board her, shall be forefeited." original Customs Administrative Act which in turn was merely a reflection of
In case of alienation to a foreigner, Chief Justice Marshall said that all the the statutory language of the first American Congress.
privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings
and Francis [1807], 4 Cranch, 48.) Even as late as 1873, the Attorney- Provisions such as those in Act No. 2761, which deny to foreigners the right
General of the United States was of the opinion that under the provisions of to a certificate of Philippine registry, are thus found not to be as radical as a
the Act of December 31, 1792, no vessel in which a foreigner is directly or first reading would make them appear.
indirectly interested can lawfully be registered as a vessel of the United.
States. (14 Op. Atty.-Gen. [U.S.], 340.) Without any subterfuge, the apparent purpose of the Philippine Legislature is
seen to be to enact an anti-alien shipping act. The ultimate purpose of the
These laws continued in force without contest, although possibly the Act of Legislature is to encourage Philippine ship-building. This, without doubt, has,
March 3, 1825, may have affected them, until amended by the Act of May 28, likewise, been the intention of the United States Congress in passing
1896 (29 Stat. at L., 188) which extended the privileges of registry from navigation or tariff laws on different occasions. The object of such a law, the
vessels wholly owned by a citizen or citizens of the United States to United States Supreme Court once said, was to encourage American trade,
corporations created under the laws of any of the states thereof. The law, as navigation, and ship-building by giving American ship-owners exclusive
amended, made possible the deduction that a vessel belonging to a domestic privileges. (Old Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299;
corporation was entitled to registry or enrollment even though some stock of Kent's Commentaries, Vol. 3, p. 139.)
the company be owned by aliens. The right of ownership of stock in a
corporation was thereafter distinct from the right to hold the property by the In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9
corporation (Humphreys vs. McKissock [1890], 140 U.S., 304; Wheat., 1) is found the following:
Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
Licensing acts, in fact, in legislation, are universally restraining acts;
On American occupation of the Philippines, the new government found a as, for example, acts licensing gaming houses, retailers of spirituous
substantive law in operation in the Islands with a civil law history which it liquors, etc. The act, in this instance, is distinctly of that character,
wisely continued in force Article fifteen of the Spanish Code of Commerce and forms part of an extensive system, the object of which is to
permitted any foreigner to engage in Philippine trade if he had legal capacity encourage American shipping, and place them on an equal footing
to do so under the laws of his nation. When the Philippine Commission came with the shipping of other nations. Almost every commercial nation
to enact the Customs Administrative Act (No. 355) in 1902, it returned to the reserves to its own subjects a monopoly of its coasting trade; and a
old American policy of limiting the protection and flag of the United States to countervailing privilege in favor of American shipping is
vessels owned by citizens of the United States or by native inhabitants of the contemplated, in the whole legislation of the United States on this
Philippine Islands (Sec. 117.) Two years later, the same body reverted to the subject. It is not to give the vessel an American character, that the
existing Congressional law by permitting certification to be issued to a citizen license is granted; that effect has been correctly attributed to the act
of the United States or to a corporation or company created under the laws of of her enrollment. But it is to confer on her American privileges, as
the United States or of any state thereof or of the Philippine Islands (Act No. contradistinguished from foreign; and to preserve the. Government
1235, sec. 3.) The two administration codes repeated the same provisions from fraud by foreigners, in surreptitiously intruding themselves into
with the necessary amplification of inclusion of citizens or native inhabitants

41
the American commercial marine, as well as frauds upon the purposes of obtaining a certificate of Philippine registry in the coastwise trade
revenue in the trade coastwise, that this whole system is projected. to citizens of the Philippine Islands, and to citizens of the United States, does
not violate the provisions of paragraph 1 of section 3 of the Act of Congress
The United States Congress in assuming its grave responsibility of legislating of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine
wisely for a new country did so imbued with a spirit of Americanism. Legislature is held valid and constitutional .
Domestic navigation and trade, it decreed, could only be carried on by
citizens of the United States. If the representatives of the American people The petition for a writ of mandamus is denied, with costs against the
acted in this patriotic manner to advance the national policy, and if their petitioner. So ordered.
action was accepted without protest in the courts, who can say that they did
not enact such beneficial laws under the all-pervading police power, with the Arellano, C.J., Torres, Johnson, Araullo, Street, Avancea and Moir,
prime motive of safeguarding the country and of promoting its prosperity? JJ., concur.
Quite similarly, the Philippine Legislature made up entirely of Filipinos,
representing the mandate of the Filipino people and the guardian of their
rights, acting under practically autonomous powers, and imbued with a
strong sense of Philippinism, has desired for these Islands safety from
foreign interlopers, the use of the common property exclusively by its citizens
and the citizens of the United States, and protection for the common good of
the people. Who can say, therefore, especially can a court, that with all the
facts and circumstances affecting the Filipino people before it, the Philippine
Legislature has erred in the enactment of Act No. 2761?

Surely, the members of the judiciary are not expected to live apart from
active life, in monastic seclusion amidst dusty tomes and ancient records,
but, as keen spectators of passing events and alive to the dictates of the
general the national welfare, can incline the scales of their decisions in
favor of that solution which will most effectively promote the public policy. All
the presumption is in favor of the constitutionally of the law and without good
and strong reasons, courts should not attempt to nullify the action of the
Legislature. "In construing a statute enacted by the Philippine Commission
(Legislature), we deem it our duty not to give it a construction which would be
repugnant to an Act of Congress, if the language of the statute is fairly
susceptible of another construction not in conflict with the higher law." (In
re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is
the true construction which will best carry legislative intention into effect.
G.R. No. L-19550 June 19, 1967
With full consciousness of the importance of the question, we nevertheless
are clearly of the opinion that the limitation of domestic ownership for

42
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and as "the subject of the offense; stolen or embezzled and proceeds or fruits of
KARL BECK, petitioners, the offense," or "used or intended to be used as the means of committing the
vs. offense," which is described in the applications adverted to above as
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
JOSE LUKBAN, in his capacity as Acting Director, National Bureau of (Code) and the Revised Penal Code."
Investigation; SPECIAL PROSECUTORS PEDRO D. CENZON, EFREN I.
PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G. Alleging that the aforementioned search warrants are null and void, as
REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE contravening the Constitution and the Rules of Court because, inter alia:
ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES (1) they do not describe with particularity the documents, books and things to
CALUAG, Court of First Instance of Rizal-Quezon City Branch, and be seized; (2) cash money, not mentioned in the warrants, were actually
JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents. seized; (3) the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed against them; (4) the
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan searches and seizures were made in an illegal manner; and (5) the
T. David for petitioners. documents, papers and cash money seized were not delivered to the courts
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General that issued the warrants, to be disposed of in accordance with law on
Pacifico P. de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor March 20, 1962, said petitioners filed with the Supreme Court this original
Camilo D. Quiason and Solicitor C. Padua for respondents. action for certiorari, prohibition, mandamus and injunction, and prayed that,
pending final disposition of the present case, a writ of preliminary injunction
CONCEPCION, C.J.: be issued restraining Respondents-Prosecutors, their agents and /or
representatives from using the effects seized as aforementioned or any
Upon application of the officers of the government named on the margin 1 copies thereof, in the deportation cases already adverted to, and that, in due
hereinafter referred to as Respondents-Prosecutors several judges 2 course, thereafter, decision be rendered quashing the contested search
hereinafter referred to as Respondents-Judges issued, on different warrants and declaring the same null and void, and commanding the
dates,3 a total of 42 search warrants against petitioners herein 4 and/or the respondents, their agents or representatives to return to petitioners herein, in
corporations of which they were officers,5 directed to the any peace officer, to accordance with Section 3, Rule 67, of the Rules of Court, the documents,
search the persons above-named and/or the premises of their offices, papers, things and cash moneys seized or confiscated under the search
warehouses and/or residences, and to seize and take possession of the warrants in question.
following personal property to wit:
In their answer, respondents-prosecutors alleged, 6 (1) that the contested
Books of accounts, financial records, vouchers, correspondence, search warrants are valid and have been issued in accordance with law; (2)
receipts, ledgers, journals, portfolios, credit journals, typewriters, and that the defects of said warrants, if any, were cured by petitioners' consent;
other documents and/or papers showing all business transactions and (3) that, in any event, the effects seized are admissible in evidence
including disbursements receipts, balance sheets and profit and loss against herein petitioners, regardless of the alleged illegality of the
statements and Bobbins (cigarette wrappers). aforementioned searches and seizures.

On March 22, 1962, this Court issued the writ of preliminary injunction prayed
for in the petition. However, by resolution dated June 29, 1962, the writ was

43
partially lifted or dissolved, insofar as the papers, documents and things seized or the privacy of whose homes had not been disturbed; nor
seized from the offices of the corporations above mentioned are concerned; could they claim for themselves the benefits of the Fourth
but, the injunction was maintained as regards the papers, documents and Amendment, when its violation, if any, was with reference to the
things found and seized in the residences of petitioners herein. 7 rights of another. Remus vs. United States (C.C.A.)291 F. 501, 511. It
follows, therefore, that the question of the admissibility of the
Thus, the documents, papers, and things seized under the alleged authority evidence based on an alleged unlawful search and seizure
of the warrants in question may be split into two (2) major groups, namely: does not extend to the personal defendants but
(a) those found and seized in the offices of the aforementioned corporations, embraces only the corporation whose property was taken. . . . (A
and (b) those found and seized in the residences of petitioners herein. Guckenheimer & Bros. Co. vs. United States, [1925] 3 F. 2d. 786,
789, Emphasis supplied.)
As regards the first group, we hold that petitioners herein have no cause of
action to assail the legality of the contested warrants and of the seizures With respect to the documents, papers and things seized in the residences of
made in pursuance thereof, for the simple reason that said corporations have petitioners herein, the aforementioned resolution of June 29, 1962, lifted the
their respective personalities, separate and distinct from the personality of writ of preliminary injunction previously issued by this Court, 12 thereby, in
herein petitioners, regardless of the amount of shares of stock or of the effect, restraining herein Respondents-Prosecutors from using them in
interest of each of them in said corporations, and whatever the offices they evidence against petitioners herein.
hold therein may be.8 Indeed, it is well settled that the legality of a seizure
can be contested only by the party whose rights have been impaired In connection with said documents, papers and things, two (2) important
thereby,9 and that the objection to an unlawful search and seizure is purely questions need be settled, namely: (1) whether the search warrants in
personal and cannot be availed of by third parties. 10 Consequently, question, and the searches and seizures made under the authority thereof,
petitioners herein may not validly object to the use in evidence against them are valid or not, and (2) if the answer to the preceding question is in the
of the documents, papers and things seized from the offices and premises of negative, whether said documents, papers and things may be used in
the corporations adverted to above, since the right to object to the admission evidence against petitioners herein.1wph1.t
of said papers in evidence belongs exclusively to the corporations, to whom
the seized effects belong, and may not be invoked by the corporate officers Petitioners maintain that the aforementioned search warrants are in the
in proceedings against them in their individual capacity. 11 Indeed, it has been nature of general warrants and that accordingly, the seizures effected upon
held: the authority there of are null and void. In this connection, the
Constitution 13 provides:
. . . that the Government's action in gaining possession of papers
belonging to the corporation did not relate to nor did it affect The right of the people to be secure in their persons, houses, papers,
the personal defendants. If these papers were unlawfully seized and and effects against unreasonable searches and seizures shall not be
thereby the constitutional rights of or any one were invaded, they violated, and no warrants shall issue but upon probable cause, to be
were the rights of the corporation and not the rights of the other determined by the judge after examination under oath or affirmation
defendants. Next, it is clear that a question of the lawfulness of a of the complainant and the witnesses he may produce, and
seizure can be raised only by one whose rights have been invaded. particularly describing the place to be searched, and the persons or
Certainly, such a seizure, if unlawful, could not affect the things to be seized.
constitutional rights of defendants whose property had not been

44
Two points must be stressed in connection with this constitutional mandate, probable cause in connection with one specific offense." Not satisfied with
namely: (1) that no warrant shall issue but upon probable cause, to be this qualification, the Court added thereto a paragraph, directing that "no
determined by the judge in the manner set forth in said provision; and (2) that search warrant shall issue for more than one specific offense."
the warrant shall particularly describe the things to be seized.
The grave violation of the Constitution made in the application for the
None of these requirements has been complied with in the contested contested search warrants was compounded by the description therein made
warrants. Indeed, the same were issued upon applications stating that the of the effects to be searched for and seized, to wit:
natural and juridical person therein named had committed a "violation of
Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Books of accounts, financial records, vouchers, journals,
Revised Penal Code." In other words, no specific offense had been alleged in correspondence, receipts, ledgers, portfolios, credit journals,
said applications. The averments thereof with respect to the offense typewriters, and other documents and/or papers showing all
committed were abstract. As a consequence, it was impossible for the judges business transactions including disbursement receipts, balance
who issued the warrants to have found the existence of probable cause, for sheets and related profit and loss statements.
the same presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts, or Thus, the warrants authorized the search for and seizure of records
committed specific omissions, violating a given provision of our criminal laws. pertaining to all business transactions of petitioners herein, regardless of
As a matter of fact, the applications involved in this case do not allege any whether the transactions were legal or illegal. The warrants sanctioned the
specific acts performed by herein petitioners. It would be the legal heresy, of seizure of all records of the petitioners and the aforementioned corporations,
the highest order, to convict anybody of a "violation of Central Bank Laws, whatever their nature, thus openly contravening the explicit command of our
Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Bill of Rights that the things to be seized be particularly described as
Code," as alleged in the aforementioned applications without reference well as tending to defeat its major objective: the elimination
to any determinate provision of said laws or of general warrants.

To uphold the validity of the warrants in question would be to wipe out Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-
completely one of the most fundamental rights guaranteed in our Prosecutors maintain that, even if the searches and seizures under
Constitution, for it would place the sanctity of the domicile and the privacy of consideration were unconstitutional, the documents, papers and things thus
communication and correspondence at the mercy of the whims caprice or seized are admissible in evidence against petitioners herein. Upon mature
passion of peace officers. This is precisely the evil sought to be remedied by deliberation, however, we are unanimously of the opinion that the position
the constitutional provision above quoted to outlaw the so-called general taken in the Moncado case must be abandoned. Said position was in line
warrants. It is not difficult to imagine what would happen, in times of keen with the American common law rule, that the criminal should not be allowed
political strife, when the party in power feels that the minority is likely to wrest to go free merely "because the constable has blundered," 16 upon the theory
it, even though by legal means. that the constitutional prohibition against unreasonable searches and
seizures is protected by means other than the exclusion of evidence
Such is the seriousness of the irregularities committed in connection with the unlawfully obtained, 17 such as the common-law action for damages against
disputed search warrants, that this Court deemed it fit to amend Section 3 of the searching officer, against the party who procured the issuance of the
Rule 122 of the former Rules of Court 14 by providing in its counterpart, under search warrant and against those assisting in the execution of an illegal
the Revised Rules of Court 15 that "a search warrant shall not issue but upon

45
search, their criminal punishment, resistance, without liability to an unlawful . . . Today we once again examine the Wolf's constitutional
seizure, and such other legal remedies as may be provided by other laws. documentation of the right of privacy free from unreasonable state
intrusion, and after its dozen years on our books, are led by it to
However, most common law jurisdictions have already given up this close the only courtroom door remaining open to evidence secured
approach and eventually adopted the exclusionary rule, realizing that this by official lawlessness in flagrant abuse of that basic right, reserved
is the only practical means of enforcing the constitutional injunction against to all persons as a specific guarantee against that very same
unreasonable searches and seizures. In the language of Judge Learned unlawful conduct. We hold that all evidence obtained by searches
Hand: and seizures in violation of the Constitution is, by that same authority,
inadmissible in a State.
As we understand it, the reason for the exclusion of evidence
competent as such, which has been unlawfully acquired, is that Since the Fourth Amendment's right of privacy has been declared
exclusion is the only practical way of enforcing the constitutional enforceable against the States through the Due Process Clause of
privilege. In earlier times the action of trespass against the offending the Fourteenth, it is enforceable against them by the same sanction
official may have been protection enough; but that is true no longer. of exclusion as it used against the Federal Government. Were it
Only in case the prosecution which itself controls the seizing officials, otherwise, then just as without the Weeks rule the assurance against
knows that it cannot profit by their wrong will that wrong be unreasonable federal searches and seizures would be "a form of
repressed.18 words," valueless and underserving of mention in a perpetual charter
of inestimable human liberties, so too, without that rule the freedom
In fact, over thirty (30) years before, the Federal Supreme Court had already from state invasions of privacy would be so ephemeral and so neatly
declared: severed from its conceptual nexus with the freedom from all brutish
means of coercing evidence as not to permit this Court's high regard
as a freedom "implicit in the concept of ordered liberty." At the time
If letters and private documents can thus be seized and held and
that the Court held in Wolf that the amendment was applicable to the
used in evidence against a citizen accused of an offense, the
States through the Due Process Clause, the cases of this Court as
protection of the 4th Amendment, declaring his rights to be secure
we have seen, had steadfastly held that as to federal officers the
against such searches and seizures, is of no value, and, so far as
Fourth Amendment included the exclusion of the evidence seized in
those thus placed are concerned, might as well be stricken from the
violation of its provisions. Even Wolf "stoutly adhered" to that
Constitution. The efforts of the courts and their officials to bring the
proposition. The right to when conceded operatively enforceable
guilty to punishment, praiseworthy as they are, are not to be aided
against the States, was not susceptible of destruction by avulsion of
by the sacrifice of those great principles established by years of
the sanction upon which its protection and enjoyment had always
endeavor and suffering which have resulted in their embodiment in
been deemed dependent under the Boyd, Weeks and Silverthorne
the fundamental law of the land.19
Cases. Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches state or
This view was, not only reiterated, but, also, broadened in subsequent federal it was logically and constitutionally necessarily that the
decisions on the same Federal Court. 20After reviewing previous decisions exclusion doctrine an essential part of the right to privacy be
thereon, said Court held, in Mapp vs. Ohio (supra.): also insisted upon as an essential ingredient of the right newly
recognized by the Wolf Case. In short, the admission of the new

46
constitutional Right by Wolf could not tolerate denial of its most commission of a crime. But, then, this fishing expedition is indicative of the
important constitutional privilege, namely, the exclusion of the absence of evidence to establish a probable cause.
evidence which an accused had been forced to give by reason of the
unlawful seizure. To hold otherwise is to grant the right but in reality Moreover, the theory that the criminal prosecution of those who secure an
to withhold its privilege and enjoyment. Only last year the Court itself illegal search warrant and/or make unreasonable searches or seizures would
recognized that the purpose of the exclusionary rule to "is to deter suffice to protect the constitutional guarantee under consideration, overlooks
to compel respect for the constitutional guaranty in the only the fact that violations thereof are, in general, committed By agents of the
effectively available way by removing the incentive to disregard party in power, for, certainly, those belonging to the minority could not
it" . . . . possibly abuse a power they do not have. Regardless of the handicap under
which the minority usually but, understandably finds itself in
The ignoble shortcut to conviction left open to the State tends to prosecuting agents of the majority, one must not lose sight of the fact that the
destroy the entire system of constitutional restraints on which the psychological and moral effect of the possibility 21 of securing their conviction,
liberties of the people rest. Having once recognized that the right to is watered down by the pardoning power of the party for whose benefit the
privacy embodied in the Fourth Amendment is enforceable against illegality had been committed.
the States, and that the right to be secure against rude invasions of
privacy by state officers is, therefore constitutional in origin, we can In their Motion for Reconsideration and Amendment of the Resolution of this
no longer permit that right to remain an empty promise. Because it is Court dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of
enforceable in the same manner and to like effect as other basic Carmen Apartments, House No. 2008, Dewey Boulevard, House No. 1436,
rights secured by its Due Process Clause, we can no longer permit it Colorado Street, and Room No. 304 of the Army-Navy Club, should be
to be revocable at the whim of any police officer who, in the name of included among the premises considered in said Resolution as residences of
law enforcement itself, chooses to suspend its enjoyment. Our herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and
decision, founded on reason and truth, gives to the individual no Karl Beck, respectively, and that, furthermore, the records, papers and other
more than that which the Constitution guarantees him to the police effects seized in the offices of the corporations above referred to include
officer no less than that to which honest law enforcement is entitled, personal belongings of said petitioners and other effects under their
and, to the courts, that judicial integrity so necessary in the true exclusive possession and control, for the exclusion of which they have a
administration of justice. (emphasis ours.) standing under the latest rulings of the federal courts of federal courts of the
United States. 22
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also,
to the spirit of the constitutional injunction against unreasonable searches We note, however, that petitioners' theory, regarding their alleged possession
and seizures. To be sure, if the applicant for a search warrant has competent of and control over the aforementioned records, papers and effects, and the
evidence to establish probable cause of the commission of a given crime by alleged "personal" nature thereof, has Been Advanced, notin their petition or
the party against whom the warrant is intended, then there is no reason why amended petition herein, but in the Motion for Reconsideration and
the applicant should not comply with the requirements of the fundamental Amendment of the Resolution of June 29, 1962. In other words, said theory
law. Upon the other hand, if he has no such competent evidence, then it would appear to be readjustment of that followed in said petitions, to suit the
is not possible for the Judge to find that there is probable cause, and, hence, approach intimated in the Resolution sought to be reconsidered and
no justification for the issuance of the warrant. The only possible explanation amended. Then, too, some of the affidavits or copies of alleged affidavits
(not justification) for its issuance is the necessity of fishing evidence of the attached to said motion for reconsideration, or submitted in support thereof,

47
contain either inconsistent allegations, or allegations inconsistent with the
theory now advanced by petitioners herein.

Upon the other hand, we are not satisfied that the allegations of said petitions
said motion for reconsideration, and the contents of the aforementioned
affidavits and other papers submitted in support of said motion, have
sufficiently established the facts or conditions contemplated in the cases
relied upon by the petitioners; to warrant application of the views therein
expressed, should we agree thereto. At any rate, we do not deem it
necessary to express our opinion thereon, it being best to leave the matter
open for determination in appropriate cases in the future.

We hold, therefore, that the doctrine adopted in the Moncado case must be,
as it is hereby, abandoned; that the warrants for the search of three (3)
residences of herein petitioners, as specified in the Resolution of June 29,
1962, are null and void; that the searches and seizures therein made are
illegal; that the writ of preliminary injunction heretofore issued, in connection
with the documents, papers and other effects thus seized in said residences
of herein petitioners is hereby made permanent; that the writs prayed for are
granted, insofar as the documents, papers and other effects so seized in the
aforementioned residences are concerned; that the aforementioned motion
for Reconsideration and Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine
(29) places, offices and other premises enumerated in the same Resolution,
without special pronouncement as to costs.

It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ.,
concur.

48
[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E.


SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL
P. VERA, in his capacity as Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ,
MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN
DOE, and JOHN DOE, Respondents.

49
San Juan, Africa, Gonzales & San Agustin, for Petitioners. Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz
requesting the issuance of a search warrant against petitioners for violation
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin of Section 46(a) of the National Internal Revenue Code, in relation to all other
V . Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209,
Maza for Respondents. and authorizing Revenue Examiner Rodolfo de Leon, one of herein
respondents, to make and file the application for search warrant which was
attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon
DECISION and his witness, respondent Arturo Logronio, went to the Court of First
Instance of Rizal. They brought with them the following papers: respondent
Veras aforesaid letter-request; an application for search warrant already
filled up but still unsigned by respondent De Leon; an affidavit of respondent
Logronio subscribed before respondent De Leon; a deposition in printed form
of respondent Logronio already accomplished and signed by him but not yet
VILLAMOR, J.: subscribed; and a search warrant already accomplished but still unsigned by
respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a
note, he instructed his Deputy Clerk of Court to take the depositions of
This is an original action of certiorari, prohibition and mandamus, with prayer respondents De Leon and Logronio. After the session had adjourned,
for a writ of preliminary mandatory and prohibitory injunction. In their petition respondent Judge was informed that the depositions had already been taken.
Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the The stenographer, upon request of respondent Judge, read to him her
laws of the Philippines, and its President, Frederick E. Seggerman, pray this stenographic notes; and thereafter, respondent Judge asked respondent
Court to declare null and void Search Warrant No. 2-M-70 issued by Logronio to take the oath and warned him that if his deposition was found to
respondent Judge on February 25, 1970; to order respondents to desist from be false and without legal basis, he could be charged for perjury. Respondent
enforcing the same and/or keeping the documents, papers and effects seized Judge signed respondent de Leons application for search warrant and
by virtue thereof, as well as from enforcing the tax assessments on petitioner respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign
corporation alleged by petitioners to have been made on the basis of the said by respondent Judge and accordingly issued.
documents, papers and effects, and to order the return of the latter to
petitioners. We gave due course to the petition but did not issue the writ of Three days later, or on February 28, 1970, which was a Saturday, the BIR
preliminary injunction prayed for therein. agents served the search warrant petitioners at the offices of petitioner
corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers protested
The pertinent facts of this case, as gathered from record, are as the search on the ground that no formal complaint or transcript of testimony
follows:chanrob1es virtual 1aw library was attached to the warrant. The agents nevertheless proceeded with their
search which yielded six boxes of documents.
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal

50
On March 3, 1970, petitioners filed a petition with the Court of First Instance "No search warrant shall issue for more than one specific offense.
of Rizal praying that the search warrant be quashed, dissolved or recalled,
that preliminary prohibitory and mandatory writs of injunction be issued, that "SEC. 4. Examination of the applicant. The judge or justice of the peace
the search warrant be declared null and void, and that the respondents be must, before issuing the warrant, personally examine on oath or affirmation
ordered to pay petitioners, jointly and severally, damages and attorneys fees. the complainant and any witnesses he may produce and take their
On March 18, 1970, the respondents, thru the Solicitor General, filed an depositions in writing, and attach them to the record, in addition to any
answer to the petition. After hearing, the court, presided over by respondent affidavits presented to him." (Rule 126, Revised Rules of Court.)
Judge, issued on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on April 16, 1970, the The examination of the complainant and the witnesses he may produce,
Bureau of Internal Revenue made tax assessments on petitioner corporation required by Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4,
in the total sum of P2,594,729.97, partly, if not entirely, based on the Rule 126 of the Revised Rules of Court, should be conducted by the judge
documents thus seized. Petitioners came to this Court. himself and not by others. The phrase "which shall be determined by the
judge after examination under oath or affirmation of the complainant and the
The petition should be granted for the following reasons:chanrob1es virtual witnesses he may produce," appearing in the said constitutional provision,
1aw library was introduced by Delegate Francisco as an amendment to the draft
submitted by the Sub-Committee of Seven. The following discussion in the
1. Respondent Judge failed to personally examine the complainant and his Constitutional Convention (Laurel, Proceedings of the Philippine
witness. Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
The pertinent provisions of the Constitution of the Philippines and of the
Revised Rules of Court are:jgc:chanrobles.com.ph "SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.

"(3) The right of the people to be secure in their persons, houses, papers and En los casos de una necesidad de actuar inmediatamente para que no se
effects against unreasonable searches and seizures shall not be violated, frusten los fines de la justicia mediante el registro inmediato y la incautacion
and no warrants shall issue but upon probable cause, to be determined by del cuerpo del delito, no cree Su Seoria que causaria cierta demora el
the judge after examination under oath or affirmation of the complainant and procedimiento apuntado en su enmienda en tal forma que podria frustrar los
the witnesses he may produce, and particularly describing the place to be fines de la justicia o si Su Seoria encuentra un remedio para esto casos con
searched, and the persons or things to be seized." (Art. III, Sec. 1, el fin de compaginar los fines de la justicia con los derechos del individuo en
Constitution.) su persona, bienes etcetera, etcetera.

"SEC. 3. Requisites for issuing search warrant. A search warrant shall not "SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su
issue but upon probable cause in connection with one specific offense to be Seoria pregunta por la siguiente razon: el que solicita un mandamiento de
determined by the judge or justice of the peace after examination under oath registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa
or affirmation of the complainant and the witnesses he may produce, and del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de
particularly describing the place to be searched and the persons or things to sucuestro. Esa persona que presenta el registro puede ser el mismo
be seized. denunciante o alguna persona que solicita dicho mandamiento de registro.
Ahora toda la enmienda en esos casos consiste en que haya peticion de

51
registro y el juez no se atendra solamente a sea peticion sino que el juez In the case at bar, no personal examination at all was conducted by
examiner a ese denunciante y si tiene testigos tambin examiner a los respondent Judge of the complainant (respondent De Leon) and his witness
testigos. (respondent Logronio). While it is true that the complainants application for
search warrant and the witness printed-form deposition were subscribed and
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese sworn to before respondent Judge, the latter did not ask either of the two any
denunciante por escrito siempre requeriria algun tiempo?. question the answer to which could possibly be the basis for determining
whether or not there was probable cause against herein petitioners. Indeed,
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado the participants seem to have attached so little significance to the matter that
minimizamos en todo lo posible las vejaciones injustas con la expedicion notes of the proceedings before respondent Judge were not even taken. At
arbitraria de los mandamientos de registro. Creo que entre dos males this juncture it may be well to recall the salient facts. The transcript of
debemos escoger. el menor. stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken
at the hearing of this case in the court below shows that per instruction of
x x x respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court,
took the depositions of the complainant and his witness, and that
stenographic notes thereof were taken by Mrs. Gaspar. At that time
respondent Judge was at the sala hearing a case. After respondent Judge
"MR. LAUREL. . . . The reason why we are in favor of this amendment is was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar,
because we are incorporating in our constitution something of a fundamental complainant De Leon and witness Logronio went to respondent Judges
character. Now, before a judge could issue a search warrant, he must be chamber and informed the Judge that they had finished the depositions.
under the obligation to examine personally under oath the complainant and if Respondent Judge then requested the stenographer to read to him her
he has any witness, the witnesses that he may produce . . ."cralaw virtua1aw stenographic notes. Special Deputy Clerk Gonzales testified as
library follows:jgc:chanrobles.com.ph

The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is "A And after finishing reading the stenographic notes, the Honorable Judge
more emphatic and candid, for it requires the judge, before issuing a search requested or instructed them, requested Mr. Logronio to raise his hand and
warrant, to "personally examine on oath or affirmation the complainant and warned him if his deposition will be found to be false and without legal basis,
any witnesses he may produce . . ."cralaw virtua1aw library he can be charged criminally for perjury. The Honorable Court told Mr.
Logronio whether he affirms the facts contained in his deposition and the
Personal examination by the judge of the complainant and his witnesses is affidavit executed before Mr. Rodolfo de Leon.
necessary to enable him to determine the existence or non-existence of a
probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and "Q And thereafter?
Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the
issuance of warrants except "upon probable cause." The determination of "A And thereafter, he signed the deposition of Mr. Logronio.
whether or not a probable cause exists calls for the exercise of judgment
after a judicial appraisal of facts and should not be allowed to be delegated in "Q Who is this he?
the absence of any rule to the contrary.
"A The Honorable Judge.

52
provisions of the Tax Code referred to above. Thus we find the
"Q The deposition or the affidavit? following:chanrob1es virtual 1aw library

"A The affidavit, Your Honor."cralaw virtua1aw library Sec. 46(a) requires the filing of income tax returns by corporations.

Thereafter, respondent Judge signed the search warrant. Sec. 53 requires the withholding of income taxes at source.

The participation of respondent Judge in the proceedings which led to the Sec. 72 imposes surcharges for failure to render income tax returns and for
issuance of Search Warrant No. 2-M-70 was thus limited to listening to the rendering false and fraudulent returns.
stenographers readings of her notes, to a few words of warning against the
commission of perjury, and to administering the oath to the complainant and Sec. 73 provides the penalty for failure to pay the income tax, to make a
his witness. This cannot be consider a personal examination. If there was an return or to supply the information required under the Tax Code.
examination at all of the complainant and his witness, it was the one
conducted by the Deputy Clerk of Court. But, as stated, the Constitution and Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds,
the rules require a personal examination by the judge. It was precisely on or manufactures any article subject to a specific tax, without having paid the
account of the intention of the delegates to the Constitutional Convention to privilege tax therefore, or who aids or abets in the conduct of illicit distilling,
make it a duty of the issuing judge to personally examine the complainant rectifying, compounding, or illicit manufacture of any article subject to specific
and his witnesses that the question of how much time would be consumed by tax . . .," and provides that in the case of a corporation, partnership, or
the judge in examining them came up before the Convention, as can be seen association, the official and/or employee who caused the violation shall be
from the record of the proceedings quoted above. The reading of the responsible.
stenographic notes to respondent Judge did not constitute sufficient
compliance with the constitutional mandate and the rule; for by that manner Sec. 209 penalizes the failure to make a return of receipts, sales, business,
respondent Judge did not have the opportunity to observe the demeanor of or gross value of output removed, or to pay the tax due thereon.
the complainant and his witness, and to propound initial and follow-up
questions which the judicial mind, on account of its training, was in the best The search warrant in question was issued for at least four distinct offenses
position to conceive. These were important in arriving at a sound inference under the Tax Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec.
on the all-important question of whether or not there was probable cause. 73 (the filing of income tax returns), which are interrelated. The second is the
violation of Sec. 53 (withholding of income taxes at source). The third is the
2. The search warrant was issued for more than one specific offense. violation of Sec. 208 (unlawful pursuit of business or occupation); and the
fourth is the violation of Sec. 209 (failure to make a return of receipts, sales,
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the business or gross value of output actually removed or to pay the tax due
National Internal Revenue Code in relation to all other pertinent provisions thereon). Even in their classification the six above-mentioned provisions are
thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II
said search warrant issued "in connection with one specific offense," as (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on
required by Sec. 3, Rule 126? Business and Occupation).

To arrive at the correct answer it is essential to examine closely the Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19,

53
1967 (20 SCRA 383), is not applicable, because there the search warrants In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
were issued for "violation of Central Bank Laws, Internal Revenue (Code) said:jgc:chanrobles.com.ph
and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was
issued for violation of only one code, i.e., the National Internal Revenue "The grave violation of the Constitution made in the application for the
Code. The distinction more apparent than real, because it was precisely on contested search warrants was compounded by the description therein made
account of the Stonehill incident, which occurred sometime before the of the effects to be searched for and seized, to wit:chanrob1es virtual 1aw
present Rules of Court took effect on January 1, 1964, that this Court library
amended the former rule by inserting therein the phrase "in connection with
one specific offense," and adding the sentence "No search warrant shall Books of accounts, financial records, vouchers, journals, correspondence,
issue for more than one specific offense," in what is now Sec. 3, Rule 126. receipts, ledgers, portfolios, credit journals, typewriters, and other documents
Thus we said in Stonehill:jgc:chanrobles.com.ph and/or paper showing all business transactions including disbursement
receipts, balance sheets and related profit and loss statements.
"Such is the seriousness of the irregularities committed in connection with the
disputed search warrants, that this Court deemed it fit to amend Section 3 of "Thus, the warrants authorized the search for and seizure of records
Rule 122 of the former Rules of Court that a search warrant shall not issue pertaining to all business transactions of petitioners herein, regardless of
but upon probable cause in connection with one specific offense. Not whether the transactions were legal or illegal. The warrants sanctioned the
satisfied with this qualification, the Court added thereto a paragraph, seizure of all records of the petitioners and the aforementioned corporations,
directing that no search warrant shall issue for more than one specific whatever their nature, thus openly contravening the explicit command of our
offense." Bill of Rights that the things to be seized be particularly described as
well as tending to defeat its major objective: the elimination of general
3. The search warrant does not particularly describe the things to be seized. warrants."cralaw virtua1aw library

The documents, papers and effects sought to be seized are described in While the term "all business transactions" does not appear in Search Warrant
Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph No. 2-M-70, the said warrant nevertheless tends to defeat the major objective
of the Bill of Rights, i.e., the elimination of general warrants, for the language
"Unregistered and private books of accounts (ledgers, journals, columnars, used therein is so all-embracing as to include all conceivable records of
receipts and disbursements books, customers ledgers); receipts for petitioner corporation, which, if seized, could possibly render its business
payments received; certificates of stocks and securities; contracts, inoperative.
promissory notes and deeds of sale; telex and coded messages; business
communications, accounting and business records; checks and check stubs; In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had
records of bank deposits and withdrawals; and records of foreign occasion to explain the purpose of the requirement that the warrant should
remittances, covering the years 1966 to 1970."cralaw virtua1aw library particularly describe the place to be searched and the things to be seized, to
wit:jgc:chanrobles.com.ph
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the ". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
warrant should particularly describe the things to be seized. specifically require that a search warrant should particularly describe the
place to be searched and the things to be seized. The evident purpose and

54
intent of this requirement is to limit the things to be seized to those, and only place, the rule requiring the filing of a motion for reconsideration before an
those, particularly described in the search warrant to leave the officers of application for a writ of certiorari can be entertained was never intended to be
the law with no discretion regarding what articles they shall seize, to the end applied without considering the circumstances. (Matutina v. Buslon, Et Al.,
that unreasonable searches and seizures may not be made, that abuses 109 Phil., 140.) In the case at bar time is of the essence in view of the tax
may not be committed. That this is the correct interpretation of this assessments sought to be enforced by respondent officers of the Bureau of
constitutional provision is borne out by American authorities."cralaw Internal Revenue against petitioner corporation, On account of which
virtua1aw library immediate and more direct action becomes necessary. (Matute v. Court of
Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in
The purpose as thus explained could, surely and effectively, be defeated this case, the deprivation of petitioners fundamental right to due process
under the search warrant issued in this case. taints the proceeding against them in the court below not only with irregularity
but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)
A search warrant may be said to particularly describe the things to be seized
when the description therein is as specific as the circumstances will ordinarily It is next contended by respondents that a corporation is not entitled to
allow (People v. Rubio; 57 Phil. 384); or when the description expresses a protection against unreasonable search and seizures. Again, we find no merit
conclusion of fact not of law by which the warrant officer may be guided in the contention.
in making the search and seizure (idem., dissent of Abad Santos, J.,); or
when the things described are limited to those which bear direct relation to "Although, for the reasons above stated, we are of the opinion that an officer
the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised of a corporation which is charged with a violation of a statute of the state of
Rules of Court). The herein search warrant does not conform to any of the its creation, or of an act of Congress passed in the exercise of its
foregoing tests. If the articles desired to be seized have any direct relation to constitutional powers, cannot refuse to produce the books and papers of
an offense committed, the applicant must necessarily have some evidence, such corporation, we do not wish to be understood as holding that a
other than those articles, to prove the said offense; and the articles subject of corporation is not entitled to immunity, under the 4th Amendment, against
search and seizure should come in handy merely to strengthen such unreasonable searches and seizures. A corporation is, after all, but an
evidence. In this event, the description contained in the herein disputed association of individuals under an assumed name and with a distinct legal
warrant should have mentioned, at least, the dates, amounts, persons, and entity. In organizing itself as a collective body it waives no constitutional
other pertinent data regarding the receipts of payments, certificates of stocks immunities appropriate to such body. Its property cannot be taken without
and securities, contracts, promissory notes, deeds of sale, messages and compensation. It can only be proceeded against by due process of law, and
communications, checks, bank deposits and withdrawals, records of foreign is protected, under the 14th Amendment, against unlawful discrimination . . ."
remittances, among others, enumerated in the warrant. (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

Respondents contend that certiorari does not lie because petitioners failed to "In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought
file a motion for reconsideration of respondent Judges order of July 29, that a different rule applied to a corporation, the ground that it was not
1970. The contention is without merit. In the first place, when the questions privileged from producing its books and papers. But the rights of a
raised before this Court are the same as those which were squarely raised in corporation against unlawful search and seizure are to be protected even if
and passed upon by the court below, the filing of a motion for reconsideration the same result might have been achieved in a lawful way." (Silverthorne
in said court before certiorari can be instituted in this Court is no longer a Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed.
prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second 319.)

55
PREMISES CONSIDERED, the petition is granted. Accordingly, Search
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized Warrant No. 2-M-70 issued by respondent Judge is declared null and void;
the right of a corporation to object against unreasonable searches and respondents are permanently enjoined from enforcing the said search
seizures, thus:jgc:chanrobles.com.ph warrant; the documents, papers and effects seized thereunder are ordered to
be returned to petitioners; and respondent officials the Bureau of Internal
"As regards the first group, we hold that petitioners herein have no cause of Revenue and their representatives are permanently enjoined from enforcing
action to assail the legality of the contested warrants and of the seizures the assessments mentioned in Annex "G" of the present petition, as well as
made in pursuance thereof, for the simple reason that said corporations have other assessments based on the documents, papers and effects seized
their respective personalities, separate and distinct from the personality of under the search warrant herein nullified, and from using the same against
herein petitioners, regardless of the amount of shares of stock or the interest petitioners in any criminal or other proceeding. No pronouncement as to
of each of them in said corporations, whatever, the offices they hold therein costs.
may be. Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby, and Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and
that the objection to an unlawful search and seizure is purely personal and Makasiar, JJ., concur.
cannot be availed of by third parties. Consequently, petitioners herein may
not validly object to the use in evidence against them of the documents, Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
papers and things seized from the offices and premises of the corporations
adverted to above, since the right to object to the admission of said papers in Castro, J., concurs in the result.
evidence belongs exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity . . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose
offices documents, papers and effects were searched and seized were the
petitioners. In the case at bar, the corporation to whom the seized documents
belong, and whose rights have thereby been impaired, is itself a petitioner.
On that score, petitioner corporation here stands on a different footing from
the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely
as claimed by petitioners at least partly as in effect admitted by
respondents based on the documents seized by virtue of Search Warrant
No. 2-M-70. Furthermore, the fact that the assessments were made some
one and one-half months after the search and seizure on February 25, 1970,
is a strong indication that the documents thus seized served as basis for the
assessments. Those assessments should therefore not be enforced.

56
57
G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,


vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN
JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA,
COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO,
et al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private


corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1)
Executive Orders Numbered 1 and 2, promulgated by President Corazon C.
Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the
sequestration, takeover, and other orders issued, and acts done, in

58
accordance with said executive orders by the Presidential Commission on 8. Bay Transport
Good Government and/or its Commissioners and agents, affecting said
corporation. 9. And all affiliate companies of Alfredo
"Bejo" Romualdez
1. The Sequestration, Takeover, and Other Orders Complained of
You are hereby ordered:
a. The Basic Sequestration Order
1. To implement this sequestration order with a minimum
The sequestration order which, in the view of the petitioner corporation, disruption of these companies' business activities.
initiated all its misery was issued on April 14, 1986 by Commissioner Mary
Concepcion Bautista. It was addressed to three of the agents of the 2. To ensure the continuity of these companies as going
Commission, hereafter simply referred to as PCGG. It reads as follows: concerns, the care and maintenance of these assets until
such time that the Office of the President through the
RE: SEQUESTRATION ORDER Commission on Good Government should decide otherwise.

By virtue of the powers vested in the Presidential 3. To report to the Commission on Good Government
Commission on Good Government, by authority of the periodically.
President of the Philippines, you are hereby directed to
sequester the following companies. Further, you are authorized to request for Military/Security
Support from the Military/Police authorities, and such other
1. Bataan Shipyard and Engineering Co., acts essential to the achievement of this sequestration
Inc. (Engineering Island Shipyard and order. 1
Mariveles Shipyard)
b. Order for Production of Documents
2. Baseco Quarry
On the strength of the above sequestration order, Mr. Jose M. Balde, acting
3. Philippine Jai-Alai Corporation for the PCGG, addressed a letter dated April 18, 1986 to the President and
other officers of petitioner firm, reiterating an earlier request for the
4. Fidelity Management Co., Inc. production of certain documents, to wit:

5. Romson Realty, Inc. 1. Stock Transfer Book

6. Trident Management Co. 2. Legal documents, such as:

7. New Trident Management 2.1. Articles of Incorporation

59
2.2. By-Laws 9. Complete list of depository banks for all funds with the
authorized signatories for withdrawals thereof.
2.3. Minutes of the Annual Stockholders
2
Meeting from 1973 to 1986 10. Schedule of company investments and placements.

2.4. Minutes of the Regular and Special The letter closed with the warning that if the documents were not submitted
Meetings of the Board of Directors from within five days, the officers would be cited for "contempt in pursuance with
1973 to 1986 Presidential Executive Order Nos. 1 and 2."

2.5. Minutes of the Executive Committee c. Orders Re Engineer Island


Meetings from 1973 to 1986
(1) Termination of Contract for Security
2.6. Existing contracts with Services
suppliers/contractors/others.
A third order assailed by petitioner corporation, hereafter referred to simply
3. Yearly list of stockholders with their corresponding as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala,
share/stockholdings from 1973 to 1986 duly certified by the a member of the task force assigned to carry out the basic sequestration
Corporate Secretary. order. He sent a letter to BASECO's Vice-President for Finance, 3 terminating
the contract for security services within the Engineer Island compound
4. Audited Financial Statements such as Balance Sheet, between BASECO and "Anchor and FAIRWAYS" and "other civilian security
Profit & Loss and others from 1973 to December 31, 1985. agencies," CAPCOM military personnel having already been assigned to the
area,
5. Monthly Financial Statements for the current year up to
March 31, 1986. (2) Change of Mode of Payment of Entry
Charges
6. Consolidated Cash Position Reports from January to April
15, 1986. On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed
to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla
7. Inventory listings of assets up dated up to March 31, National Marine Corporation," advising of the amendment in part of their
1986. contracts with BASECO in the sense that the stipulated charges for use of
the BASECO road network were made payable "upon entry and not anymore
subject to monthly billing as was originally agreed upon." 4
8. Updated schedule of Accounts Receivable and Accounts
Payable.
d. Aborted Contract for Improvement of Wharf at Engineer
Island

60
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract subject to specified guidelines and safeguards including audit and
in behalf of BASECO with Deltamarine Integrated Port Services, Inc., in verification. 8
virtue of which the latter undertook to introduce improvements costing
approximately P210,000.00 on the BASECO wharf at Engineer Island, g. The TAKEOVER Order
allegedly then in poor condition, avowedly to "optimize its utilization and in
return maximize the revenue which would flow into the government coffers," By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the
in consideration of Deltamarine's being granted "priority in using the provisional takeover by the PCGG of BASECO, "the Philippine Dockyard
improved portion of the wharf ahead of anybody" and exemption "from the Corporation and all their affiliated companies." 9 Diaz invoked the provisions
payment of any charges for the use of wharf including the area where it may of Section 3 (c) of Executive Order No. 1, empowering the Commission
install its bagging equipments" "until the improvement remains in a condition
suitable for port operations." 5 It seems however that this contract was never
* * To provisionally takeover in the public interest or to
consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO
prevent its disposal or dissipation, business enterprises and
Management Team," advised Deltamarine by letter dated July 30, 1986 that
properties taken over by the government of the Marcos
"the new management is not in a position to honor the said contract" and
Administration or by entities or persons close to former
thus "whatever improvements * * (may be introduced) shall be deemed
President Marcos, until the transactions leading to such
unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
acquisition by the latter can be disposed of by the
appropriate authorities.
e. Order for Operation of Sesiman Rock Quarry, Mariveles,
Bataan
A management team was designated to implement the order, headed by
Capt. Siacunco, and was given the following powers:
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a
PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement
1. Conducts all aspects of operation of the subject
progress towards maximizing the continuous operation of the BASECO
companies;
Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an 2. Installs key officers, hires and terminates personnel as
agreement to this effect having been executed by them on September 17, necessary;
1986. 7
3. Enters into contracts related to management and
f. Order to Dispose of Scrap, etc. operation of the companies;

By another Order of Commissioner Bautista, this time dated June 26, 1986, 4. Ensures that the assets of the companies are not
Mayor Buenaventura was also "authorized to clean and beautify the dissipated and used effectively and efficiently; revenues are
Company's compound," and in this connection, to dispose of or sell "metal duly accounted for; and disburses funds only as may be
scraps" and other materials, equipment and machineries no longer usable, necessary;

61
5. Does actions including among others, seeking of military the same ruler opted to promulgate the Freedom Constitution on March 25,
support as may be necessary, that will ensure compliance to 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the
this order; 1973 Constitution was adopted providing, among others, that "No person
shall be deprived of life, liberty and property without due process of law."
6. Holds itself fully accountable to the Presidential (Const., Art. I V, Sec. 1)." 12
Commission on Good Government on all aspects related to
this take-over order. It declares that its objection to the constitutionality of the Executive Orders
"as well as the Sequestration Order * * and Takeover Order * * issued
h. Termination of Services of BASECO purportedly under the authority of said Executive Orders, rests on four
Officers fundamental considerations: First, no notice and hearing was accorded * * (it)
before its properties and business were taken over; Second, the PCGG is not
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. a court, but a purely investigative agency and therefore not competent to act
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, as prosecutor and judge in the same cause; Third, there is nothing in the
advising of the termination of their services by the PCGG. 10 issuances which envisions any proceeding, process or remedy by which
petitioner may expeditiously challenge the validity of the takeover after the
same has been effected; and Fourthly, being directed against specified
2. Petitioner's Plea and Postulates
persons, and in disregard of the constitutional presumption of innocence and
general rules and procedures, they constitute a Bill of Attainder." 13
It is the foregoing specific orders and acts of the PCGG and its members and
agents which, to repeat, petitioner BASECO would have this Court nullify.
b. Re Order to Produce Documents
More particularly, BASECO prays that this Court-

It argues that the order to produce corporate records from 1973 to 1986,
1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
which it has apparently already complied with, was issued without court
authority and infringed its constitutional right against self-incrimination, and
2) annul the sequestration order dated April- 14, 1986, and all other orders unreasonable search and seizure. 14
subsequently issued and acts done on the basis thereof, inclusive of the
takeover order of July 14, 1986 and the termination of the services of the
c. Re PCGG's Exercise of Right of Ownership and
BASECO executives. 11
Management

a. Re Executive Orders No. 1 and 2, and the Sequestration


BASECO further contends that the PCGG had unduly interfered with its right
and Takeover Orders
of dominion and management of its business affairs by

While BASECO concedes that "sequestration without resorting to judicial


1) terminating its contract for security services with Fairways & Anchor,
action, might be made within the context of Executive Orders Nos. 1 and 2
without the consent and against the will of the contracting parties; and
before March 25, 1986 when the Freedom Constitution was promulgated,
amending the mode of payment of entry fees stipulated in its Lease Contract
under the principle that the law promulgated by the ruler under a
revolutionary regime is the law of the land, it ceased to be acceptable when

62
with National Stevedoring & Lighterage Corporation, these acts being in governing these remedies. It is needful that these misconceptions and
violation of the non-impairment clause of the constitution; 15 doubts be dispelled so that uninformed and useless debates about them may
be avoided, and arguments tainted b sophistry or intellectual dishonesty be
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous quickly exposed and discarded. Towards this end, this opinion will essay an
contract" with Deltamarine Integrated Port Services, Inc., giving the latter free exposition of the law on the matter. In the process many of the objections
use of BASECO premises; 16 raised by BASECO will be dealt with.

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and 4. The Governing Law
operate its rock quarry at Sesiman, Mariveles; 17
a. Proclamation No. 3
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18 The impugned executive orders are avowedly meant to carry out the explicit
command of the Provisional Constitution, ordained by Proclamation No.
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, 3, 23 that the President-in the exercise of legislative power which she was
and all their affiliated companies; authorized to continue to wield "(until a legislature is elected and convened
under a new Constitution" "shall give priority to measures to achieve the
6) terminating the services of BASECO executives: President Hilario M. Ruiz; mandate of the people," among others to (r)ecover ill-gotten properties
EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto amassed by the leaders and supporters of the previous regime and protect
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 the interest of the people through orders of sequestration or freezing of
assets or accounts." 24
20
7) planning to elect its own Board of Directors;
b. Executive Order No. 1
8) allowing willingly or unwillingly its personnel to take, steal, carry away from
petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten
on May 11, 1986; 21 wealth," and postulates that "vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad." 25 Upon these
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars
premises, the Presidential Commission on Good Government was
supposed to have been buried therein. 22
created, 26 "charged with the task of assisting the President in regard to
(certain specified) matters," among which was precisely-
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover
Orders
* * The recovery of all in-gotten wealth accumulated by
former President Ferdinand E. Marcos, his immediate family,
Many misconceptions and much doubt about the matter of sequestration, relatives, subordinates and close associates, whether
takeover and freeze orders have been engendered by misapprehension, or located in the Philippines or abroad, including the takeover
incomplete comprehension if not indeed downright ignorance of the law or sequestration of all business enterprises and entities

63
owned or controlled by them, during his administration, regulations as may be necessary to carry out the purposes of * * (its
directly or through nominees, by taking undue advantage of creation). 30
their public office and/or using their powers, authority,
influence, connections or relationship. 27 c. Executive Order No. 2

In relation to the takeover or sequestration that it was authorized to Executive Order No. 2 gives additional and more specific data and directions
undertake in the fulfillment of its mission, the PCGG was granted "power and respecting "the recovery of ill-gotten properties amassed by the leaders and
authority" to do the following particular acts, to wit: supporters of the previous regime." It declares that:

1. To sequester or place or cause to be placed under its 1) * * the Government of the Philippines is in possession of
control or possession any building or office wherein any ill- evidence showing that there are assets and properties
gotten wealth or properties may be found, and any records purportedly pertaining to former Ferdinand E. Marcos, and/or
pertaining thereto, in order to prevent their destruction, his wife Mrs. Imelda Romualdez Marcos, their close
concealment or disappearance which would frustrate or relatives, subordinates, business associates, dummies,
hamper the investigation or otherwise prevent the agents or nominees which had been or were acquired by
Commission from accomplishing its task. them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the
2. To provisionally take over in the public interest or to government of the Philippines or any of its branches,
prevent the disposal or dissipation, business enterprises and instrumentalities, enterprises, banks or financial institutions,
properties taken over by the government of the Marcos or by taking undue advantage of their office, authority,
Administration or by entities or persons close to former influence, connections or relationship, resulting in their
President Marcos, until the transactions leading to such unjust enrichment and causing grave damage and prejudice
acquisition by the latter can be disposed of by the to the Filipino people and the Republic of the Philippines:"
appropriate authorities. and

3. To enjoin or restrain any actual or threatened commission 2) * * said assets and properties are in the form of bank
of acts by any person or entity that may render moot and accounts, deposits, trust accounts, shares of stocks,
academic, or frustrate or otherwise make ineffectual the buildings, shopping centers, condominiums, mansions,
efforts of the Commission to carry out its task under this residences, estates, and other kinds of real and personal
order. 28 properties in the Philippines and in various countries of the
world." 31
So that it might ascertain the facts germane to its objectives, it was granted
power to conduct investigations; require submission of evidence by Upon these premises, the President-
subpoenae ad testificandum and duces tecum; administer oaths; punish for
contempt. 29 It was given power also to promulgate such rules and 1) froze "all assets and properties in the Philippines in which
former President Marcos and/or his wife, Mrs. Imelda

64
Romualdez Marcos, their close relatives, subordinates, A third executive order is relevant: Executive Order No. 14, 33 by which the
business associates, dummies, agents, or nominees have PCGG is empowered, "with the assistance of the Office of the Solicitor
any interest or participation; General and other government agencies, * * to file and prosecute all cases
investigated by it * * as may be warranted by its findings." 34 All such cases,
2) prohibited former President Ferdinand Marcos and/or his whether civil or criminal, are to be filed "with the Sandiganbayanwhich shall
wife * *, their close relatives, subordinates, business have exclusive and original jurisdiction thereof." 35 Executive Order No. 14
associates, duties, agents, or nominees from transferring, also pertinently provides that civil suits for restitution, reparation of damages,
conveying, encumbering, concealing or dissipating said or indemnification for consequential damages, forfeiture proceedings
assets or properties in the Philippines and abroad, pending provided for under Republic Act No. 1379, or any other civil actions under the
the outcome of appropriate proceedings in the Philippines to Civil Code or other existing laws, in connection with * * (said Executive
determine whether any such assets or properties were Orders Numbered 1 and 2) may be filed separately from and proceed
acquired by them through or as a result of improper or illegal independently of any criminal proceedings and may be proved by a
use of or the conversion of funds belonging to the preponderance of evidence;" and that, moreover, the "technical rules of
Government of the Philippines or any of its branches, procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
instrumentalities, enterprises, banks or financial institutions,
or by taking undue advantage of their official position, 5. Contemplated Situations
authority, relationship, connection or influence to unjustly
enrich themselves at the expense and to the grave damage The situations envisaged and sought to be governed are self-evident, these
and prejudice of the Filipino people and the Republic of the being:
Philippines;
1) that "(i)ll-gotten properties (were) amassed by the leaders
3) prohibited "any person from transferring, conveying, and supporters of the previous regime"; 37
encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in their a) more particularly, that ill-gotten wealth (was) accumulated
transfer, encumbrance, concealment or dissipation under by former President Ferdinand E. Marcos, his immediate
pain of such penalties as are prescribed by law;" and family, relatives, subordinates and close associates, * *
located in the Philippines or abroad, * * (and) business
4) required "all persons in the Philippines holding such enterprises and entities (came to be) owned or controlled by
assets or properties, whether located in the Philippines or them, during * * (the Marcos) administration, directly or
abroad, in their names as nominees, agents or trustees, to through nominees, by taking undue advantage of their public
make full disclosure of the same to the Commission on Good office and/or using their powers, authority, influence,
Government within thirty (30) days from publication of * (the) Connections or relationship; 38
Executive Order, * *. 32
b) otherwise stated, that "there are assets and properties
d. Executive Order No. 14 purportedly pertaining to former President Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos,

65
their close relatives, subordinates, business associates, property and free enterprise which are deemed pillars of a free society such
dummies, agents or nominees which had been or were as ours, and to which all members of that society may without exception lay
acquired by them directly or indirectly, through or as a result claim.
of the improper or illegal use of funds or properties owned by
the Government of the Philippines or any of its branches, * * Democracy, as a way of life enshrined in the Constitution,
instrumentalities, enterprises, banks or financial institutions, embraces as its necessary components freedom of
or by taking undue advantage of their office, authority, conscience, freedom of expression, and freedom in the
influence, connections or relationship, resulting in their pursuit of happiness. Along with these freedoms are
unjust enrichment and causing grave damage and prejudice included economic freedom and freedom of enterprise within
to the Filipino people and the Republic of the Philippines"; 39 reasonable bounds and under proper control. * * Evincing
much concern for the protection of property, the Constitution
c) that "said assets and properties are in the form of bank distinctly recognizes the preferred position which real estate
accounts. deposits, trust. accounts, shares of stocks, has occupied in law for ages. Property is bound up with
buildings, shopping centers, condominiums, mansions, every aspect of social life in a democracy as democracy is
residences, estates, and other kinds of real and personal conceived in the Constitution. The Constitution realizes the
properties in the Philippines and in various countries of the indispensable role which property, owned in reasonable
world;" 40 and quantities and used legitimately, plays in the stimulation to
economic effort and the formation and growth of a solid
2) that certain "business enterprises and properties (were) social middle class that is said to be the bulwark of
taken over by the government of the Marcos Administration democracy and the backbone of every progressive and
or by entities or persons close to former President Marcos. 41 happy country. 42

6. Government's Right and Duty to Recover All Ill-gotten Wealth a. Need of Evidentiary Substantiation in Proper Suit

There can be no debate about the validity and eminent propriety of the Consequently, the factual premises of the Executive Orders cannot simply be
Government's plan "to recover all ill-gotten wealth." assumed. They will have to be duly established by adequate proof in each
case, in a proper judicial proceeding, so that the recovery of the ill-gotten
Neither can there be any debate about the proposition that assuming the wealth may be validly and properly adjudged and consummated; although
above described factual premises of the Executive Orders and Proclamation there are some who maintain that the fact-that an immense fortune, and "vast
No. 3 to be true, to be demonstrable by competent evidence, the recovery resources of the government have been amassed by former President
from Marcos, his family and his dominions of the assets and properties Ferdinand E. Marcos, his immediate family, relatives, and close associates
involved, is not only a right but a duty on the part of Government. both here and abroad," and they have resorted to all sorts of clever schemes
and manipulations to disguise and hide their illicit acquisitions-is within the
realm of judicial notice, being of so extensive notoriety as to dispense with
But however plain and valid that right and duty may be, still a balance must
proof thereof, Be this as it may, the requirement of evidentiary substantiation
be sought with the equally compelling necessity that a proper respect be
has been expressly acknowledged, and the procedure to be followed
accorded and adequate protection assured, the fundamental rights of private
explicitly laid down, in Executive Order No. 14.

66
b. Need of Provisional Measures to Collect and Conserve unjust enrichment of the ostensible owner and grave damage and prejudice
Assets Pending Suits to the State. 44 And this, too, is the sense in which the term is commonly
understood in other jurisdictions. 45
Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there b. "Freeze Order"
is an obvious and imperative need for preliminary, provisional measures to
prevent the concealment, disappearance, destruction, dissipation, or loss of A "freeze order" prohibits the person having possession or control of property
the assets and properties subject of the suits, or to restrain or foil acts that alleged to constitute "ill-gotten wealth" "from transferring, conveying,
may render moot and academic, or effectively hamper, delay, or negate encumbering or otherwise depleting or concealing such property, or from
efforts to recover the same. assisting or taking part in its transfer, encumbrance, concealment, or
dissipation." 46 In other words, it commands the possessor to hold the
7. Provisional Remedies Prescribed by Law property and conserve it subject to the orders and disposition of the authority
decreeing such freezing. In this sense, it is akin to a garnishment by which
To answer this need, the law has prescribed three (3) provisional remedies. the possessor or ostensible owner of property is enjoined not to deliver,
These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. transfer, or otherwise dispose of any effects or credits in his possession or
control, and thus becomes in a sense an involuntary depositary thereof. 47
Sequestration and freezing are remedies applicable generally to unearthed
instances of "ill-gotten wealth." The remedy of "provisional takeover" is c. Provisional Takeover
peculiar to cases where "business enterprises and properties (were) taken
over by the government of the Marcos Administration or by entities or In providing for the remedy of "provisional takeover," the law acknowledges
persons close to former President Marcos." 43 the apparent distinction between "ill gotten" "business enterprises and
entities" (going concerns, businesses in actual operation), generally, as to
a. Sequestration which the remedy of sequestration applies, it being necessarily inferred that
the remedy entails no interference, or the least possible interference with the
By the clear terms of the law, the power of the PCGG to sequester actual management and operations thereof; and "business enterprises which
property claimed to be "ill-gotten" means to place or cause to be placed were taken over by the government government of the Marcos
under its possession or control said property, or any building or office wherein Administration or by entities or persons close to him," in particular, as to
any such property and any records pertaining thereto may be found, which a "provisional takeover" is authorized, "in the public interest or to
including "business enterprises and entities,"-for the purpose of preventing prevent disposal or dissipation of the enterprises." 48 Such a "provisional
the destruction, concealment or dissipation of, and otherwise conserving and takeover" imports something more than sequestration or freezing, more than
preserving, the same-until it can be determined, through appropriate judicial the placing of the business under physical possession and control, albeit
proceedings, whether the property was in truth will- gotten," i.e., acquired without or with the least possible interference with the management and
through or as a result of improper or illegal use of or the conversion of funds carrying on of the business itself. In a "provisional takeover," what is taken
belonging to the Government or any of its branches, instrumentalities, into custody is not only the physical assets of the business enterprise or
enterprises, banks or financial institutions, or by taking undue advantage of entity, but the business operation as well. It is in fine the assumption of
official position, authority relationship, connection or influence, resulting in control not only over things, but over operations or on- going activities. But,

67
to repeat, such a "provisional takeover" is allowed only as regards "business There is thus no cause for the apprehension voiced by BASECO 50 that
enterprises * * taken over by the government of the Marcos Administration or sequestration, freezing or provisional takeover is designed to be an end in
by entities or persons close to former President Marcos." itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a
d. No Divestment of Title Over Property Seized permanent, rather than a passing, transitional state of affairs. That this is not
so is quite explicitly declared by the governing rules.
It may perhaps be well at this point to stress once again the provisional,
contingent character of the remedies just described. Indeed the law plainly Be this as it may, the 1987 Constitution should allay any lingering fears about
qualifies the remedy of take-over by the adjective, "provisional." These the duration of these provisional remedies. Section 26 of its Transitory
remedies may be resorted to only for a particular exigency: to prevent in the Provisions, 51 lays down the relevant rule in plain terms, apart from extending
public interest the disappearance or dissipation of property or business, and ratification or confirmation (although not really necessary) to the institution by
conserve it pending adjudgment in appropriate proceedings of the primary presidential fiat of the remedy of sequestration and freeze orders:
issue of whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the SEC. 26. The authority to issue sequestration or freeze
remedies is meant to deprive the owner or possessor of his title or any right orders under Proclamation No. 3 dated March 25, 1986 in
to the property sequestered, frozen or taken over and vest it in the relation to the recovery of ill-gotten wealth shag remain
sequestering agency, the Government or other person. This can be done operative for not more than eighteen months after the
only for the causes and by the processes laid down by law. ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may
That this is the sense in which the power to sequester, freeze or provisionally extend said period.
take over is to be understood and exercised, the language of the executive
orders in question leaves no doubt. Executive Order No. 1 declares that the A sequestration or freeze order shall be issued only upon
sequestration of property the acquisition of which is suspect shall last "until showing of a prima facie case. The order and the list of the
the transactions leading to such acquisition * * can be disposed of by the sequestered or frozen properties shall forthwith be registered
appropriate authorities." 49 Executive Order No. 2 declares that the assets or with the proper court. For orders issued before the
properties therein mentioned shall remain frozen "pending the outcome of ratification of this Constitution, the corresponding judicial
appropriate proceedings in the Philippines to determine whether any such action or proceeding shall be filed within six months from its
assets or properties were acquired" by illegal means. Executive Order No. 14 ratification. For those issued after such ratification, the
makes clear that judicial proceedings are essential for the resolution of the judicial action or proceeding shall be commenced within six
basic issue of whether or not particular assets are "ill-gotten," and resultant months from the issuance thereof.
recovery thereof by the Government is warranted.
The sequestration or freeze order is deemed automatically
e. State of Seizure Not To Be Indefinitely Maintained; The lifted if no judicial action or proceeding is commenced as
Constitutional Command herein provided. 52

f. Kinship to Attachment Receivership

68
As thus described, sequestration, freezing and provisional takeover are akin takeover, given its fundamental character of temporariness or conditionality;
to the provisional remedy of preliminary attachment, or receivership. 53 By and taking account specially of the constitutionally expressed "mandate of
attachment, a sheriff seizes property of a defendant in a civil suit so that it the people to recover ill-gotten properties amassed by the leaders and
may stand as security for the satisfaction of any judgment that may be supporters of the previous regime and protect the interest of the
obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, people;" 59 as well as the obvious need to avoid alerting suspected
pending the action. 54 By receivership, property, real or personal, which is possessors of "ill-gotten wealth" and thereby cause that disappearance or
subject of litigation, is placed in the possession and control of a receiver loss of property precisely sought to be prevented, and the fact, just as self-
appointed by the Court, who shall conserve it pending final determination of evident, that "any transfer, disposition, concealment or disappearance of said
the title or right of possession over it. 55 All these remedies sequestration, assets and properties would frustrate, obstruct or hamper the efforts of the
freezing, provisional, takeover, attachment and receivership are Government" at the just recovery thereof. 60
provisional, temporary, designed for-particular exigencies, attended by no
character of permanency or finality, and always subject to the control of the 8. Requisites for Validity
issuing court or agency.
What is indispensable is that, again as in the case of attachment and
g. Remedies, Non-Judicial receivership, there exist a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and adequate and fair opportunity to
Parenthetically, that writs of sequestration or freeze or takeover orders are contest it and endeavor to cause its negation or nullification. 61
not issued by a court is of no moment. The Solicitor General draws attention
to the writ of distraint and levy which since 1936 the Commissioner of Both are assured under the executive orders in question and the rules and
Internal Revenue has been by law authorized to issue against property of a regulations promulgated by the PCGG.
delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a
rigid insistence on sequestration as a purely judicial remedy * * (as it feels) a. Prima Facie Evidence as Basis for Orders
that the law should not be ossified to a point that makes it insensitive to
change." What it insists on, what it pronounces to be its "unyielding position,
Executive Order No. 14 enjoins that there be "due regard to the requirements
is that any change in procedure, or the institution of a new one, should
of fairness and due process." 62Executive Order No. 2 declares that with
conform to due process and the other prescriptions of the Bill of Rights of the
respect to claims on allegedly "ill-gotten" assets and properties, "it is the
Constitution." 57 It is, to be sure, a proposition on which there can be no
position of the new democratic government that President Marcos * * (and
disagreement.
other parties affected) be afforded fair opportunity to contest these claims
before appropriate Philippine authorities." 63 Section 7 of the Commission's
h. Orders May Issue Ex Parte Rules and Regulations provides that sequestration or freeze (and takeover)
orders issue upon the authority of at least two commissioners, based on
Like the remedy of preliminary attachment and receivership, as well as the affirmation or complaint of an interested party, or motu proprio when the
delivery of personal property in replevinsuits, sequestration and provisional Commission has reasonable grounds to believe that the issuance thereof is
takeover writs may issue ex parte. 58 And as in preliminary attachment, warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of
receivership, and delivery of personality, no objection of any significance may the 1987 Constitution, which requires that a "sequestration or freeze order
be raised to the ex parte issuance of an order of sequestration, freezing or shall be issued only upon showing of a prima facie case." 65

69
b. Opportunity to Contest approbation and sanction. As already mentioned, the Provisional or
"Freedom" Constitution recognizes the power and duty of the President to
And Sections 5 and 6 of the same Rules and Regulations lay down the enact "measures to achieve the mandate of the people to * * * (recover ill-
procedure by which a party may seek to set aside a writ of sequestration or gotten properties amassed by the leaders and supporters of the previous
freeze order, viz: regime and protect the interest of the people through orders of sequestration
or freezing of assets or accounts." And as also already adverted to, Section
SECTION 5. Who may contend.-The person against whom a 26, Article XVIII of the 1987 Constitution 67 treats of, and ratifies the "authority
writ of sequestration or freeze or hold order is directed may to issue sequestration or freeze orders under Proclamation No. 3 dated
request the lifting thereof in writing, either personally or March 25, 1986."
through counsel within five (5) days from receipt of the writ
or order, or in the case of a hold order, from date of The institution of these provisional remedies is also premised upon the
knowledge thereof. State's inherent police power, regarded, as t lie power of promoting the public
welfare by restraining and regulating the use of liberty and property," 68 and
SECTION 6. Procedure for review of writ or order.-After due as "the most essential, insistent and illimitable of powers * * in the promotion
hearing or motu proprio for good cause shown, the of general welfare and the public interest," 69and said to be co-extensive with
Commission may lift the writ or order unconditionally or self-protection and * * not inaptly termed (also) the'law of overruling
subject to such conditions as it may deem necessary, taking necessity." " 70
into consideration the evidence and the circumstance of the
case. The resolution of the commission may be appealed by 10. PCGG not a "Judge"; General Functions
the party concerned to the Office of the President of the
Philippines within fifteen (15) days from receipt thereof. It should also by now be reasonably evident from what has thus far been said
that the PCGG is not, and was never intended to act as, a judge. Its general
Parenthetically, even if the requirement for a prima facie showing of "ill- function is to conduct investigations in order to collect evidenceestablishing
gotten wealth" were not expressly imposed by some rule or regulation as a instances of "ill-gotten wealth;" issue sequestration, and such orders as may
condition to warrant the sequestration or freezing of property contemplated in be warranted by the evidence thus collected and as may be necessary to
the executive orders in question, it would nevertheless be exigible in this preserve and conserve the assets of which it takes custody and control and
jurisdiction in which the Rule of Law prevails and official acts which are prevent their disappearance, loss or dissipation; and eventually file and
devoid of rational basis in fact or law, or are whimsical and capricious, are prosecute in the proper court of competent jurisdiction all cases investigated
condemned and struck down. 66 by it as may be warranted by its findings. It does not try and decide, or hear
and determine, or adjudicate with any character of finality or compulsion,
9. Constitutional Sanction of Remedies cases involving the essential issue of whether or not property should be
forfeited and transferred to the State because "ill-gotten" within the meaning
of the Constitution and the executive orders. This function is reserved to the
If any doubt should still persist in the face of the foregoing considerations as
designated court, in this case, the Sandiganbayan. 71 There can therefore be
to the validity and propriety of sequestration, freeze and takeover orders, it
no serious regard accorded to the accusation, leveled by BASECO, 72 that
should be dispelled by the fact that these particular remedies and the
the PCGG plays the perfidious role of prosecutor and judge at the same time.
authority of the PCGG to issue them have received constitutional

70
11. Facts Preclude Grant of Relief to Petitioner BASECO's Stock and Transfer Book. 75 Their names and the number of
shares respectively held by them are as follows:
Upon these premises and reasoned conclusions, and upon the facts
disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be issued.
1. Jose A. Rojas 1,248 shares
The facts show that the corporation known as BASECO was owned or
controlled by President Marcos "during his administration, through nominees,
by taking undue advantage of his public office and/or using his powers,
authority, or influence, " and that it was by and through the same means, that 2. Severino G. de 1,248 shares
BASECO had taken over the business and/or assets of the National Shipyard la Cruz
and Engineering Co., Inc., and other government-owned or controlled
entities.

12. Organization and Stock Distribution of BASECO 3. Emilio T. Yap 2,508 shares

BASECO describes itself in its petition as "a shiprepair and shipbuilding


company * * incorporated as a domestic private corporation * * (on Aug. 30,
1972) by a consortium of Filipino shipowners and shipping executives. Its 4. Jose Fernandez 1,248 shares
main office is at Engineer Island, Port Area, Manila, where its Engineer Island
Shipyard is housed, and its main shipyard is located at Mariveles
Bataan." 73 Its Articles of Incorporation disclose that its authorized capital
stock is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares 5. Jose Francisco 128 shares
with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74 The same articles Identify the incorporators, numbering
fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. 6. Manuel S. 96 shares
Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Mendoza
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose
Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S.
Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
7. Anthony P. Lee 1,248 shares
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to
be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3)
Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo
Torres. As of this year, 1986, there were twenty (20) stockholders listed in

71
8. Hilario M. Ruiz 32 shares Drydock shares

9. Constante L. 8 shares 16. Manuel Jacela 1 share


Farias

17. Jonathan G. Lu 1 share


10. Fidelity 65,882
Management, Inc. shares

18. Jose J. 1 share


Tanchanco
11. Trident 7,412 shares
Management

19. Dioscoro Papa 128 shares

12. United Phil. 1,240 shares


Lines
20. Edward T. 4 shares
Marcelo

13. Renato M. 8 shares


Tanseco
TOTAL 218,819
shares.

14. Fidel Ventura 8 shares

13 Acquisition of NASSCO by BASECO

15. Metro Bay 136,370

72
Barely six months after its incorporation, BASECO acquired from National P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00
Shipyard & Steel Corporation, or NASSCO, a government-owned or was paid upon its execution, and the balance stipulated to be payable in
controlled corporation, the latter's shipyard at Mariveles, Bataan, known as installments. 78
the Bataan National Shipyard (BNS), and except for NASSCO's Engineer
Island Shops and certain equipment of the BNS, consigned for future 16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
negotiation all its structures, buildings, shops, quarters, houses, plants,
equipment and facilities, in stock or in transit. This it did in virtue of a Some nine months afterwards, or on July 15, 1975, to be precise, BASECO,
"Contract of Purchase and Sale with Chattel Mortgage" executed on again with the intervention of President Marcos, acquired ownership of the
February 13, 1973. The price was P52,000,000.00. As partial payment rest of the assets of NASSCO which had not been included in the first two (2)
thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, purchase documents. This was accomplished by a deed entitled "Contract of
convertible into cash within twenty-four (24) hours from completion of the Purchase and Sale," 79which, like the Memorandum of Agreement dated
inventory undertaken pursuant to the contract. The balance of October 9, 1973 supra also bore at the upper right-hand corner of its first
P41,600,000.00, with interest at seven percent (7%) per annum, page, the handwritten notation of President Marcos reading, "APPROVED,
compounded semi-annually, was stipulated to be paid in equal semi-annual July 29, 1973," and underneath it, his usual full signature. Transferred to
installments over a term of nine (9) years, payment to commence after a BASECO were NASSCO's "ownership and all its titles, rights and interests
grace period of two (2) years from date of turnover of the shipyard to over all equipment and facilities including structures, buildings, shops,
BASECO. 76 quarters, houses, plants and expendable or semi-expendable assets, located
at the Engineer Island, known as the Engineer Island Shops, including all the
14. Subsequent Reduction of Price; Intervention of Marcos equipment of the Bataan National Shipyards (BNS) which were excluded
from the sale of NBS to BASECO but retained by BASECO and all other
Unaccountably, the price of P52,000,000.00 was reduced by more than one- selected equipment and machineries of NASSCO at J. Panganiban Smelting
half, to P24,311,550.00, about eight (8) months later. A document to this Plant." In the same deed, NASSCO committed itself to cooperate with
effect was executed on October 9, 1973, entitled "Memorandum Agreement," BASECO for the acquisition from the National Government or other
and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of appropriate Government entity of Engineer Island. Consideration for the sale
the Board of Directors, and David R. Ines, as General Manager. 77 This was set at P5,000,000.00; a down payment of P1,000,000.00 appears to
agreement bore, at the top right corner of the first page, the word have been made, and the balance was stipulated to be paid at 7% interest
"APPROVED" in the handwriting of President Marcos, followed by his usual per annum in equal semi annual installments over a term of nine (9) years, to
full signature. The document recited that a down payment of P5,862,310.00 commence after a grace period of two (2) years. Mr. Arturo Pacificador again
had been made by BASECO, and the balance of P19,449,240.00 was signed for NASSCO, together with the general manager, Mr. David R. Ines.
payable in equal semi-annual installments over nine (9) years after a grace
period of two (2) years, with interest at 7% per annum. 17. Loans Obtained

15. Acquisition of 300 Hectares from Export Processing Zone Authority It further appears that on May 27, 1975 BASECO obtained a loan from the
NDC, taken from "the last available Japanese war damage fund of
On October 1, 1974, BASECO acquired three hundred (300) hectares of land $19,000,000.00," to pay for "Japanese made heavy equipment (brand
in Mariveles from the Export Processing Zone Authority for the price of new)." 80On September 3, 1975, it got another loan also from the NDC in the

73
amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another Capt. A.T. Romualdez' report to the President was submitted eleven (11)
loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has days later. It opened with the following caption:
been made that not a single centavo has been paid on these loans. 82
MEMORANDUM:
18. Reports to President Marcos
FOR : The President
In September, 1977, two (2) reports were submitted to President Marcos
regarding BASECO. The first was contained in a letter dated September 5, SUBJECT: An Evaluation and Re-assessment of a
1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in Performance of a Mission
a confidential memorandum dated September 16, 1977 of Capt. A.T.
Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of FROM: Capt. A.T. Romualdez.
BASECO, and that of a Romualdez, a relative by affinity.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting
a. BASECO President's Report its loan obligations due chiefly to the fact that "orders to build ships as
expected * * did not materialize."
In his letter of September 5, 1977, BASECO President Ruiz reported to
Marcos that there had been "no orders or demands for ship construction" for He advised that five stockholders had "waived and/or assigned their holdings
some time and expressed the fear that if that state of affairs persisted, inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo
BASECO would not be able to pay its debts to the Government, which at the Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr.
time stood at the not inconsiderable amount of P165,854,000.00. 85 He Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart
suggested that, to "save the situation," there be a "spin-off (of their) attack," he made the following quite revealing, and it may be added, quite
shipbuilding activities which shall be handled exclusively by an entirely new cynical and indurate recommendation, to wit:
corporation to be created;" and towards this end, he informed Marcos that
BASECO was
* * (that) their replacements (be effected) so we can register
their names in the stock book prior to the implementation
* * inviting NDC and LUSTEVECO to participate by of your instructions to pass a board resolution to legalize the
converting the NDC shipbuilding loan to BASECO amounting transfers under SEC regulations;
to P341.165M and assuming and converting a portion of
BASECO's shipbuilding loans from REPACOM amounting to
2. By getting their replacements, the families cannot
P52.2M or a total of P83.365M as NDC's equity contribution
question us later on; and
in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of 87
Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86 3. We will owe no further favors from them.

b. Romualdez' Report He also transmitted to Marcos, together with the report, the following
documents: 88

74
1. Stock certificates indorsed and assigned in blank with Capt. Romualdez also recommended that BASECO's loans be restructured
assignments and waivers; 89 "until such period when BASECO will have enough orders for ships in order
for the company to meet loan obligations," and that
2. The articles of incorporation, the amended articles, and
the by-laws of BASECO; An LOI may be issued to government agencies using floating
equipment, that a linkage scheme be applied to a certain
3. Deed of Sales, wherein NASSCO sold to BASECO four percent of BASECO's net profit as part of BASECO's
(4) parcels of land in "Engineer Island", Port Area, Manila; amortization payments to make it justifiable for you, Sir. 91

4. Transfer Certificate of Title No. 124822 in the name of It is noteworthy that Capt. A.T. Romualdez does not appear to be a
BASECO, covering "Engineer Island"; stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate
5. Contract dated October 9, 1973, between NASSCO and familiarity with the firm's affairs and problems.
BASECO re-structure and equipment at Mariveles, Bataan;
19. Marcos' Response to Reports
6. Contract dated July 16, 1975, between NASSCO and
BASECO re-structure and equipment at Engineer Island, President Marcos lost no time in acting on his subordinates'
Port Area Manila; recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
7. Contract dated October 1, 1974, between EPZA and
BASECO re 300 hectares of land at Mariveles, Bataan; a. Instructions re "Spin-Off"

8. List of BASECO's fixed assets; Under date of September 28, 1977, he addressed a Memorandum to
Secretary Geronimo Velasco of the Philippine National Oil Company and
9. Loan Agreement dated September 3, 1975, BASECO's Chairman Constante Farias of the National Development Company,
loan from NDC of P30,000,000.00; directing them "to participate in the formation of a new corporation resulting
from the spin-off of the shipbuilding component of BASECO along the
following guidelines:
10. BASECO-REPACOM Agreement dated May 27, 1975;

a. Equity participation of government shall be through


11. GSIS loan to BASECO dated January 28, 1976 of
LUSTEVECO and NDC in the amount of P115,903,000
P12,400,000.00 for the housing facilities for BASECO's rank-
consisting of the following obligations of BASECO which are
and-file employees. 90
hereby authorized to be converted to equity of the said new
corporation, to wit:

75
1. NDC P83,865,000 (P31.165M loan & BASECO, it was made to pay BASECO instead the amount
P52.2M Reparation) of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of
2. LUSTEVECO P32,538,000 (Reparation) BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be
transferred to LUSTEVECO through PNOC; and 3) the
b. Equity participation of government shall be in the form of shipbuilding equipment (thus) transferred be invested by
non- voting shares. LUSTEVECO, acting through PNOC and NDC, as the
government's equity participation in a shipbuilding
corporation to be established in partnership with the private
For immediate compliance. 92
sector.

Mr. Marcos' guidelines were promptly complied with by his subordinates.


xxx xxx xxx
Twenty-two (22) days after receiving their president's memorandum, Messrs.
Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in
representation of their respective corporations, executed a PRE- And so, through a simple letter of instruction and
INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they memorandum, BASECO's loan obligation to NDC and
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA REPACOM * * in the total amount of P83.365M and BSD's
SHIPBUILDING CORPORATION," to bring to realization their president's REPACOM loan of P32.438M were wiped out and converted
instructions. It would seem that the new corporation ultimately formed was into non-voting preferred shares. 95
actually named "Philippine Dockyard Corporation (PDC)." 94
20. Evidence of Marcos'
b. Letter of Instructions No. 670
Ownership of BASECO
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No. 670 It cannot therefore be gainsaid that, in the context of the proceedings at bar,
addressed to the Reparations Commission REPACOM the Philippine the actuality of the control by President Marcos of BASECO has been
National Oil Company (PNOC), the Luzon Stevedoring Company sufficiently shown.
(LUSTEVECO), and the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General, with pithy and Other evidence submitted to the Court by the Solicitor General proves that
not inaccurate observations as to the effects thereof (in italics), as follows: President Marcos not only exercised control over BASECO, but also that
he actually owns well nigh one hundred percent of its outstanding stock.
* * 1) the shipbuilding equipment procured by BASECO
through reparations be transferred to NDC subject to It will be recalled that according to petitioner- itself, as of April 23, 1986, there
reimbursement by NDC to BASECO (of) the amount of s were 218,819 shares of stock outstanding, ostensibly owned by twenty (20)
allegedly representing the handling and incidental expenses stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay
incurred by BASECO in the installation of said Drydock, recorded as holding 136,370 shares; (2) Fidelity Management,
equipment (so instead of NDC getting paid on its loan to Inc., 65,882 shares; (3) Trident Management,7,412 shares; and (4) United

76
Phil. Lines, 1,240 shares. The first three corporations, among themselves, subsequent recorded statements as a mere gesture of defiance rather than a
own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the verifiable factual declaration.
outstanding stock.
By resolution dated September 25, 1986, this Court granted BASECO's
Now, the Solicitor General has drawn the Court's attention to the intriguing counsel a period of 10 days "to SUBMIT, as undertaken by him, * * the
circumstance that found in Malacanang shortly after the sudden flight of certificates of stock issued to the stockholders of * * BASECO as of April 23,
President Marcos, were certificates corresponding to more than ninety-five 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for
percent (95%) of all the outstanding shares of stock of BASECO, endorsed in extension; and in his motion dated October 2, 1986, he declared inter
blank, together with deeds of assignment of practically all the outstanding alia that "said certificates of stock are in the possession of third parties,
shares of stock of the three (3) corporations above mentioned (which among whom being the respondents themselves * * and petitioner is still
hold 95.82% of all BASECO stock), signed by the owners thereof although endeavoring to secure copies thereof from them." 102 On the same day he
not notarized. 97 filed another motion praying that he be allowed "to secure copies of the
Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other
More specifically, found in Malacanang (and now in the custody of the Certificates, of Stock of petitioner's stockholders in possession of
PCGG) were: respondents." 103

1) the deeds of assignment of all 600 outstanding shares of In a Manifestation dated October 10, 1986,, 104 the Solicitor General not
Fidelity Management Inc. which supposedly owns as unreasonably argued that counsel's aforestated motion to secure copies of
aforesaid 65,882 shares of BASECO stock; the stock certificates "confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their) certificates of stock," and the
2) the deeds of assignment of 2,499,995 of the 2,500,000 reason, according to him, was "that 95% of said shares * * have been
outstanding shares of Metro Bay Drydock Corporation endorsed in blank and found in Malacaang after the former President and
which allegedly owns 136,370 shares of BASECO stock; his family fled the country." To this manifestation BASECO's counsel replied
on November 5, 1986, as already mentioned, Stubbornly insisting that the
firm's stockholders had not really assigned their stock. 105
3) the deeds of assignment of 800 outstanding shares of
Trident Management Co., Inc. which allegedly owns 7,412
shares of BASECO stock, assigned in blank; 98 and In view of the parties' conflicting declarations, this Court resolved on
November 27, 1986 among other things "to require * * the petitioner * *
to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals
4) stock certificates corresponding to 207,725 out of the
of the stock certificates alleged to be in its possession or accessible to it,
218,819 outstanding shares of BASECO stock; that is, all but
mentioned and described in Annex 'P' of its petition, (and other pleadings) * *
5 % all endorsed in blank. 99
within ten (10) days from notice." 106 In a motion filed on December 5,
1986, 107 BASECO's counsel made the statement, quite surprising in the
While the petitioner's counsel was quick to dispute this asserted fact, premises, that "it will negotiate with the owners (of the BASECO stock in
assuring this Court that the BASECO stockholders were still in possession of question) to allow petitioner to borrow from them, if available, the certificates
their respective stock certificates and had "never endorsed * * them in blank referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's
or to anyone else," 100 that denial is exposed by his own prior and counsel however eventually had to confess inability to produce the originals

77
of the stock certificates, putting up the feeble excuse that while he had provisional takeover of the corporation in the public interest, in accordance
"requested the stockholders to allow * * (him) to borrow said certificates, * * with the terms of Executive Orders No. 1 and 2, pending the filing of the
some of * * (them) claimed that they had delivered the certificates to third requisite actions with the Sandiganbayan to cause divestment of title thereto
parties by way of pledge and/or to secure performance of obligations, while from Marcos, and its adjudication in favor of the Republic pursuant to
others allegedly have entrusted them to third parties in view of last national Executive Order No. 14.
emergency." 108 He has conveniently omitted, nor has he offered to give the
details of the transactions adverted to by him, or to explain why he had not As already earlier stated, this Court agrees that this assessment of the facts
impressed on the supposed stockholders the primordial importance of is correct; accordingly, it sustains the acts of sequestration and takeover by
convincing this Court of their present custody of the originals of the stock, or the PCGG as being in accord with the law, and, in view of what has thus far
if he had done so, why the stockholders are unwilling to agree to some sort been set out in this opinion, pronounces to be without merit the theory that
of arrangement so that the originals of their certificates might at the very least said acts, and the executive orders pursuant to which they were done, are
be exhibited to the Court. Under the circumstances, the Court can only fatally defective in not according to the parties affected prior notice and
conclude that he could not get the originals from the stockholders for the hearing, or an adequate remedy to impugn, set aside or otherwise obtain
simple reason that, as the Solicitor General maintains, said stockholders in relief therefrom, or that the PCGG had acted as prosecutor and judge at the
truth no longer have them in their possession, these having already been same time.
assigned in blank to then President Marcos.
22. Executive Orders Not a Bill of Attainder
21. Facts Justify Issuance of Sequestration and Takeover Orders
Neither will this Court sustain the theory that the executive orders in question
In the light of the affirmative showing by the Government that, prima facie at are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts
least, the stockholders and directors of BASECO as of April, 1986 109 were punishment without judicial trial." 111 "Its essence is the substitution of a
mere "dummies," nominees or alter egos of President Marcos; at any rate, legislative for a judicial determination of guilt." 112
that they are no longer owners of any shares of stock in the corporation, the
conclusion cannot be avoided that said stockholders and directors have no In the first place, nothing in the executive orders can be reasonably
basis and no standing whatever to cause the filing and prosecution of the construed as a determination or declaration of guilt. On the contrary, the
instant proceeding; and to grant relief to BASECO, as prayed for in the executive orders, inclusive of Executive Order No. 14, make it perfectly clear
petition, would in effect be to restore the assets, properties and business that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth"
sequestered and taken over by the PCGG to persons who are "dummies," is to be handed down by a judicial tribunal, in this case,
nominees or alter egos of the former president. the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In
the second place, no punishment is inflicted by the executive orders, as the
From the standpoint of the PCGG, the facts herein stated at some length do merest glance at their provisions will immediately make apparent. In no
indeed show that the private corporation known as BASECO was "owned or sense, therefore, may the executive orders be regarded as a bill of attainder.
controlled by former President Ferdinand E. Marcos * * during his
administration, * * through nominees, by taking advantage of * * (his) public 23. No Violation of Right against Self-Incrimination and Unreasonable
office and/or using * * (his) powers, authority, influence * *," and that Searches and Seizures
NASSCO and other property of the government had been taken over by
BASECO; and the situation justified the sequestration as well as the

78
BASECO also contends that its right against self incrimination and * * The corporation is a creature of the state. It is presumed
unreasonable searches and seizures had been transgressed by the Order of to be incorporated for the benefit of the public. It received
April 18, 1986 which required it "to produce corporate records from 1973 to certain special privileges and franchises, and holds them
1986 under pain of contempt of the Commission if it fails to do so." The order subject to the laws of the state and the limitations of its
was issued upon the authority of Section 3 (e) of Executive Order No. 1, charter. Its powers are limited by law. It can make no
treating of the PCGG's power to "issue subpoenas requiring * * the contract not authorized by its charter. Its rights to act as a
production of such books, papers, contracts, records, statements of accounts corporation are only preserved to it so long as it obeys the
and other documents as may be material to the investigation conducted by laws of its creation. There is a reserve right in the legislature
the Commission, " and paragraph (3), Executive Order No. 2 dealing with its to investigate its contracts and find out whether it has
power to "require all persons in the Philippines holding * * (alleged "ill- exceeded its powers. It would be a strange anomaly to hold
gotten") assets or properties, whether located in the Philippines or abroad, in that a state, having chartered a corporation to make use of
their names as nominees, agents or trustees, to make full disclosure of the certain franchises, could not, in the exercise of sovereignty,
same * *." The contention lacks merit. inquire how these franchises had been employed, and
whether they had been abused, and demand the production
It is elementary that the right against self-incrimination has no application to of the corporate books and papers for that purpose. The
juridical persons. defense amounts to this, that an officer of the corporation
which is charged with a criminal violation of the statute may
While an individual may lawfully refuse to answer plead the criminality of such corporation as a refusal to
incriminating questions unless protected by an immunity produce its books. To state this proposition is to answer
statute, it does not follow that a corporation, vested with it. While an individual may lawfully refuse to answer
special privileges and franchises, may refuse to show its incriminating questions unless protected by an immunity
hand when charged with an abuse ofsuchprivileges * * 113 statute, it does not follow that a corporation, vested with
special privileges and franchises may refuse to show its
hand when charged with an abuse of such
Relevant jurisprudence is also cited by the Solicitor General. 114
privileges. (Wilson v. United States, 55 Law Ed., 771, 780
[emphasis, the Solicitor General's])
* * corporations are not entitled to all of the constitutional
protections which private individuals have. * * They are not
At any rate, Executive Order No. 14-A, amending Section 4 of Executive
at all within the privilege against self-incrimination, although
Order No. 14 assures protection to individuals required to produce evidence
this court more than once has said that the privilege runs
before the PCGG against any possible violation of his right against self-
very closely with the 4th Amendment's Search and Seizure
incrimination. It gives them immunity from prosecution on the basis of
provisions. It is also settled that an officer of the company
testimony or information he is compelled to present. As amended, said
cannot refuse to produce its records in its possession upon
Section 4 now provides that
the plea that they will either incriminate him or may
incriminate it." (Oklahoma Press Publishing Co. v. Walling,
327 U.S. 186; emphasis, the Solicitor General's). xxx xxx xxx

79
The witness may not refuse to comply with the order on the Equally evident is that the resort to the provisional remedies in question
basis of his privilege against self-incrimination; but no should entail the least possible interference with business operations or
testimony or other information compelled under the order (or activities so that, in the event that the accusation of the business enterprise
any information directly or indirectly derived from such being "ill gotten" be not proven, it may be returned to its rightful owner as far
testimony, or other information) may be used against the as possible in the same condition as it was at the time of sequestration.
witness in any criminal case, except a prosecution for
perjury, giving a false statement, or otherwise failing to b. PCGG Has Only Powers of Administration
comply with the order.
The PCGG may thus exercise only powers of administration over the
The constitutional safeguard against unreasonable searches and seizures property or business sequestered or provisionally taken over, much like a
finds no application to the case at bar either. There has been no search court-appointed receiver, 115 such as to bring and defend actions in its own
undertaken by any agent or representative of the PCGG, and of course no name; receive rents; collect debts due; pay outstanding debts; and generally
seizure on the occasion thereof. do such other acts and things as may be necessary to fulfill its mission as
conservator and administrator. In this context, it may in addition enjoin or
24. Scope and Extent of Powers of the PCGG restrain any actual or threatened commission of acts by any person or entity
that may render moot and academic, or frustrate or otherwise make
One other question remains to be disposed of, that respecting the scope and ineffectual its efforts to carry out its task; punish for direct or indirect
extent of the powers that may be wielded by the PCGG with regard to the contempt in accordance with the Rules of Court; and seek and secure the
properties or businesses placed under sequestration or provisionally taken assistance of any office, agency or instrumentality of the government. 116 In
over. Obviously, it is not a question to which an answer can be easily given, the case of sequestered businesses generally (i.e., going concerns,
much less one which will suffice for every conceivable situation. businesses in current operation), as in the case of sequestered objects, its
essential role, as already discussed, is that of conservator, caretaker,
a. PCGG May Not Exercise Acts of Ownership "watchdog" or overseer. It is not that of manager, or innovator, much less an
owner.
One thing is certain, and should be stated at the outset: the PCGG cannot
exercise acts of dominion over property sequestered, frozen or provisionally c. Powers over Business Enterprises Taken Over by Marcos
taken over. AS already earlier stressed with no little insistence, the act of or Entities or Persons Close to him; Limitations Thereon
sequestration; freezing or provisional takeover of property does not import or
bring about a divestment of title over said property; does not make the PCGG Now, in the special instance of a business enterprise shown by evidence to
the owner thereof. In relation to the property sequestered, frozen or have been "taken over by the government of the Marcos Administration or by
provisionally taken over, the PCGG is a conservator, not an entities or persons close to former President Marcos," 117 the PCGG is
owner. Therefore, it can not perform acts of strict ownership; and this is given power and authority, as already adverted to, to "provisionally take (it)
specially true in the situations contemplated by the sequestration rules over in the public interest or to prevent * * (its) disposal or dissipation;" and
where, unlike cases of receivership, for example, no court exercises effective since the term is obviously employed in reference to going concerns, or
supervision or can upon due application and hearing, grant authority for the business enterprises in operation, something more than mere physical
performance of acts of dominion. custody is connoted; the PCGG may in this case exercise some measure of

80
control in the operation, running, or management of the business itself. But constitute the controlling or a substantial part of the corporate voting power.
even in this special situation, the intrusion into management should be The stock is not to be voted to replace directors, or revise the articles or by-
restricted to the minimum degree necessary to accomplish the legislative will, laws, or otherwise bring about substantial changes in policy, program or
which is "to prevent the disposal or dissipation" of the business enterprise. practice of the corporation except for demonstrably weighty and defensible
There should be no hasty, indiscriminate, unreasoned replacement or grounds, and always in the context of the stated purposes of sequestration or
substitution of management officials or change of policies, particularly in provisional takeover, i.e., to prevent the dispersion or undue disposal of the
respect of viable establishments. In fact, such a replacement or substitution corporate assets. Directors are not to be voted out simply because the power
should be avoided if at all possible, and undertaken only when justified by to do so exists. Substitution of directors is not to be done without reason or
demonstrably tenable grounds and in line with the stated objectives of the rhyme, should indeed be shunned if at an possible, and undertaken only
PCGG. And it goes without saying that where replacement of management when essential to prevent disappearance or wastage of corporate property,
officers may be called for, the greatest prudence, circumspection, care and and always under such circumstances as assure that the replacements are
attention - should accompany that undertaking to the end that truly truly possessed of competence, experience and probity.
competent, experienced and honest managers may be recruited. There
should be no role to be played in this area by rank amateurs, no matter how In the case at bar, there was adequate justification to vote the incumbent
wen meaning. The road to hell, it has been said, is paved with good directors out of office and elect others in their stead because the evidence
intentions. The business is not to be experimented or played around with, not showed prima facie that the former were just tools of President Marcos and
run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight were no longer owners of any stock in the firm, if they ever were at all. This is
should never be lost sight of the ultimate objective of the whole exercise, why, in its Resolution of October 28, 1986; 118 this Court declared that
which is to turn over the business to the Republic, once judicially established
to be "ill-gotten." Reason dictates that it is only under these conditions and Petitioner has failed to make out a case of grave abuse or
circumstances that the supervision, administration and control of business excess of jurisdiction in respondents' calling and holding of a
enterprises provisionally taken over may legitimately be exercised. stockholders' meeting for the election of directors as
authorized by the Memorandum of the President * * (to the
d. Voting of Sequestered Stock; Conditions Therefor PCGG) dated June 26, 1986, particularly, where as in this
case, the government can, through its designated directors,
So, too, it is within the parameters of these conditions and circumstances properly exercise control and management over what appear
that the PCGG may properly exercise the prerogative to vote sequestered to be properties and assets owned and belonging to the
stock of corporations, granted to it by the President of the Philippines through government itself and over which the persons who appear in
a Memorandum dated June 26, 1986. That Memorandum authorizes the this case on behalf of BASECO have failed to show any right
PCGG, "pending the outcome of proceedings to determine the ownership of * or even any shareholding in said corporation.
* (sequestered) shares of stock," "to vote such shares of stock as it may
have sequestered in corporations at all stockholders' meetings called for the It must however be emphasized that the conduct of the PCGG nominees in
election of directors, declaration of dividends, amendment of the Articles of the BASECO Board in the management of the company's affairs should
Incorporation, etc." The Memorandum should be construed in such a manner henceforth be guided and governed by the norms herein laid down. They
as to be consistent with, and not contradictory of the Executive Orders earlier should never for a moment allow themselves to forget that they are
promulgated on the same matter. There should be no exercise of the right to conservators, not owners of the business; they are fiduciaries, trustees, of
vote simply because the right exists, or because the stocks sequestered

81
whom the highest degree of diligence and rectitude is, in the premises,
required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation


or revision, and the execution of certain contracts, inclusive of the termination
of the employment of some of its executives, 119 this Court cannot, in the
present state of the evidence on record, pass upon them. It is not necessary
to do so. The issues arising therefrom may and will be left for initial
determination in the appropriate action. But the Court will state that absent
any showing of any important cause therefor, it will not normally substitute its
judgment for that of the PCGG in these individual transactions. It is clear
however, that as things now stand, the petitioner cannot be said to have
established the correctness of its submission that the acts of the PCGG in
question were done without or in excess of its powers, or with grave abuse of
discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order


issued on October 14, 1986 is lifted. G.R. No. L-22619 December 2, 1924

Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur. NATIONAL COAL COMPANY, plaintiff-appellee,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.

Attorney-General Villa-Real for appellant.


Perfecto J. Salas Rodriguez for appellee.

JOHNSON, J.:

This action was brought in the Court of First Instance of the City of Manila on
the 17th day of July, 1923, for the purpose of recovering the sum of
P12,044.68, alleged to have been paid under protest by the plaintiff company
to the defendant, as specific tax on 24,089.3 tons of coal. Said company is a

82
corporation created by Act No. 2705 of the Philippine Legislature for the The question confronting us in this appeal is whether the plaintiff is subject to
purpose of developing the coal industry in the Philippine Islands and is the taxes under section 15 of Act No. 2719, or to the specific taxes under
actually engaged in coal mining on reserved lands belonging to the section 1496 of the Administrative Code.
Government. It claimed exemption from taxes under the provision of sections
14 and 15 of Act No. 2719, and prayed for a judgment ordering the defendant The plaintiff corporation was created on the 10th day of March, 1917, by Act
to refund to the plaintiff said sum of P12,044.68, with legal interest from the No. 2705, for the purpose of developing the coal industry in the Philippine
date of the presentation of the complaint, and costs against the defendant. Island, in harmony with the general plan of the Government to encourage the
development of the natural resources of the country, and to provided facilities
The defendant answered denying generally and specifically all the material therefor. By said Act, the company was granted the general powers of a
allegations of the complaint, except the legal existence and personality of the corporation "and such other powers as may be necessary to enable it to
plaintiff. As a special defense, the defendant alleged (a) that the sum of prosecute the business of developing coal deposits in the Philippine Island
P12,044.68 was paid by the plaintiff without protests, and (b) that said sum and of mining, extracting, transporting and selling the coal contained in said
was due and owing from the plaintiff to the Government of the Philippine deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the
Islands under the provisions of section 1496 of the Administrative Code and Government of the Philippine Islands is made the majority stockholder,
prayed that the complaint be dismissed, with costs against the plaintiff. evidently in order to insure proper government supervision and control, and
thus to place the Government in a position to render all possible
Upon the issue thus presented, the case was brought on for trial. After a encouragement, assistance and help in the prosecution and furtherance of
consideration of the evidence adduced by both parties, the Honorable Pedro the company's business.
Conception, judge, held that the words "lands owned by any person, etc.," in
section 15 of Act No. 2719 should be understood to mean "lands held in On May 14, 1917, two months after the passage of Act No. 2705, creating
lease or usufruct," in harmony with the other provision of said Act; that the the National Coal Company, the Philippine Legislature passed Act No. 2719
coal lands possessed by the plaintiff, belonging to the Government, fell within "to provide for the leasing and development of coal lands in the Philippine
the provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton Islands." On October 18, 1917, upon petition of the National Coal Company,
of 1,016 kilos on each ton of coal extracted therefrom, as provided in said the Governor-General, by Proclamation No. 39, withdrew "from settlement,
section, was the only tax which should be collected from the plaintiff; and entry, sale or other disposition, all coal-bearing public lands within the
sentenced the defendant to refund to the plaintiff the sum of P11,081.11 Province of Zamboanga, Department of Mindanao and Sulu, and the Island
which is the difference between the amount collected under section 1496 of of Polillo, Province of Tayabas." Almost immediately after the issuance of
the Administrative Code and the amount which should have been collected said proclamation the National Coal Company took possession of the coal
under the provisions of said section 15 of Act No. 2719. From that sentence lands within the said reservation, with an area of about 400 hectares, without
the defendant appealed, and now makes the following assignments of error: any further formality, contract or lease. Of the 30,000 shares of stock issued
by the company, the Government of the Philippine Islands is the owner of
I. The court below erred in holding that section 15 of Act No. 2719 does not 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.
refer to coal lands owned by persons and corporations.
If we understand the theory of the plaintiff-appellee, it is, that it claims to be
II. The court below erred in holding that the plaintiff was not subject to the tax the owner of the land from which it has mined the coal in question and is
prescribed in section 1496 of the Administrative Code. therefore subject to the provisions of section 15 of Act No. 2719 and not to
the provisions of the section 1496 of the Administrative Code. That

83
contention of the plaintiff leads us to an examination of the evidence upon said Act (No. 2705). No provisions of Act No. 2705 are found to be
the question of the ownership of the land from which the coal in question was inconsistent with the provisions of the Corporation Law. As a private
mined. Was the plaintiff the owner of the land from which the coal in question corporation, it has no greater rights, powers or privileges than any other
was mined? If the evidence shows the affirmative, then the judgment should corporation which might be organized for the same purpose under the
be affirmed. If the evidence shows that the land does not belong to the Corporation Law, and certainly it was not the intention of the Legislature to
plaintiff, then the judgment should be reversed, unless the plaintiff's rights fall give it a preference or right or privilege over other legitimate private
under section 3 of said Act. corporations in the mining of coal. While it is true that said proclamation No.
39 withdrew "from settlement, entry, sale, or other disposition of coal-bearing
The only witness presented by the plaintiff upon the question of the public lands within the Province of Zamboanga . . . and the Island of Polillo,"
ownership of the land in question was Mr. Dalmacio Costas, who stated that it made no provision for the occupation and operation by the plaintiff, to the
he was a member of the board of directors of the plaintiff corporation; that the exclusion of other persons or corporations who might, under proper
plaintiff corporation took possession of the land in question by virtue of the permission, enter upon the operate coal mines.
proclamation of the Governor-General, known as Proclamation No. 39 of the
year 1917; that no document had been issued in favor of the plaintiff On the 14th day of May, 1917, and before the issuance of said proclamation,
corporation; that said corporation had received no permission from the the Legislature of the Philippine Island in "an Act for the leasing and
Secretary of Agriculture and Natural Resources; that it took possession of development of coal lands in the Philippine Islands" (Act No. 2719), made
said lands covering an area of about 400 hectares, from which the coal in liberal provision. Section 1 of said Act provides: "Coal-bearing lands of the
question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39). public domain in the Philippine Island shall not be disposed of in any manner
except as provided in this Act," thereby giving a clear indication that no "coal-
Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then bearing lands of the public domain" had been disposed of by virtue of said
Governor-General, on the 18th day of October, 1917, and provided: proclamation.
"Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw
from settlement, entry, sale, or other disposition, all coal-bearing public lands Neither is there any provision in Act No. 2705 creating the National Coal
within the Province of Zamboanga, Department of Mindanao and Sulu, and Company, nor in the amendments thereof found in Act No. 2822, which
the Island of Polillo, Province of Tayabas." It will be noted that said authorizes the National Coal Company to enter upon any of the reserved
proclamation only provided that all coal-bearing public lands within said coal lands without first having obtained permission from the Secretary of
province and island should be withdrawn from settlement, entry, sale, or Agriculture and Natural Resources.lawphi1.net
other disposition. There is nothing in said proclamation which authorizes the
plaintiff or any other person to enter upon said reversations and to mine coal, The following propositions are fully sustained by the facts and the law:
and no provision of law has been called to our attention, by virtue of which
the plaintiff was entitled to enter upon any of the lands so reserved by said (1) The National Coal Company is an ordinary private corporation organized
proclamation without first obtaining permission therefor. under Act No. 2705, and has no greater powers nor privileges than the
ordinary private corporation, except those mentioned, perhaps, in section 10
The plaintiff is a private corporation. The mere fact that the Government of Act No. 2719, and they do not change the situation here.
happens to the majority stockholder does not make it a public corporation.
Act No. 2705, as amended by Act No. 2822, makes it subject to all of the
provisions of the Corporation Law, in so far as they are not inconsistent with

84
(2) It mined on public lands between the month of July, 1920, and the months Resources of "unreserved, unappropriated coal-bearing public lands," and
of March, 1922, 24,089.3 tons of coal. the obligation to the Government which shall be imposed by said Secretary
upon the lessee.lawphi1.net
(3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a
ton, as taxes under the provisions of article 1946 of the Administrative Code Third. The internal revenue duty and tax which must be paid upon coal-
on the 15th day of December, 1922. bearing lands owned by any person, firm, association or corporation.

(4) It is admitted that it is neither the owner nor the lessee of the lands upon To repeat, it will be noted, first, that Act No. 2719 provides an internal
which said coal was mined. revenue duty and tax upon unreserved, unappropriated coal-bearing public
lands which may be leased by the Secretary of Agriculture and Natural
(5) The proclamation of Francis Burton Harrison, Governor-General, of the Resources; and, second, that said Act (No. 2719) provides an internal
18th day of October, 1917, by authority of section 1 of Act No. 926, revenue duty and tax imposed upon any person, firm, association or
withdrawing from settlement, entry, sale, or other dispositon all coal-bearing corporation, who may be the owner of "coal-bearing lands." A reading of said
public lands within the Province of Zamboanga and the Island of Polillo, was Act clearly shows that the tax imposed thereby is imposed upon two classes
not a reservation for the benefit of the National Coal Company, but for any of persons only lessees and owners.
person or corporation of the Philippine Islands or of the United States.
The lower court had some trouble in determining what was the correct
(6) That the National Coal Company entered upon said land and mined said interpretation of section 15 of said Act, by reason of what he believed to be
coal, so far as the record shows, without any lease or other authority from some difference in the interpretation of the language used in Spanish and
either the Secretary of Agriculture and Natural Resources or any person English. While there is some ground for confusion in the use of the language
having the power to grant a leave or authority. in Spanish and English, we are persuaded, considering all the provisions of
said Act, that said section 15 has reference only to persons, firms,
From all of the foregoing facts we find that the issue is well defined between associations or corporations which had already, prior to the existence of said
the plaintiff and the defendant. The plaintiff contends that it was liable only to Act, become the owners of coal lands. Section 15 cannot certainty refer to
pay the internal revenue and other fees and taxes provided for under section "holders or lessees of coal lands' for the reason that practically all of the
15 of Act No. 2719; while the defendant contends, under the facts of record, other provisions of said Act has reference to lessees or holders. If section 15
the plaintiff is obliged to pay the internal revenue duty provided for in section means that the persons, firms, associations, or corporation mentioned
1496 of the Administrative Code. That being the issue, an examination of the therein are holders or lessees of coal lands only, it is difficult to understand
provisions of Act No. 2719 becomes necessary. why the internal revenue duty and tax in said section was made different
from the obligations mentioned in section 3 of said Act, imposed upon
lessees or holders.
An examination of said Act (No. 2719) discloses the following facts important
for consideration here:
From all of the foregoing, it seems to be made plain that the plaintiff is neither
a lessee nor an owner of coal-bearing lands, and is, therefore, not subject to
First. All "coal-bearing lands of the public domain in the Philippine Islands
any other provisions of Act No. 2719. But, is the plaintiff subject to the
shall not be disposed of in any manner except as provided in this Act."
provisions of section 1496 of the Administrative Code?
Second. Provisions for leasing by the Secretary of Agriculture and Natural

85
Section 1496 of the Administrative Code provides that "on all coal and coke
there shall be collected, per metric ton, fifty centavos." Said section (1496) is
a part of article, 6 which provides for specific taxes. Said article provides for a
specific internal revenue tax upon all things manufactured or produced in the
Philippine Islands for domestic sale or consumption, and upon things
imported from the United States or foreign countries. It having been
demonstrated that the plaintiff has produced coal in the Philippine Islands
and is not a lessee or owner of the land from which the coal was produced,
we are clearly of the opinion, and so hold, that it is subject to pay the internal
revenue tax under the provisions of section 1496 of the Administrative Code,
and is not subject to the payment of the internal revenue tax under section 15
of Act No. 2719, nor to any other provisions of said Act.

Therefore, the judgment appealed from is hereby revoked, and the defendant
is hereby relieved from all responsibility under the complaint. And, without
any finding as to costs, it is so ordered.

Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

PHILIPPINE SOCIETY FOR G.R. No. 169752

THE PREVENTION OF

CRUELTY TO ANIMALS,

Petitioners, Members:

PUNO, C.J.

86
QUISUMBING, VELASCO, JR.,

NACHURA, and
YNARES-SANTIAGO,
REYES, JJ.

SANDOVAL-GUTIERREZ,
COMMISSION ON AUDIT,

CARPIO, DIR. RODULFO J. ARIESGA

(in his official capacity as Director


AUSTRIA-MARTINEZ,
of the Commission on Audit), MS.

CORONA, MERLE M. VALENTIN and MS.

SUSAN GUARDIAN (in their official


- versus - CARPIO-MORALES,
capacities as Team Leader and Team

Member, respectively, of the audit


AZCUNA,

Team of the Commission on Audit), Promulgated:

TINGA,

Respondents. September 25, 2007

CHICO-NAZARIO,

x-------------------------------------------------------
----x
GARCIA,
DECISION

87
For the purpose of enhancing its powers in promoting animal welfare and
enforcing laws for the protection of animals, the petitioner was initially
AUSTRIA-MARTINEZ, J.: imbued under its charter with the power to apprehend violators of animal
welfare laws. In addition, the petitioner was to share one-half (1/2) of the
fines imposed and collected through its efforts for violations of the laws
related thereto. As originally worded, Sections 4 and 5 of Act No. 1285
provide:
Before the Court is a special civil action for Certiorari and Prohibition under
Rule 65 of the Rules of Court, in relation to Section 2 of Rule 64, filed by the
petitioner assailing Office Order No. 2005-021[1] dated September 14, 2005
issued by the respondents which constituted the audit team, as well as its
September 23, 2005 Letter[2] informing the petitioner that respondents audit SEC. 4. The said society is authorized to appoint not
team shall conduct an audit survey on the petitioner for a detailed audit of its to exceed five agents in the City of Manila, and not to exceed
accounts, operations, and financial transactions. No temporary restraining two in each of the provinces of the Philippine Islands who
order was issued. shall have all the power and authority of a police officer to
make arrests for violation of the laws enacted for the
prevention of cruelty to animals and the protection of
animals, and to serve any process in connection with the
execution of such laws; and in addition thereto, all the police
The petitioner was incorporated as a juridical entity over one hundred years
force of the Philippine Islands, wherever organized, shall, as
ago by virtue of Act No. 1285, enacted on January 19, 1905, by the
occasion requires, assist said society, its members or
Philippine Commission. The petitioner, at the time it was created, was
agents, in the enforcement of all such laws.
composed of animal aficionados and animal propagandists. The objects of
the petitioner, as stated in Section 2 of its charter, shall be to enforce laws
relating to cruelty inflicted upon animals or the protection of animals in the
Philippine Islands, and generally, to do and perform all things which may tend
in any way to alleviate the suffering of animals and promote their welfare. [3] SEC. 5. One-half of all the fines imposed and
collected through the efforts of said society, its members or
its agents, for violations of the laws enacted for the
prevention of cruelty to animals and for their protection, shall
belong to said society and shall be used to promote its
At the time of the enactment of Act No. 1285, the original Corporation Law,
objects.
Act No. 1459, was not yet in existence. Act No. 1285 antedated both the
Corporation Law and the constitution of the Securities and Exchange
Commission. Important to note is that the nature of the petitioner as a
corporate entity is distinguished from the sociedad anonimasunder the
Spanish Code of Commerce. (emphasis supplied)

88
Subsequently, however, the power to make arrests as well as the privilege to
retain a portion of the fines collected for violation of animal-related laws were
recalled by virtue of Commonwealth Act (C.A.) No. 148, [4] which reads, in its Sec. 3. This Act shall take effect upon its approval.
entirety, thus:

Approved, November 8, 1936. (Emphasis supplied)


Be it enacted by the National Assembly of the Philippines:

Section 1. Section four of Act Numbered Twelve hundred


and eighty-five as amended by Act Numbered Thirty five Immediately thereafter, then President Manuel L. Quezon issued Executive
hundred and forty-eight, is hereby further amended so as to Order (E.O.) No. 63 dated November 12, 1936, portions of which provide:
read as follows:

Whereas, during the first regular session of the National


Sec. 4. The said society is authorized to Assembly, Commonwealth Act Numbered One Hundred
appoint not to exceed ten agents in the City Forty Eight was enacted depriving the agents of the Society
of Manila, and not to exceed one in each for the Prevention of Cruelty to Animals of their power to
municipality of the Philippines who shall arrest persons who have violated the laws prohibiting cruelty
have the authority to denounce to regular to animals thereby correcting a serious defect in one of the
peace officers any violation of the laws laws existing in our statute books.
enacted for the prevention of cruelty to
animals and the protection of animals and to
cooperate with said peace officers in the
prosecution of transgressors of such laws.
xxxx

Sec. 2. The full amount of the fines collected for violation of


the laws against cruelty to animals and for the protection of Whereas, the cruel treatment of animals is an offense
animals, shall accrue to the general fund of the against the State, penalized under our statutes, which the
Municipality where the offense was committed. Government is duty bound to enforce;

89
subsidiaries; and (d) such non-governmental entities
receiving subsidy or equity, directly or indirectly, from or
Now, therefore, I, Manuel L. Quezon, President of the through the government, which are required by law or the
Philippines, pursuant to the authority conferred upon me by granting institution to submit to such audit as a condition of
the Constitution, hereby decree, order, and direct the subsidy or equity.However, where the internal control system
Commissioner of Public Safety, the Provost Marshal General of the audited agencies is inadequate, the Commission may
as head of the Constabulary Division of the Philippine Army, adopt such measures, including temporary or special pre-
every Mayor of a chartered city, and every municipal audit, as are necessary and appropriate to correct the
president to detail and organize special members of the deficiencies. It shall keep the general accounts of the
police force, local, national, and the Constabulary to watch, Government, and for such period as may be provided by law,
capture, and prosecute offenders against the laws enacted preserve the vouchers and other supporting papers
to prevent cruelty to animals. (Emphasis supplied) pertaining thereto. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit Petitioner explained thus:
(COA) visited the office of the petitioner to conduct an audit survey pursuant
to COA Office Order No. 2003-051 dated November 18, 2003[5] addressed to
the petitioner. The petitioner demurred on the ground that it was a private
entity not under the jurisdiction of COA, citing Section 2(1) of Article IX of the a. Although the petitioner was created by special legislation, this
Constitution which specifies the general jurisdiction of the COA, viz: necessarily came about because in January 1905 there was as
yet neither a Corporation Law or any other general law under
which it may be organized and incorporated, nor a Securities and
Exchange Commission which would have passed upon its
Section 1. General Jurisdiction. The Commission on Audit organization and incorporation.
shall have the power, authority, and duty 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, b. That Executive Order No. 63, issued during the Commonwealth
or any of its subdivisions, agencies, or instrumentalities, period, effectively deprived the petitioner of its power to make
including government-owned and controlled corporations arrests, and that the petitioner lost its operational funding,
with original charters, and on a post-audit basis: (a) underscore the fact that it exercises no governmental function. In
constitutional bodies, commissions and officers that have fine, the government itself, by its overt acts, confirmed petitioners
been granted fiscal autonomy under the Constitution; (b) status as a private juridical entity.
autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their

90
The COA General Counsel issued a Memorandum [6] dated May 6, 2004,
asserting that the petitioner was subject to its audit authority. In a letter
dated May 17, 2004,[7]respondent COA informed the petitioner of the result of
the evaluation, furnishing it with a copy of said Memorandum dated May 6,
2004 of the General Counsel. Hence, herein Petition on the following grounds:

A.

Petitioner thereafter filed with the respondent COA a Request for Re-
evaluation dated May 19, 2004,[8] insisting that it was a private domestic
corporation.
RESPONDENT COMMISSION ON AUDIT COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION WHEN IT RULED THAT
PETITIONER IS SUBJECT TO ITS AUDIT AUTHORITY.
Acting on the said request, the General Counsel of respondent COA, in a
Memorandum dated July 13, 2004,[9] affirmed her earlier opinion that the
petitioner was a government entity that was subject to the audit jurisdiction of
respondent COA. In a letter dated September 14, 2004, the respondent COA
B.
informed the petitioner of the result of the re-evaluation, maintaining its
position that the petitioner was subject to its audit jurisdiction, and requested
an initial conference with the respondents.

PETITIONER IS ENTITLED TO THE RELIEF SOUGHT,


THERE BEING NO APPEAL, NOR ANY PLAIN, SPEEDY
AND ADEQUATE REMEDY IN THE ORDINARY COURSE
In a Memorandum dated September 16, 2004, Director Delfin Aguilar
OF LAW AVAILABLE TO IT.[10]
reported to COA Assistant Commissioner Juanito Espino, Corporate
Government Sector, that the audit survey was not conducted due to the
refusal of the petitioner because the latter maintained that it was a private The essential question before this Court is whether the petitioner qualifies as
corporation. a government agency that may be subject to audit by respondent COA.

Petitioner received on September 27, 2005 the subject COA Office Order Petitioner argues: first, even though it was created by special legislation in
2005-021 dated September 14, 2005 and the COA Letter dated September 1905 as there was no general law then existing under which it may be
23, 2005. organized or incorporated, it exercises no governmental functions because
these have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere

91
in its charter is it indicated that it is a public corporation, unlike, for instance, auditing power; second, the petitioner exercises sovereign powers, that is, it
C.A. No. 111 which created the Boy Scouts of the Philippines, defined its is tasked to enforce the laws for the protection and welfare of animals which
powers and purposes, and specifically stated that it was An Act to Create a ultimately redound to the public good and welfare, and, therefore, it is
Public Corporation in which, even as amended by Presidential Decree No. deemed to be a government instrumentality as defined under the
460, the law still adverted to the Boy Scouts of the Philippines as a public Administrative Code of 1987, the purpose of which is connected with the
corporation, all of which are not obtaining in the charter of the administration of government, as purportedly affirmed by American
petitioner; third, if it were a government body, there would have been no jurisprudence; third, by virtue of Section 23, [11] Title II, Book III of the same
need for the State to grant it tax exemptions under Republic Act No. 1178, Code, the Office of the President exercises supervision or control over the
and the fact that it was so exempted strengthens its position that it is a petitioner; fourth, under the same Code, the requirement under its special
private institution; fourth, the employees of the petitioner are registered and charter for the petitioner to render a report to the Civil Governor, whose
covered by the Social Security System at the latters initiative and not through functions have been inherited by the Office of the President, clearly reflects
the Government Service Insurance System, which should have been the the nature of the petitioner as a government instrumentality; fifth, despite the
case had the employees been considered government employees; fifth, the passage of the Corporation Code, the law creating the petitioner had not
petitioner does not receive any form of financial assistance from the been abolished, nor had it been re-incorporated under any general
government, since C.A. No. 148, amending Section 5 of Act No. 1285, states corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as
that the full amount of the fines, collected for violation of the laws against the Animal Welfare Act of 1998, designates the petitioner as a member of its
cruelty to animals and for the protection of animals, shall accrue to the Committee on Animal Welfare which is attached to the Department of
general fund of the Municipality where the offense was committed; sixth, C.A. Agriculture.
No. 148 effectively deprived the petitioner of its powers to make arrests and
serve processes as these functions were placed in the hands of the police
force; seventh, no government appointee or representative sits on the board
of trustees of the petitioner; eighth, a reading of the provisions of its charter In view of the phrase One-half of all the fines imposed and collected through
(Act No. 1285) fails to show that any act or decision of the petitioner is the efforts of said society, the Court, in a Resolution dated January 30, 2007,
subject to the approval of or control by any government agency, except to the required the Office of the Solicitor General (OSG) and the parties to
extent that it is governed by the law on private corporations in general; and comment on: a) petitioner's authority to impose fines and the validity of the
finally, ninth, the Committee on Animal Welfare, under the Animal Welfare Act provisions of Act No. 1285 and Commonwealth Act No. 148 considering that
of 1998, includes members from both the private and the public sectors. there are no standard measures provided for in the aforecited laws as to the
manner of implementation, the specific violations of the law, the person/s
authorized to impose fine and in what amount; and, b) the effect of the 1935
and 1987 Constitutions on whether petitioner continues to exist or should
The respondents contend that since the petitioner is a body politic created by organize as a private corporation under the Corporation Code, B.P. Blg. 68
virtue of a special legislation and endowed with a governmental purpose, as amended.
then, indubitably, the COA may audit the financial activities of the
latter. Respondents in effect divide their contentions into six strains: first, the
test to determine whether an entity is a government corporation lies in the
manner of its creation, and, since the petitioner was created by virtue of a
special charter, it is thus a government corporation subject to respondents

92
Petitioner and the OSG filed their respective Comments. Respondents filed a
Manifestation stating that since they were being represented by the OSG
which filed its Comment, they opted to dispense with the filing of a separate First, the Court agrees with the petitioner that the charter test cannot be
one and adopt for the purpose that of the OSG. applied.

The petitioner avers that it does not have the authority to impose fines for Essentially, the charter test as it stands today provides:
violation of animal welfare laws; it only enjoyed the privilege of sharing in the
fines imposed and collected from its efforts in the enforcement of animal
welfare laws; such privilege, however, was subsequently abolished by C.A.
No. 148; that it continues to exist as a private corporation since it was
[T]he test to determine whether a corporation is government
created by the Philippine Commission before the effectivity of the
owned or controlled, or private in nature is simple. Is it
Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions.
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 subject to its provisions, and its employees are
The OSG submits that Act No. 1285 and its amendatory laws did not give under the jurisdiction of the Civil Service Commission, and
petitioner the authority to impose fines for violation of laws [12] relating to the are compulsory members of the Government Service
prevention of cruelty to animals and the protection of animals; that even prior Insurance System. xxx (Emphasis supplied)[13]
to the amendment of Act No. 1285, petitioner was only entitled to share in the
fines imposed; C.A. No. 148 abolished that privilege to share in the fines
collected; that petitioner is a public corporation and has continued to exist
since Act No. 1285; petitioner was not repealed by the 1935 and 1987
The petitioner is correct in stating that the charter test is predicated, at best,
Constitutions which contain transitory provisions maintaining all laws issued
on the legal regime established by the 1935 Constitution, Section 7, Article
not inconsistent therewith until amended, modified or repealed.
XIII, which states:

The petition is impressed with merit.


Sec. 7. 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
The arguments of the parties, interlaced as they are, can be disposed of in instrumentality thereof.[14]
five points.

93
retroactive effect, unless the contrary is provided. [16] All statutes are to be
construed as having only a prospective operation, unless the purpose and
The foregoing proscription has been carried over to the 1973 and the 1987 intention of the legislature to give them a retrospective effect is expressly
Constitutions. Section 16 of Article XII of the present Constitution provides: declared or is necessarily implied from the language used. In case of doubt,
the doubt must be resolved against the retrospective effect. [17]

Sec. 16. The Congress shall not, except by general


law, provide for the formation, organization, or regulation of There are a few exceptions. Statutes can be given retroactive effect in the
private corporations. Government-owned or controlled following cases: (1) when the law itself so expressly provides; (2) in case of
corporations may be created or established by special remedial statutes; (3) in case of curative statutes; (4) in case of laws
charters in the interest of the common good and subject to interpreting others; and (5) in case of laws creating new rights. [18] None of the
the test of economic viability. exceptions is present in the instant case.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the The general principle of prospectivity of the law likewise applies to Act No.
1935 Constitution and Section 4 of Article XIV of the 1973 Constitution. 1459, otherwise known as the Corporation Law, which had been enacted by
virtue of the plenary powers of the Philippine Commission on March 1, 1906,
a little over a year after January 19, 1905, the time the petitioner emerged as
a juridical entity. Even the Corporation Law respects the rights and powers of
juridical entities organized beforehand, viz:
During the formulation of the 1935 Constitution, the Committee on
Franchises recommended the foregoing proscription to prevent the pressure
of special interests upon the lawmaking body in the creation of corporations
or in the regulation of the same. To permit the lawmaking body by special law
to provide for the organization, formation, or regulation of private SEC. 75. Any corporation or sociedad anonima formed,
corporations would be in effect to offer to it the temptation in many cases to organized, and existing under the
favor certain groups, to the prejudice of others or to the prejudice of the laws of the Philippine Islands and lawfully transacting busine
interests of the country.[15] ss in the Philippine Islands on the date of the passage of this
Act, shall be subject to the provisions hereof so far as such
provisions may be applicable and shall
be entitled at its option either to continue business as such
corporation or to reform and organize under and by virtue of
And since the underpinnings of the charter test had been introduced by the
the provisions of this Act, transferring all corporate interests
1935 Constitution and not earlier, it follows that the test cannot apply to the
to the new corporation which, if a stock corporation, is
petitioner, which was incorporated by virtue of Act No. 1285, enacted
authorized to issue its shares of stock at par to the
on January 19, 1905. Settled is the rule that laws in general have no

94
stockholders or members of the old corporation according to
their interests. (Emphasis supplied).
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.[20]
As pointed out by the OSG, both the 1935 and 1987 Constitutions contain
transitory provisions maintaining all laws issued not inconsistent therewith
until amended, modified or repealed.[19]
The amendments introduced by C.A. No. 148 made it clear that the petitioner
In a legal regime where the charter test doctrine cannot be applied, the mere was a private corporation and not an agency of the government. This was
fact that a corporation has been created by virtue of a special law does not evident in Executive Order No. 63, issued by then President of the
necessarily qualify it as a public corporation. Philippines Manuel L. Quezon, declaring that the revocation of the powers of
the petitioner to appoint agents with powers of arrest corrected a serious
defect in one of the laws existing in the statute books.

What then is the nature of the petitioner as a corporate entity? What legal
regime governs its rights, powers, and duties?
As a curative statute, and based on the doctrines so far discussed, C.A. No.
148 has to be given retroactive effect, thereby freeing all doubt as to which
class of corporations the petitioner belongs, that is, it is a quasi-public
As stated, at the time the petitioner was formed, the applicable law was the corporation, a kind of private domestic corporation, which the Court will
Philippine Bill of 1902, and, emphatically, as also stated above, no further elaborate on under the fourth point.
proscription similar to the charter test can be found therein.

Second, a reading of petitioners charter shows that it is not subject to control


The textual foundation of the charter test, which placed a limitation on the or supervision by any agency of the State, unlike government-owned and
power of the legislature, first appeared in the 1935 Constitution. However, the -controlled corporations.No government representative sits on the board of
petitioner was incorporated in 1905 by virtue of Act No. 1258, a law trustees of the petitioner. Like all private corporations, the successors of its
antedating the Corporation Law (Act No. 1459) by a year, and the 1935 members are determined voluntarily and solely by the petitioner in
Constitution, by thirty years. There being neither a general law on the accordance with its by-laws, and may exercise those powers generally
formation and organization of private corporations nor a restriction on the accorded to private corporations, such as the powers to hold property, to sue
legislature to create private corporations by direct legislation, the Philippine and be sued, to use a common seal, and so forth. It may adopt by-laws for its
Commission at that moment in history was well within its powers in 1905 to internal operations: the petitioner shall be managed or operated by its
constitute the petitioner as a private juridical entity. officers in accordance with its by-laws in force. The pertinent provisions of
the charter provide:

95
Section 1. Anna L. Ide, Kate S. Wright, John L. Sec. 3. The said society shall be operated under the
Chamberlain, William F. Tucker, Mary S. direction of its officers, in accordance with its by-laws in
Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy force, and this charter.
B. Rossiter, Richard P. Strong, Jose Robles Lahesa,
Josefina R. de Luzuriaga, and such other persons as may be
associated with them in conformity with this act, and their
successors, are hereby constituted and created a body xxxx
politic and corporate at law, under the name and style of The
Philippines Society for the Prevention of Cruelty to Animals.

Sec. 6. The principal office of the society shall be


kept in the city of Manila, and the society shall have full
As incorporated by this Act, said society shall have power to locate and establish branch offices of the society
the power to add to its organization such and as many wherever it may deem advisable in the Philippine Islands,
members as it desires, to provide for and choose such such branch offices to be under the supervision and control
officers as it may deem advisable, of the principal office.
and in such manner as it may wish, and to remove members
as it shall provide.

Third. The employees of the petitioner are registered and covered by the
Social Security System at the latters initiative, and not through the
It shall have the right to sue and be sued, to use a Government Service Insurance System, which should be the case if the
common seal, to employees are considered government employees. This is another indication
receive legacies and donations, to conduct social enterprises of petitioners nature as a private entity. Section 1 of Republic Act No. 1161,
for the purpose of obtaining funds, to levy dues upon as amended by Republic Act No. 8282, otherwise known as the Social
itsmembers and provide for their collection to hold real and Security Act of 1997, defines the employer:
personal estate such as may be necessary for the
accomplishment of the purposes of the society, and to adopt
such by-laws for its government as may not be inconsistent
with law or this charter.
Employer Any person, natural or juridical, domestic
or foreign, who carries on in the Philippines any trade,
business, industry, undertaking or activity of any kind and
uses the services of another person who is under his orders
xxxx as regards the employment, except the Government and any

96
of its political subdivisions, branches or instrumentalities, public benefit. Private schools and universities are likewise private
including corporations owned or controlled by the corporations; and yet, they are rendering public service. Private hospitals and
Government: Provided, That a self-employed person shall be wards are charged with heavy social responsibilities. More so with all
both employee and employer at the same time. (Emphasis common carriers. On the other hand, there may exist a public corporation
supplied) even if it is endowed with gifts or donations from private individuals.

Fourth. The respondents contend that the petitioner is a body politic because The true criterion, therefore, to determine whether a corporation is public or
its primary purpose is to secure the protection and welfare of animals which, private is found in the totality of the relation of the corporation to the State. If
in turn, redounds to the public good. the corporation is created by the State as the latters own agency or
instrumentality to help it in carrying out its governmental functions, then that
corporation is considered public; otherwise, it is private. Applying the above
test, provinces, chartered cities, and barangays can best exemplify public
This argument, is, at best, specious. The fact that a certain juridical entity is corporations. They are created by the State as its own device and agency for
impressed with public interest does not, by that circumstance alone, make the accomplishment of parts of its own public works.[25]
the entity a public corporation, inasmuch as a corporation may be private
although its charter contains provisions of a public character, incorporated
solely for the public good. This class of corporations may be considered
quasi-public corporations, which are private corporations that render public It is clear that the amendments introduced by C.A. No. 148 revoked the
service, supply public wants,[21] or pursue other eleemosynary powers of the petitioner to arrest offenders of animal welfare laws and the
objectives. While purposely organized for the gain or benefit of its members, power to serve processes in connection therewith.
they are required by law to discharge functions for the public
benefit. Examples of these corporations are utility,[22] railroad, warehouse,
telegraph, telephone, water supply corporations and transportation
companies.[23] It must be stressed that a quasi-public corporation is a Fifth. The respondents argue that since the charter of the petitioner requires
species of private corporations, but the qualifying factor is the type of the latter to render periodic reports to the Civil Governor, whose functions
service the former renders to the public: if it performs a public service, then it have been inherited by the President, the petitioner is, therefore, a
becomes a quasi-public corporation.[24] government instrumentality.

Authorities are of the view that the purpose alone of the corporation cannot This contention is inconclusive. By virtue of the fiction that all corporations
be taken as a safe guide, for the fact is that almost all corporations are owe their very existence and powers to the State, the reportorial requirement
nowadays created to promote the interest, good, or convenience of the is applicable to all corporations of whatever nature, whether they are public,
public. A bank, for example, is a private corporation; yet, it is created for a quasi-public, or private corporationsas creatures of the State, there is a

97
reserved right in the legislature to investigate the activities of a corporation to hand when charged with an abuse of such privileges.
determine whether it acted within its powers. In other words, the reportorial (Wilson v. United States, 55 Law Ed., 771, 780.)[27]
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. These principles were extensively discussed in Bataan Shipyard &
Engineering Co., Inc. v. Presidential Commission on Good Government. WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private
[26]
Here, the Court, in holding that the subject corporation could not invoke domestic corporation subject to the jurisdiction of the Securities and
the right against self-incrimination whenever the State demanded the Exchange Commission. The respondents are ENJOINED from investigating,
production of its corporate books and papers, extensively discussed the examining and auditing the petitioner's fiscal and financial affairs.
purpose of reportorial requirements, viz:

SO ORDERED.
x x x The corporation is a creature of the state. It is
presumed to be incorporated for the benefit of the public. It
received certain special privileges and franchises, and holds
them subject to the laws of the state and the limitations of its
charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the
laws of its creation. There is a reserve[d] right in the
legislature to investigate its contracts and find out whether it
has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to make
use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been G.R. No. 95237-38 September 13, 1991
employed, and whether they had been abused, and demand
the production of the corporate books and papers for that
DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER
purpose. The defense amounts to this, that an officer of the
DISTRICT, METRO CEBU WATER DISTRICT, ZAMBOANGA CITY WATER
corporation which is charged with a criminal violation of the
DISTRICT, LEYTE METRO WATER DISTRICT, BUTUAN CITY WATER
statute may plead the criminality of such corporation as a
DISTRICT, CAMARINES NORTE WATER DISTRICT, LAGUNA WATER
refusal to produce its books. To state this proposition is to
DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER
answer it. While an individual may lawfully refuse to answer
DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER
incriminating questions unless protected by an immunity
DISTRICT, URDANETA WATER DISTRICT, COTABATO CITY WATER
statute, it does not follow that a corporation vested with
DISTRICT, MARAWI WATER DISTRICT, TAGUM WATER DISTRICT,
special privileges and franchises may refuse to show its
DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and MECAUAYAN

98
WATER DISTRICT,petitioners, The respondents, on the other hand, are the Civil Service Commission (CSC)
vs. and the Commission on Audit (COA), both government agencies and
CIVIL SERVICE COMMISSION, and COMMISSION ON represented in this case by the Solicitor General.
AUDIT, respondents.
On April 17, 1989, this Court ruled in the case of Tanjay Water District v.
Rodolfo S. De Jesus for petitioners. Gabaton, et al. (G.R. No. 63742, 172 SCRA 253):

Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-Tingzon for Significantly, Article IX (B), Section 2(1) of the 1987
CSC. Constitution provides that the Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of
the government, including government-owned and controlled
corporations with original charters. Inasmuch as PD No. 198,
MEDIALDEA, J.:p as amended, is the original charter of the petitioner, Tanjay
Water District, and respondent Tarlac Water District and all
water districts in the country, they come under the coverage
Whether or not the Local Water Districts formed and created pursuant to the
of the Civil Service Law, rules and regulations. (Sec. 35, Art.
provisions of Presidential Decree No. 198, as amended, are government-
VIII and Sec. 37, Art. IX of PD No. 807).
owned or controlled corporations with original charter falling under the Civil
Service Law and/or covered by the visitorial power of the Commission on
Audit is the issue which the petitioners entreat this Court, en banc, to shed As an offshoot of the immediately cited ruling, the CSC. issued Resolution
light on. No. 90-575, the dispositive portion of which reads:

Petitioners are among the more than five hundred (500) water districts NOW THEREFORE, in view of all the foregoing, the
existing throughout the country formed pursuant to the provisions of Commission resolved, as it hereby resolves to rule that Local
Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768 Water Districts, being quasi-public corporations created by
and 1479, otherwise known as the "Provincial Water Utilities Act of 1973." law to perform public services and supply public wants, the
matter of hiring and firing of its officers and employees
should be governed by the Civil Service Law, rules and
Presidential Decree No. 198 was issued by the then President Ferdinand E.
regulations. Henceforth, all appointments of personnel of the
Marcos by virtue of his legislative power under Proclamation No. 1081. It
different local water districts in the country shall be submitted
authorized the different local legislative bodies to form and create their
to the Commission for appropriate action. (Rollo. p. 22).
respective water districts through a resolution they will pass subject to the
guidelines, rules and regulations therein laid down. The decree further
created and formed the "Local Water Utilities Administration" (LWUA), a However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water
national agency attached to the National Economic and Development District v. National Labor Relations Commission, et al.," the Third Division of
Authority (NEDA), and granted with regulatory power necessary to optimize this Court ruled in a minute resolution:
public service from water utilities operations.
xxx xxx xxx

99
Considering that PD 198 is a general legislation empowering the extent of the amount of such subsidies, pursuant to the provision of the
and/or authorizing government agencies and entities to Government Auditing Code of the Phils.
create water districts, said PD 198 cannot be considered as
the charter itself creating the Water District. Public It is to be observed that just like the question of whether the employees of
respondent NLRC did not commit any grave abuse of the water districts falls under the coverage of the Civil Service Law, the
discretion in holding that the operative act, that created the conflict between the water districts and the COA is also dependent on the
Metro Iloilo Water District was the resolution of the final determination of whether or not water districts are government-owned or
Sangguniang Panglunsod of Iloilo City. Hence, the controlled corporations with original charter. The reason behind this is Sec.
employees of Water Districts are not covered by Civil 2(1), Article IX-D of the 1987 constitution which reads:
Service Laws as the latter do (sic) not have original charters.
Sec. 2(1) The Commission on Audit shall have the power,
In adherence to the just cited ruling, the CSC suspended the implementation authority, and duty to examine, audit, and settle all accounts
of Resolution No. 90-575 by issuing Resolution No. 90-770 which reads: pertaining to the revenue and receipts of, and expenditures
or uses of funds and property, owned or held in trust by, or
xxx xxx xxx pertaining to the Government, or any of its subdivisions,
agencies or instrumentalities, including government-owned
NOW, THEREFORE, in view of all the foregoing, the or controlled corporations with original charters, and on a
Commission resolved to rule, as it hereby rules, that the post audit basis. (emphasis supplied)
implementation of CSC. Resolution No. 575 dated June 27,
1990 be deferred in the meantime pending clarification from Petitioners' main argument is that they are private corporations without
the Supreme Court are regards its conflicting decisions in original charter, hence they are outside the jurisdiction of respondents CSC
the cases of Tanjay Water District v. Gabaton and Metro and COA. Reliance is made on the Metro Iloilo case which declared
Iloilo Water District v. National Labor Relations petitioners as quasi-public corporations created by virtue of PD 198, a
Commission. (p. 26, Rollo) general legislation which cannot be considered as the charter itself creating
the water districts. Holding on to this ruling, petitioners contend that they are
In the meanwhile, there exists a divergence of opinions between COA on one private corporations which are only regarded as quasi-public or semi-public
hand, and the (LWUA), on the other hand, with respect to the authority of because they serve public interest and convenience and that since PD 198 is
COA to audit the different water districts. a general legislation, the operative act which created a water district is not
the said decree but the resolution of the sanggunian concerned.
COA opined that the audit of the water districts is simply an act of
discharging the visitorial power vested in them by law (letter of COA to LWUA After a fair consideration of the parties' arguments coupled with a careful
dated August 13, 1985, pp. 29-30, Rollo). study of the applicable laws as well as the constitutional provisions involved,
We rule against the petitioners and reiterate Our ruling in Tanjay case
On the other hand, LWUA maintained that only those water districts with declaring water districts government-owned or controlled corporations with
subsidies from the government fall within the COA's jurisdiction and only to original charter.

100
As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, The Labor Arbiter failed to take into accout the provisions of
February 20, 1984, 127 SCRA 730), We already ruled that a water district is Presidential Decree No. 1479, which went into effect on 11
a corporation created pursuant to a special law P.D. No. 198, as June 1978, P.D. No. 1479, wiped away Section 25 of PD 198
amended, and as such its officers and employees are covered by the Civil quoted above, and Section 26 of PD 198 was renumbered
Service Law. as Section 25 in the following manner:

In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August Section 26 of the same decree PD 198 is hereby amended
31, 1988, 165 SCRA 272), We ruled once again that local water districts are to read as Section 25 as follows:
quasi-public corporations whose employees belong to the Civil Service. The
Court's pronoucement in this case, as extensively quoted in Section 25. Authorization. The district may exercise all
the Tanjay case, supra, partly reads: the powers which are expressly granted by this Title or which
are necessarily implied from or incidental to the powers and
"The only question here is whether or not local water districts purposes herein stated. For the purpose of carrying out the
are governmkent owned or controlled corporations whose objectives of this Act, a district is hereby granted the power
employees are subject to the provisions of the Civil Service of eminent domain, the exercise thereof shall, however, be
Law. The Labor Arbiter asserted jurisdiction over the alleged subject to review by the Administration.
illegal dismissal of private respondent Villanueva by relying
on Section 25 of Presidential decree No. 198, known as the Thus, Section 25 of PD 198 exempting the employees of
Provincial Water Utilities Act of 1973" which went onto effect water districts from the application of the Civil Service Law
in 25 May 1973, and which provides as follows: was removed from the statute books:

Exemption from Civil Service. The district xxx xxx xxx


and its employees, being engaged in a
proprietary function, are hereby exempt from We grant the petition for the following reasons:
the provisions of the Civil Service Law.
Collective Bargaining shall be available only
1. Section 25 of PD No. 198 was repealed by Section 3 of
to personnel below supervisory
PD No. 1479; Section 26 of PD No. 198 was amended ro
levels: Provided, however, That the total of
read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory
all salaries, wages emoluments, benefits or
decree took effect on June 11, 1978.
other compensation paid to all employees in
any month shall not exceed fifty percent
(50%) of average net monthy revenue. Said xxx xxx xxx
net revenue representing income from water
sales and sewerage service charges, less 3. The BWD is a corporation created pursuant to a special
pro-rata share of debt service and expenses law PD No. 198, as amended. As such its officers and
for fuel or energy for pumping during the employees are part of the Civil Service (Sec. 1, Art. XII-B,
preceding fiscal year. [1973] Constitution; PD No. 868).

101
Ascertained from a consideration of the whole statute, PD 198 is a special code, but on the contrary, they were created pursuant to a special law and
law applicable only to the different water districts created pursuant thereto. In are governed primarily by its provision.
all its essential terms, it is obvious that it pertains to a special purpose which
is intended to meet a particular set of conditions and cirmcumstances. The No consideration may thus be given to petitioners' contention that the
fact that said decree generally applies to all water districts throughout the operative act which created the water districts are the resolutions of the
country does not change the fact that PD 198 is a special law. Accordingly, respective local sanggunians and that consequently, PD 198, as amended,
this Court's resolution in Metro Iloilo case declaring PD 198 as a general cannot be considered as their charter.
legislation is hereby abandoned.
It is to be noted that PD 198, as amended is the source of authorization and
By "government-owned or controlled corporation with original charter," We power to form and maintain a district. Section 6 of said decree provides:
mean government owned or controlled corporation created by a special law
and not under the Corporation Code of the Philippines. Thus, in the case Sec. 6. Formation of District. This Act is the source of
of Lumanta v. NLRC (G.R. No. 82819, February 8, 1989, 170 SCRA 79, 82), authorization and power to form and maintain a district.
We held: Once formed, a district is subject to the provisions of this Act
and not under the jurisdiction of any political
The Court, in National Service Corporation (NASECO) v. subdivision, . . . .
National Labor Relations Commission, G.R. No 69870,
promulgated on 29 November 1988, quoting extensively Moreover, it must be observed that PD 198, contains all the essential terms
from the deliberations of 1986 Constitutional Commission in necessary to constitute a charter creating a juridical person. For example,
respect of the intent and meaning of the new phrase "with Section 6(a) provides for the name that will be used by a water district, thus:
original character," in effect held that government-owned
and controlled corporations with original charter refer to
Sec. 6. . . . To form a district, the legislative body of any city,
corporations chartered by special law as distinguished from
municipality or province shall enact a resolution containing
corporations organized under our general incorporation
the following:
statute the Corporations Code. In NASECO, the company
involved had been organized under the general incorporation
statute and was a sbusidiary of the National Investment a) The name of the local water district, which shall include
Development Corporation (NIDC) which in turn was a the name of the city, municipality, or province, or region
subsidiary of the Philippine National Bank, a bank chartered thereof, served by said system, followed by the words "Water
by a special statute. Thus, government-owned or controlled District."
corporations like NASECO are effectively, excluded from the
scope of the Civil Service. (emphasis supplied) It also prescribes for the numbers and qualifications of the members of the
Board of Directors:
From the foregoing pronouncement, it is clear that what has been excluded
from the coverage of the CSC are those corporations created pursuant to the Sec. 8. Number and Qualification. The Board of Directors
Corporation Code. Significantly, petitioners are not created under the said of a district shall be composed of five citizens of the
Philippines who are of voting age and residents within the

102
district. One member shall be a representative of civic- fails to make his appointments on or before December 15,
oriented service clubs, one member of representative of selection shall be made from said list of nominees by
professional associations, one member a representative of majority vote of the seated directors of the district
business, commercial or financial organizations, one constituting a quorum. Initial nominations for all five seats of
member a representative of educational institutions and one the board shall be solicited by the legislative body or bodies
member a representative of women's organization. No public at the time of adoption of the resolution forming the district.
official shall serve as director. Provided, however, that if the Thirty days thereafter, a list of nominees shall be submitted
district has availed of the financial assistance of the to the provincial governor in the event the resolution forming
Administration, the Administration may appoint any of its the district is by a provincial board, or the mayor of the city or
personnel to sit in the board of directors with all the rights municipality in the event the resolution forming the adoption
and privileges appertaining to a regular member for such of the district is by the city or municipal board of councilors,
period as the indebtedness remains unpaid in which case who shall select the initial directors therefrom within 15 days
the board shall be composed of six members; (as amended after receipt of such nominations;
by PDs Nos. 768 and 1479).
their terms of office:
the manner of their appointment and nominations;
Sec. 11. Term of Office. Of the five initial directors of each
Sec. 9. Appointment. Board members shall be appointed newly formed district, two shall be appointed for a maximum
by the appointing authority. Said appointments shall be made term of two years, two for a maximum term of four years, and
from a list of nominees, if any, submitted pursuant to Section one for a maximum term of six years. Terms of office of all
10. If no nominations are submitted, the appointing authority directors in a given district shall be such that the term of at
shall appoint any qualified person of the category to the least one director, but not more then two, shall expire on
vacant position; December 31 of each even-numbered year. Regular terms of
office after the initial terms shall be for six years commencing
Sec.10. Nominations. On or before October 1 of each on January 1 of odd-numbered years. Directors may be
even numbered year, the secretary of the district shall removed for cause only, subject to review and approval of
contact each known organization, association, or institution the Administration; (as amended by PD 768).
being represented by the director whose term will expire on
December 31 and solicit nominations from these the manner of filling up vacancies:
organizations to fill the position for the ensuing term. One
nomination may be submitted in writing by each such Sec. 12. Vacancies. In the event of a vacancy in the
organization to the Secretary of the district on or before board of directors occurring more than six months before
November 1 of such year: This list of nominees shall be expiration of any director's term, the remaining directors shall
transmitted by the Secretary of the district to the office of the within 30 days, serve notice to or request the secretary of the
appointing authority on or before November 15 of such year district for nominations and within 30 days, thereafter a list of
and he shall make his appointment from the list submitted on nominees shall be submitted to the appointing authority for
or before December 15. In the event the appointing authority

103
his appointment of a replacement director from the list of final creation of a district, this Court is of the opinion that said resolution
nominees. In the absence of such nominations, the cannot be considered as its charter, the same being intended only to
appointing authority shall make such appointment. If within implement the provisions of said decree. In passing a resolution forming a
30 days after submission to him of a list of nominees the water district, the local sanggunian is entrusted with no authority or discretion
appointing authority fails to make an appointment, the to grant a charter for the creation of a private corporation. It is merely given
vacancy shall be filled from such list by a majority vote of the the authority for the formation of a water district, on a local option basis, to be
remaining members of the Board of Directors constituting a exercised under and in pursuance of PD 198.
quorum. Vacancies occurring within the last six months of an
unexpired term shall also be filled by the Board in the above More than the aforequoted provisions, what is of important interest in the
manner. The director thus appointed shall serve the case at bar is Section 3, par. (b) of the same decree which reads:
unexpired term only; (as amended by PD 768).
Sec. 3(b). Appointing authority. The person empowered to
and the compensation and personal liability of the members of the Board of appoint the members of the Board of Directors of a local
Directors: water district, depending upon the geographic coverage and
population make-up of the particular district. In the event that
Sec. 13. Compensation. Each director shall receive a per more than seventy-five percent of the total active water
diem, to be determined by the board, for each meeting of the service connections of a local water districts are within the
board actually attended by him, but no director shag receive boundary of any city or municipality, the appointing authority
per diems in any given month in excess of the equivalent of shall be the mayor of that city or municipality, as the case
the total per diems of four meetings in any given month. No may be; otherwise, the appointing authority shall be the
director shall receive other compensation for services to the governor of the province within which the district is
district. located: Provided, That if the existing waterworks system in
the city or municipality established as a water district under
Any per diem in excess of P50.00 shall be subject to this Decree is operated and managed by the province, initial
approval of the Administration (as amended by PD 768). appointment shall be extended by the governor of the
province. Subsequent appointments shall be as specified
Sec. 14. Personal Liability. No director may be held to be herein.
personally liable for any action of the district.
If portions of more than one province are included within the
Noteworthy, the above quoted provisions of PD 198, as amended, are similar boundary of the district, and the appointing authority is to be
to those which are actually contained in other corporate charters. The the governors then the power to appoint shall rotate between
conclusion is inescapable that the said decree is in truth and in fact the the governors involved with the initial appointments made by
charter of the different water districts for it clearly defines the latter's primary the governor in whose province the greatest number of
purpose and its basic organizational set-up. In other words, PD 198, as service connections exists (as amended by PD 768).
amended, is the very law which gives a water district juridical personality.
While it is true that a resolution of a local sanggunian is still necessary for the

104
The above-quoted section definitely sets to naught petitioners' contention
that they are private corporations. It is clear therefrom that the power to
appoint the members who will comprise the Board of Directors belongs to the
local executives of the local subdivision units where such districts are
located. In contrast, the members of the Board of Directors or trustees of a
private corporation are elected from among the members and stockholders
thereof. It would not be amiss to emphasize at this point that a private
corporation is created for the private purpose, benefit, aim and end of its
members or stockholders. Necessarily, said members or stockholders should
be given a free hand to choose those who will compose the governing body
of their corporation. But this is not the case here and this clearly indicates
that petitioners are definitely not private corporations.

The foregoing disquisition notwithstanding, We are, however, not unaware of


the serious repercussion this may bring to the thousands of water districts'
employees throughout the country who stand to be affected because they do
not have the necessary civil service eligibilities. As these employees are
equally protected by the constitutional guarantee to security of tenure, We
find it necessary to rule for the protection of such right which cannot be
impaired by a subsequent ruling of this Court. Thus, those employees who
have already acquired their permanent employment status at the time of the
promulgation of this decision cannot be removed by the mere reason that
they lack the necessary civil service eligibilities.

ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared


"government-owned or controlled corporations with original charter" which fall
under the jurisdiction of the public respondents CSC and COA.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Padilla, Grio-


Aquino, Regalado and Davide, Jr., JJ., concur.

Gutierrez, Jr., Feliciano and Sarmiento, JJ., are on leave.

105
106
G.R. No. L-6776 May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,


vs.
UNG SIU SI TEMPLE, respondent-appellant.

Alejo F. Candido for appellant.


Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V.
Makasiar for appellee.

REYES, J.B.L., J.:

The Register of Deeds for the province of Rizal refused to accept for record a
deed of donation executed in due form on January 22, 1953, by Jesus Dy, a
Filipino citizen, conveying a parcel of residential land, in Caloocan, Rizal,
known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in
favor of the unregistered religious organization "Ung Siu Si Temple",
operating through three trustees all of Chinese nationality. The donation was
duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of
the Temple, acting in representation and in behalf of the latter and its
trustees.

The refusal of the Registrar was elevated en Consultato the IVth Branch of
the Court of First Instance of Manila. On March 14, 1953, the Court upheld
the action of the Rizal Register of Deeds, saying:

The question raised by the Register of Deeds in the above


transcribed consulta is whether a deed of donation of a parcel of land
executed in favor of a religious organization whose founder, trustees
and administrator are Chinese citizens should be registered or not.

It appearing from the record of the Consulta that UNG SIU SI


TEMPLE is a religious organization whose deaconess, founder,
trustees and administrator are all Chinese citizens, this Court is of
the opinion and so hold that in view of the provisions of the sections
1 and 5 of Article XIII of the Constitution of the Philippines limiting the

107
acquisition of land in the Philippines to its citizens, or to corporations associations qualified to acquire or hold lands of the public domain in
or associations at least sixty per centum of the capital stock of which the Philippines,
is owned by such citizens adopted after the enactment of said Act
No. 271, and the decision of the Supreme Court in the case of the Constitution makes no exception in favor of religious associations.
Krivenko vs. the Register of Deeds of Manila, the deed of donation in Neither is there any such saving found in sections 1 and 2 of Article XIII,
question should not be admitted for admitted for registration. (Printed restricting the acquisition of public agricultural lands and other natural
Rec. App. pp 17-18). resources to "corporations or associations at least sixty per centum of the
capital of which is owned by such citizens" (of the Philippines).
Not satisfied with the ruling of the Court of First Instance, counsel for the
donee Uy Siu Si Temple has appealed to this Court, claiming: (1) that the The fact that the appellant religious organization has no capital stock does
acquisition of the land in question, for religious purposes, is authorized and not suffice to escape the Constitutional inhibition, since it is admitted that its
permitted by Act No. 271 of the old Philippine Commission, providing as members are of foreign nationality. The purpose of the sixty per centum
follows: requirement is obviously to ensure that corporations or associations allowed
to acquire agricultural land or to exploit natural resources shall be controlled
SECTION 1. It shall be lawful for all religious associations, of by Filipinos; and the spirit of the Constitution demands that in the absence of
whatever sort or denomination, whether incorporated in the capital stock, the controlling membership should be composed of Filipino
Philippine Islands or in the name of other country, or not incorporated citizens.
at all, to hold land in the Philippine Islands upon which to build
churches, parsonages, or educational or charitable institutions. To permit religious associations controlled by non-Filipinos to acquire
agricultural lands would be to drive the opening wedge to revive alien
SEC. 2. Such religious institutions, if not incorporated, shall hold the religious land holdings in this country. We can not ignore the historical fact
land in the name of three Trustees for the use of such that complaints against land holdings of that kind were among the factors
associations; . . .. (Printed Rec. App. p. 5.) that sparked the revolution of 1896.

and (2) that the refusal of the Register of Deeds violates the freedom of As to the complaint that the disqualification under article XIII is violative of the
religion clause of our Constitution [Art. III, Sec. 1(7)]. freedom of religion guaranteed by Article III of the Constitution, we are by no
means convinced (nor has it been shown) that land tenure is indispensable
We are of the opinion that the Court below has correctly held that in view of to the free exercise and enjoyment of religious profession or worship; or that
the absolute terms of section 5, Title XIII, of the Constitution, the provisions one may not worship the Deity according to the dictates of his own
of Act No. 271 of the old Philippine Commission must be deemed repealed conscience unless upon land held in fee simple.
since the Constitution was enacted, in so far as incompatible therewith. In
providing that, The resolution appealed from is affirmed, with costs against appellant.

Save in cases of hereditary succession, no private agricultural land Pablo, Acting C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo,
shall be transferred or assigned except to individuals, corporations or Labrador, and Concepcion, JJ., concur.

108
109
110
The essential facts are not in dispute. On November 4,1946, the Pacific
Airways Corporation registered its articles of incorporation with the Securities
and Exchanged Commission. The article were prepared and the registration
was effected by the accused, who was in fact the organizer of the
corporation. The article stated that the primary purpose of the corporation
was to carry on the business of a common carrier by air, land or water; that
its capital stock was P1,000,000, represented by 9,000 preferred and
G.R. No. L-6055 June 12, 1953
100,000 common shares, each preferred share being of the par value of
p100 and entitled to 1/3 vote and each common share, of the par value of P1
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, and entitled to one vote; that the amount capital stock actually subscribed
vs. was P200,000, and the names of the subscribers were Arsenio Baylon, Eruin
WILLIAM H. QUASHA, defendant-appellant. E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and
William H. Quasha, the first being a Filipino and the other five all Americans;
Jose P. Laurel for appellant and William H. Quasha in his own behalf. that Baylon's subscription was for 1,145 preferred shares, of the total value of
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General P114,500, and for 6,500 common shares, of the total par value of P6,500,
Francisco Carreon for appellee. while the aggregate subscriptions of the American subscribers were for 200
preferred shares, of the total par value of P20,000, and 59,000 common
REYES, J.: shares, of the total par value of P59,000; and that Baylon and the American
subscribers had already paid 25 per cent of their respective subscriptions.
William H. Quasha, a member of the Philippine bar, was charged in the Court Ostensibly the owner of, or subscriber to, 60.005 per cent of the subscribed
of First Instance of Manila with the crime of falsification of a public and capital stock of the corporation, Baylon nevertheless did not have the
commercial document in that, having been entrusted with the preparation controlling vote because of the difference in voting power between the
and registration of the article of incorporation of the Pacific Airways preferred shares and the common shares. Still, with the capital structure as it
Corporation, a domestic corporation organized for the purpose of engaging in was, the article of incorporation were accepted for registration and a
business as a common carrier, he caused it to appear in said article of certificate of incorporation was issued by the Securities and Exchange
incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to Commission.
and was the owner of 60.005 per cent of the subscribed capital stock of the
corporation when in reality, as the accused well knew, such was not the case, There is no question that Baylon actually subscribed to 60.005 per cent of
the truth being that the owner of the portion of the capital stock subscribed to the subscribed capital stock of the corporation. But it is admitted that the
by Baylon and the money paid thereon were American citizen whose name money paid on his subscription did not belong to him but to the Americans
did not appear in the article of incorporation, and that the purpose for making subscribers to the corporate stock. In explanation, the accused testified,
this false statement was to circumvent the constitutional mandate that no without contradiction, that in the process of organization Baylon was made a
corporation shall be authorize to operate as a public utility in the Philippines trustee for the American incorporators, and that the reason for making Baylon
unless 60 per cent of its capital stock is owned by Filipinos. such trustee was as follows:

Found guilty after trial and sentenced to a term of imprisonment and a fine,
the accused has appealed to this Court.

111
Q. According to this article of incorporation Arsenio Baylon xxx xxx xxx
subscribed to 1,135 preferred shares with a total value of P1,135. Do
you know how that came to be? 4. Making untruthful statements in a narration of facts.

A. Yes. ART. 172. Falsification by private individuals and use of falsified


documents. The penalty of prision correccional in its medium and
The people who were desirous of forming the corporation, whose names are maximum period and a fine of not more than 5,000 pesos shall be
listed on page 7 of this certified copy came to my house, Messrs. imposed upon:
Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening.
There was considerable difficulty to get them all together at one time xxx xxx xxx
because they were pilots. They had difficulty in deciding what their respective
share holdings would be. Onstott had invested a certain amount of money in 1. Any private individual who shall commit any of the falsifications
airplane surplus property and they had obtained a considerable amount of enumerated in the next preceding article in any public or official
money on those planes and as I recall they were desirous of getting a document or letter of exchange or any other kind of commercial
corporation formed right away. And they wanted to have their respective document.
shares holdings resolved at a latter date. They stated that they could get
together that they feel that they had no time to settle their respective share
Commenting on the above provision, Justice Albert, in his well-known work
holdings. We discussed the matter and finally it was decided that the best
on the Revised Penal Code ( new edition, pp. 407-408), observes, on the
way to handle the things was not to put the shares in the name of anyone of
authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in the
the interested parties and to have someone act as trustee for their respective
narration of facts must be made with the wrongful intent of injuring a third
shares holdings. So we looked around for a trustee. And he said "There are a
person; and on the authority of U.S. vs. Lopez (15 Phil., 515), the same
lot of people whom I trust." He said, "Is there someone around whom we
author further maintains that even if such wrongful intent is proven, still the
could get right away?" I said, "There is Arsenio. He was my boy during the
untruthful statement will not constitute the crime of falsification if there is no
liberation and he cared for me when i was sick and i said i consider him my
legal obligation on the part of the narrator to disclose the truth. Wrongful
friend." I said. They all knew Arsenio. He is a very kind man and that was
intent to injure a third person and obligation on the part of the narrator to
what was done. That is how it came about.
disclose the truth are thus essential to a conviction for a crime of falsification
under the above article of the Revised Penal Code.
Defendant is accused under article 172 paragraph 1, in connection with
article 171, paragraph 4, of the Revised Penal Code, which read:
Now, as we see it, the falsification imputed in the accused in the present
case consists in not disclosing in the articles of incorporation that Baylon was
ART. 171. Falsification by public officer, employee, or notary or a mere trustee ( or dummy as the prosecution chooses to call him) of his
ecclesiastic minister. The penalty of prision mayor and a fine not American co-incorporators, thus giving the impression that Baylon was the
to exceed 5,000 pesos shall be imposed upon any public officer, owner of the shares subscribed to by him which, as above stated, amount to
employee, or notary who, taking advantage of his official position, 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the
shall falsify a document by committing any of the following acts: trial court, is a malicious perversion of the truth made with the wrongful intent
circumventing section 8, Article XIV of the Constitution, which provides that "

112
no franchise, certificate, or any other form of authorization for the operation It is urged, however, that the formation of the corporation with 60 per cent of
of a public utility shall be granted except to citizens of the Philippines or to its subscribed capital stock appearing in the name of Baylon was an
corporation or other entities organized under the law of the Philippines, indispensable preparatory step to the subversion of the constitutional
sixty per centum of the capital of which is owned by citizens of the prohibition and the laws implementing the policy expressed therein. This view
Philippines . . . ." Plausible though it may appear at first glance, this opinion is not correct. For a corporation to be entitled to operate a public utility it is
loses validity once it is noted that it is predicated on the erroneous not necessary that it be organized with 60 per cent of its capital owned by
assumption that the constitutional provision just quoted was meant to prohibit Filipinos from the start. A corporation formed with capital that is entirely alien
the mere formation of a public utility corporation without 60 per cent of its may subsequently change the nationality of its capital through transfer of
capital being owned by the Filipinos, a mistaken belief which has induced the shares to Filipino citizens. conversely, a corporation originally formed with
lower court to that the accused was under obligation to disclose the whole Filipino capital may subsequently change the national status of said capital
truth about the nationality of the subscribed capital stock of the corporation through transfer of shares to foreigners. What need is there then for a
by revealing that Baylon was a mere trustee or dummy of his American co- corporation that intends to operate a public utility to have, at the time of its
incorporators, and that in not making such disclosure defendant's intention formation, 60 per cent of its capital owned by Filipinos alone? That condition
was to circumvent the Constitution to the detriment of the public interests. may anytime be attained thru the necessary transfer of stocks. The moment
Contrary to the lower court's assumption, the Constitution does not prohibit for determining whether a corporation is entitled to operate as a public utility
the mere formation of a public utility corporation without the required is when it applies for a franchise, certificate, or any other form of
formation of Filipino capital. What it does prohibit is the granting of a authorization for that purpose. And that can be done after the corporation has
franchise or other form of authorization for the operation of a public utility to already come into being and not while it is still being formed. And at that
a corporation already in existence but without the requisite proportion of moment, the corporation must show that it has complied not only with the
Filipino capital. This is obvious from the context, for the constitutional requirement of the Constitution as to the nationality of its capital, but also
provision in question qualifies the terms " franchise", "certificate", or "any with the requirements of the Civil Aviation Law if it is a common carrier by air,
other form of authorization" with the phrase "for the operation of a public the Revised Administrative Code if it is a common carrier by water, and the
utility," thereby making it clear that the franchise meant is not the "primary Public Service Law if it is a common carrier by land or other kind of public
franchise" that invest a body of men with corporate existence but the service.
"secondary franchise" or the privilege to operate as a public utility after the
corporation has already come into being. Equally untenable is the suggestion that defendant should at least be held
guilty of an "impossible crime" under article 59 of the Revised Penal Code. It
If the Constitution does not prohibit the mere formation of a public utility not being possible to suppose that defendant had intended to commit a crime
corporation with the alien capital, then how can the accused be charged with for the simple reason that the alleged constitutional prohibition which he is
having wrongfully intended to circumvent that fundamental law by not charged for having tried to circumvent does not exist, conviction under that
revealing in the articles of incorporation that Baylon was a mere trustee of his article is out of the question.
American co-incorporation and that for that reason the subscribed capital
stock of the corporation was wholly American? For the mere formation of the The foregoing consideration can not but lead to the conclusion that the
corporation such revelation was not essential, and the Corporation Law does defendant can not be held guilty of the crime charged. The majority of the
not require it. Defendant was, therefore, under no obligation to make it. In the court, however, are also of the opinion that, even supposing that the act
absence of such obligation and of the allege wrongful intent, defendant imputed to the defendant constituted falsification at the time it was
cannot be legally convicted of the crime with which he is charged. perpetrated, still with the approval of the Party Amendment to the

113
Constitution in March, 1947, which placed Americans on the same footing as
Filipino citizens with respect to the right to operate public utilities in the
Philippines, thus doing away with the prohibition in section 8, Article XIV of
the Constitution in so far as American citizens are concerned, the said act
has ceased to be an offense within the meaning of the law, so that defendant
can no longer be held criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the
defendant William H. Quasha acquitted, with costs de oficio.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo, and
Labrador, JJ., concur.

114
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co.,


Inc., after payment of corresponding premium, obtained from the petitioner
,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000,
covering merchandise contained in a building located at No. 711 Roman
Street, Binondo Manila. On February 27, 1942, or during the Japanese
military occupation, the building and insured merchandise were burned. In
due time the respondent submitted to the petitioner its claim under the policy.
The salvage goods were sold at public auction and, after deducting their
value, the total loss suffered by the respondent was fixed at P92,650. The
petitioner refused to pay the claim on the ground that the policy in favor of
the respondent had ceased to be in force on the date the United States
declared war against Germany, the respondent Corporation (though
organized under and by virtue of the laws of the Philippines) being controlled
by the German subjects and the petitioner being a company under American
jurisdiction when said policy was issued on October 1, 1941. The petitioner,
however, in pursuance of the order of the Director of Bureau of Financing,
Philippine Executive Commission, dated April 9, 1943, paid to the respondent
the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance
of Manila for the purpose of recovering from the respondent the sum of
P92,650 above mentioned. The theory of the petitioner is that the insured
merchandise were burned up after the policy issued in 1941 in favor of the
respondent corporation has ceased to be effective because of the outbreak
of the war between the United States and Germany on December 10, 1941,
G.R. No. L-2294 May 25, 1951 and that the payment made by the petitioner to the respondent corporation
during the Japanese military occupation was under pressure. After trial, the
FILIPINAS COMPAIA DE SEGUROS, petitioner, Court of First Instance of Manila dismissed the action without pronouncement
vs. as to costs. Upon appeal to the Court of Appeals, the judgment of the Court
CHRISTERN, HUENEFELD and CO., INC., respondent. of First Instance of Manila was affirmed, with costs. The case is now before
us on appeal by certiorari from the decision of the Court of Appeals.

115
The Court of Appeals overruled the contention of the petitioner that the World War II revived the problem again. It was known that German
respondent corporation became an enemy when the United States declared and other enemy interests were cloaked by domestic corporation
war against Germany, relying on English and American cases which held that structure. It was not only by legal ownership of shares that a material
a corporation is a citizen of the country or state by and under the laws of influence could be exercised on the management of the corporation
which it was created or organized. It rejected the theory that nationality of but also by long term loans and other factual situations. For that
private corporation is determine by the character or citizenship of its reason, legislation on enemy property enacted in various countries
controlling stockholders. during World War II adopted by statutory provisions to the control
test and determined, to various degrees, the incidents of control.
There is no question that majority of the stockholders of the respondent Court decisions were rendered on the basis of such newly enacted
corporation were German subjects. This being so, we have to rule that said statutory provisions in determining enemy character of domestic
respondent became an enemy corporation upon the outbreak of the war corporation.
between the United States and Germany. The English and American cases
relied upon by the Court of Appeals have lost their force in view of the latest The United States did not, in the amendments of the Trading with the
decision of the Supreme Court of the United States in Clark vs. Uebersee Enemy Act during the last war, include as did other legislations the
Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance applications of the control test and again, as in World War I, courts
Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In refused to apply this concept whereby the enemy character of an
"Enemy Corporation" by Martin Domke, a paper presented to the Second American or neutral-registered corporation is determined by the
International Conference of the Legal Profession held at the Hague enemy nationality of the controlling stockholders.
(Netherlands) in August. 1948 the following enlightening passages appear:
Measures of blocking foreign funds, the so called freezing
Since World War I, the determination of enemy nationality of regulations, and other administrative practice in the treatment of
corporations has been discussion in many countries, belligerent and foreign-owned property in the United States allowed to large degree
neutral. A corporation was subject to enemy legislation when it was the determination of enemy interest in domestic corporations and
controlled by enemies, namely managed under the influence of thus the application of the control test. Court decisions sanctioned
individuals or corporations, themselves considered as enemies. It such administrative practice enacted under the First War Powers Act
was the English courts which first the Daimler case applied this new of 1941, and more recently, on December 8, 1947, the Supreme
concept of "piercing the corporate veil," which was adopted by the Court of the United States definitely approved of the control theory. In
peace of Treaties of 1919 and the Mixed Arbitral established after the Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss
First World War. corporation allegedly controlled by German interest, the Court: "The
property of all foreign interest was placed within the reach of the
The United States of America did not adopt the control test during vesting power (of the Alien Property Custodian) not to appropriate
the First World War. Courts refused to recognized the concept friendly or neutral assets but to reach enemy interest which
whereby American-registered corporations could be considered as masqueraded under those innocent fronts. . . . The power of seizure
enemies and thus subject to domestic legislation and administrative and vesting was extended to all property of any foreign country or
measures regarding enemy property. national so that no innocent appearing device could become a Trojan
horse."

116
It becomes unnecessary, therefore, to dwell at length on the authorities cited In the case of an ordinary fire policy, which grants insurance only
in support of the appealed decision. However, we may add that, in Haw Pia from year, or for some other specified term it is plain that when the
vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held parties become alien enemies, the contractual tie is broken and the
that China Banking Corporation came within the meaning of the word contractual rights of the parties, so far as not vested. lost. (Vance,
"enemy" as used in the Trading with the Enemy Acts of civilized countries not the Law on Insurance, Sec. 44, p. 112.)
only because it was incorporated under the laws of an enemy country but
because it was controlled by enemies. The respondent having become an enemy corporation on December 10,
1941, the insurance policy issued in its favor on October 1, 1941, by the
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, petitioner (a Philippine corporation) had ceased to be valid and enforcible,
provides that "anyone except a public enemy may be insured." It stands to and since the insured goods were burned after December 10, 1941, and
reason that an insurance policy ceases to be allowable as soon as an during the war, the respondent was not entitled to any indemnity under said
insured becomes a public enemy. policy from the petitioner. However, elementary rules of justice (in the
absence of specific provision in the Insurance Law) require that the premium
Effect of war, generally. All intercourse between citizens of paid by the respondent for the period covered by its policy from December
belligerent powers which is inconsistent with a state of war is 11, 1941, should be returned by the petitioner.
prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will The Court of Appeals, in deciding the case, stated that the main issue hinges
increase, or tend to increase, its income or resources; all acts of on the question of whether the policy in question became null and void upon
voluntary submission to it; or receiving its protection; also all acts the declaration of war between the United States and Germany on December
concerning the transmission of money or goods; and all contracts 10, 1941, and its judgment in favor of the respondent corporation was
relating thereto are thereby nullified. It further prohibits insurance predicated on its conclusion that the policy did not cease to be in force. The
upon trade with or by the enemy, upon the life or lives of aliens Court of Appeals necessarily assumed that, even if the payment by the
engaged in service with the enemy; this for the reason that the petitioner to the respondent was involuntary, its action is not tenable in view
subjects of one country cannot be permitted to lend their assistance of the ruling on the validity of the policy. As a matter of fact, the Court of
to protect by insurance the commerce or property of belligerent, alien Appeals held that "any intimidation resorted to by the appellee was not unjust
subjects, or to do anything detrimental too their country's interest. but the exercise of its lawful right to claim for and received the payment of
The purpose of war is to cripple the power and exhaust the the insurance policy," and that the ruling of the Bureau of Financing to the
resources of the enemy, and it is inconsistent that one country effect that "the appellee was entitled to payment from the appellant was, well
should destroy its enemy's property and repay in insurance the value founded." Factually, there can be no doubt that the Director of the Bureau of
of what has been so destroyed, or that it should in such manner Financing, in ordering the petitioner to pay the claim of the respondent,
increase the resources of the enemy, or render it aid, and the merely obeyed the instruction of the Japanese Military Administration, as
commencement of war determines, for like reasons, all trading may be seen from the following: "In view of the findings and conclusion of
intercourse with the enemy, which prior thereto may have been this office contained in its decision on Administrative Case dated February 9,
lawful. All individuals therefore, who compose the belligerent powers, 1943 copy of which was sent to your office and the concurrence therein of
exist, as to each other, in a state of utter exclusion, and are public the Financial Department of the Japanese Military Administration,
enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.) and following the instruction of said authority, you are hereby ordered to pay
the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said

117
claim, however, should be made by means of crossed check." (Emphasis
supplied.)

It results that the petitioner is entitled to recover what paid to the respondent
under the circumstances on this case. However, the petitioner will be entitled
to recover only the equivalent, in actual Philippines currency of P92,650 paid
on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent


corporation is ordered to pay to the petitioner the sum of P77,208.33,
Philippine currency, less the amount of the premium, in Philippine currency,
that should be returned by the petitioner for the unexpired term of the policy
in question, beginning December 11, 1941. Without costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo,


JJ., concur.

118
G.R. No. L-8451 December 20, 1957

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO,


INC., petitioner,
vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF
DEEDS OF DAVAO CITY, respondents.

Teodoro Padilla, for petitioner.


Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General
Jose G. Bautista and Troadio T. Quianzon, Jr., for respondents.

119
As the Register of Deeds entertained some doubts as to the registerability if
the document, the matter was referred to the Land Registration
FELIX, J.: Commissioner en consulta for resolution in accordance with section 4 of
Republic Act No. 1151. Proper hearing on the matter was conducted by the
This is a petition for mandamus filed by the Roman Catholic Apostolic Commissioner and after the petitioner corporation had filed its memorandum,
Administrator of Davao seeking the reversal of a resolution by the Land a resolution was rendered on September 21, 1954, holding that in view of the
Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the
are as follows: vendee was not qualified to acquire private lands in the Philippines in the
absence of proof that at least 60 per centum of the capital, property, or
assets of the Roman Catholic Apostolic Administrator of Davao, Inc., was
On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the
actually owned or controlled by Filipino citizens, there being no question that
City of Davao, executed a deed of sale of a parcel of land located in the
the present incumbent of the corporation sole was a Canadian citizen. It was
same city covered by Transfer Certificate No. 2263, in favor of the Roman
also the opinion of the Land Registration Commissioner that section 159 of
Catholic Apostolic Administrator of Davao Inc., s corporation sole organized
the corporation Law relied upon by the vendee was rendered operative by
and existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a
the aforementioned provisions of the Constitution with respect to real estate,
Canadian citizen, as actual incumbent. When the deed of sale was presented
unless the precise condition set therein that at least 60 per cent of its
to Register of Deeds of Davao for registration, the latter.
capital is owned by Filipino citizens be present, and, therefore, ordered
the Registered Deeds of Davao to deny registration of the deed of sale in the
having in mind a previous resolution of the Fourth Branch of the absence of proof of compliance with such condition.
Court of First Instance of Manila wherein the Carmelite Nuns of
Davao were made to prepare an affidavit to the effect that 60 per
After the motion to reconsider said resolution was denied, an action
cent of the members of their corporation were Filipino citizens when
for mandamus was instituted with this Court by said corporation sole, alleging
they sought to register in favor of their congregation of deed of
that under the Corporation Law as well as the settled jurisprudence on the
donation of a parcel of land
matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is
actually a deed of sale in favor of the Catholic Church which is qualified to
required said corporation sole to submit a similar affidavit declaring that 60 acquire private agricultural lands for the establishment and maintenance of
per cent of the members thereof were Filipino citizens. places of worship, and prayed that judgment be rendered reserving and
setting aside the resolution of the Land Registration Commissioner in
The vendee in the letter dated June 28, 1954, expressed willingness to question. In its resolution of November 15, 1954, this Court gave due course
submit an affidavit, both not in the same tenor as that made the Progress of to this petition providing that the procedure prescribed for appeals from the
the Carmelite Nuns because the two cases were not similar, for whereas the Public Service Commission of the Securities and Exchange Commissions
congregation of the Carmelite Nuns had five incorporators, the corporation (Rule 43), be followed.
sole has only one; that according to their articles of incorporation, the
organization of the Carmelite Nuns became the owner of properties donated Section 5 of Article XIII of the Philippine Constitution reads as follows:
to it, whereas the case at bar, the totality of the Catholic population of Davao
would become the owner of the property bought to be registered.
SEC. 5. Save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to

120
individuals, corporations, or associations qualified to acquire or hold And elaborating on the composition of the Catholic Church in the Philippines,
lands of the public domain in the Philippines. petitioner explained that as a religious society or organization, it is made up
of 2 elements or divisions the clergy or religious members and the faithful
Section 1 of the same Article also provides the following: or lay members. The 1948 figures of the Bureau of Census showed that
there were 277,551 Catholics in Davao and aliens residing therein numbered
SECTION 1. All agricultural, timber, and mineral lands of the public domain, 3,465. Ever granting that all these foreigners are Catholics, petitioner
water, minerals, coal, petroleum, and other mineral oils, all forces of potential contends that Filipino citizens form more than 80 per cent of the entire
energy, and other natural resources of the Philippines belong to the State, Catholics population of that area. As to its clergy and religious composition,
and their disposition, exploitation, development, or utilization shall be limited counsel for petitioner presented the Catholic Directory of the Philippines for
to cititzens of the Philippines, or to corporations or associations at least sixty 1954 (Annex A) which revealed that as of that year, Filipino clergy and
per centum of the capital of which is owned by such citizens, SUBJECT TO women novices comprise already 60.5 per cent of the group. It was,
ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE therefore, allowed that the constitutional requirement was fully met and
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER satisfied.
CONSTITUTION. Natural resources, with the exception of public agricultural
land, shall not be alienated, and no license, concession, or leases for the Respondents, on the other hand, averred that although it might be true that
exploitation, development, or utilization of any of the natural resources shall petitioner is not the owner of the land purchased, yet he has control over the
be granted for a period exceeding twenty-five years, renewable for another same, with full power to administer, take possession of, alienate, transfer,
twenty-five years, except as to water rights for irrigation, water supply, encumber, sell or dispose of any or all lands and their improvements
fisheries, or industrial uses other than the development of water power, in registered in the name of the corporation sole and can collect, receive,
which cases other than the development and limit of the grant. demand or sue for all money or values of any kind that may be kind that may
become due or owing to said corporation, and vested with authority to enter
In virtue of the foregoing mandates of the Constitution, who are considered into agreements with any persons, concerns or entities in connection with
"qualified" to acquire and hold agricultural lands in the Philippines? What is said real properties, or in other words, actually exercising all rights of
the effect of these constitutional prohibition of the right of a religious ownership over the properties. It was their stand that the theory that
corporation recognized by our Corporation Law and registered as properties registered in the name of the corporation sole are held in true for
a corporation sole, to possess, acquire and register real estates in its name the benefit of the Catholic population of a place, as of Davao in the case at
when the Head, Manager, Administrator or actual incumbent is an alien? bar should be sustained because a conglomeration of persons cannot just be
pointed out as the cestui que trust or recipient of the benefits from the
property allegedly administered in their behalf. Neither can it be said that the
Petitioner consistently maintained that a corporation sole, irrespective of the
mass of people referred to as such beneficiary exercise ant right of
citizenship of its incumbent, is not prohibited or disqualified to acquire and
ownership over the same. This set-up, respondents argued, falls short of a
hold real properties. The Corporation Law and the Canon Law are explicit in
trust. The respondents instead tried to prove that in reality, the beneficiary of
their provisions that a corporation sole or "ordinary" is not the owner of the of
ecclesiastical properties are not members or faithful of the church but
the properties that he may acquire but merely the administrator thereof. The
someone else, by quoting a portion a portion of the ought of fidelity
Canon Law also specified that church temporalities are owned by the
subscribed by a bishop upon his elevation to the episcopacy wherein he
Catholic Church as a "moral person" or by the diocess as minor "moral
promises to render to the Pontificial Father or his successors an account of
persons" with the ordinary or bishop as administrator.
his pastoral office and of all things appertaining to the state of this church.

121
Respondents likewise advanced the opinion that in construing the SEC. 155. In order to become a corporation sole the bishop, chief
constitutional provision calling for 60 per cent of Filipino citizenship, the priest, or presiding elder of any religious denomination, society or
criterion of the properties or assets thereof. church must file with the Securities and Exchange Commissioner
articles of incorporation setting forth the following facts:
In solving the problem thus submitted to our consideration, We can say the
following: A corporation sole is a special form of corporation usually xxx xxx xxx.
associated with the clergy. Conceived and introduced into the common law
by sheer necessity, this legal creation which was referred to as "that unhappy (3) That as such bishop, chief priest, or presiding elder he is charged
freak of English law" was designed to facilitate the exercise of the functions with the administration of the temporalities and the management of
of ownership carried on by the clerics for and on behalf of the church which the estates and properties of his religious denomination, society, or
was regarded as the property owner (See I Couvier's Law Dictionary, p. 682- church within its territorial jurisdiction, describing it;
683).
xxx xxx xxx.
A corporation sole consists of one person only, and his successors (who will
always be one at a time), in some particular station, who are incorporated by (As amended by Commonwealth Act No. 287).
law in order to give them some legal capacities and advantages, particularly
that of perpetuity, which in their natural persons they could not have had. In
SEC. 157. From and after the filing with the Securities and Exchange
this sense, the king is a sole corporation; so is a bishop, or dens, distinct
Commissioner of the said articles of incorporation, which verified by
from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So. 846).
affidavit or affirmation as aforesaid and accompanied by the copy of
the commission, certificate of election, or letters of appointment of
The provisions of our Corporation law on religious corporations are the bishop, chief priest, or presiding elder, duly certified as
illuminating and sustain the stand of petitioner. Section 154 thereof provides: prescribed in the section immediately preceding such the bishop,
chief priest, or presiding elder, as the case may be, shall become a
SEC. 154. For the administration of the temporalities of any corporation sole and all temporalities, estates, and properties the
religious denomination, society or church and the management of religious denomination, society, or church therefore administered or
the estates and the properties thereof, it shall be lawful for the managed by him as such bishop, chief priest, or presiding elder,
bishop, chief priest, or presiding either of any such religious shall be held in trust by him as a corporation sole, for the use,
denomination, society or church to become a corporation sole, purpose, behalf, and sole benefit of his religious denomination,
unless inconsistent wit the rules, regulations or discipline of his society, or church, including hospitals, schools, colleges, orphan,
religious denomination, society or church or forbidden by competent asylums, parsonages, and cemeteries thereof. For the filing of such
authority thereof. articles of incorporation, the Securities and Exchange Commissioner
shall collect twenty-five pesos. (As amended by Commonwealth Act.
See also the pertinent provisions of the succeeding sections of the same No. 287); and.
Corporation Law copied hereunder:
SEC. 163. The right to administer all temporalities and all property
held or owned by a religious order or society, or by the diocese,

122
synod, or district organization of any religious denomination or properties do not pass to the administrators, who are the owners of church
church shall, on its incorporation, pass to the corporation and shall properties?.
be held in trust for the use, purpose behalf, and benefit of the
religious society, or order so incorporated or of the church of which Bouscaren and Elis, S.J., authorities on cannon law, on their treatise
the diocese, or district organization is an organized and constituent comment:
part.
In matters regarding property belonging to the Universal Church and
The Cannon Law contains similar provisions regarding the duties of the to the Apostolic See, the Supreme Pontiff exercises his office of
corporation sole or ordinary as administrator of the church properties, as supreme administrator through the Roman Curia; in matters
follows: regarding other church property, through the administrators of the
individual moral persons in the Church according to that norms, laid
Al Ordinario local pertenence vigilar diligentemente sobre down in the Code of Cannon Law. This does not mean, however,
la administracion de todos los bienes eclesiasticos que se hallan en that the Roman Pontiff is the owner of all the church property; but
su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las merely that he is the supreme guardian (Bouscaren and Ellis,
prescriciones legitimas que le concedan mas aamplios derechos. Cannon Law, A Text and Commentary, p. 764).

Teniendo en cuenta los derechos y las legitimas costumbres y and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia
circunstancias, procuraran los Ordinarios regular todo lo Canonica, ruled in the case of Trinidad vs. Roman Catholic Archbishop of
concerniente a la administracion de los bienes eclesciasticos, dando Manila, 63 Phil. 881, that:
las oportunas instucciones particularles dentro del narco del derecho
comun. (Title XXVIII, Codigo de Derecho Canonico, Lib. III, Canon The second question to be decided is in whom the ownership of the
1519).1 properties constituting the endowment of the ecclesiastical or
collative chaplaincies is vested.
That leaves no room for doubt that the bishops or archbishops, as the case
may be, as corporation's sole are merely administrators of the church Canonists entertain different opinions as to the persons in whom the
properties that come to their possession, in which they hold in trust for the ownership of the ecclesiastical properties is vested, with respect to
church. It can also be said that while it is true that church properties could be which we shall, for our purpose, confine ourselves to stating with
administered by a natural persons, problems regarding succession to said Donoso that, while many doctors cited by Fagnano believe that it
properties can not be avoided to rise upon his death. Through this legal resides in the Roman Pontiff as Head of the Universal Church, it is
fiction, however, church properties acquired by the incumbent of a more probable that ownership, strictly speaking, does not reside in
corporation sole pass, by operation of law, upon his death not his personal the latter, and, consequently, ecclesiastical properties are owned by
heirs but to his successor in office. It could be seen, therefore, that a the churches, institutions and canonically established private
corporation sole is created not only to administer the temporalities of the corporations to which said properties have been donated.
church or religious society where he belongs but also to hold and transmit
the same to his successor in said office. If the ownership or title to the Considering that nowhere can We find any provision conferring ownership of
church properties on the Pope although he appears to be the supreme

123
administrator or guardian of his flock, nor on the corporation sole or heads of Vatican, yet it cannot be said that there is a merger of personalities resultant
dioceses as they are admittedly mere administrators of said properties, therein. Neither can it be said that the political and civil rights of the faithful,
ownership of these temporalities logically fall and develop upon the church, inherent or acquired under the laws of their country, are affected by that
diocese or congregation acquiring the same. Although this question of relationship with the Pope. The fact that the Roman Catholic Church in
ownership of ecclesiastical properties has off and on been mentioned in almost every country springs from that society that saw its beginning in
several decisions of the Court yet in no instance was the subject of Europe and the fact that the clergy of this faith derive their authorities and
citizenship of this religious society been passed upon. receive orders from the Holy See do not give or bestow the citizenship of the
Pope upon these branches. Citizenship is a political right which cannot be
We are not unaware of the opinion expressed by the late Justice Perfecto in acquired by a sort of "radiation". We have to realize that although there is a
his dissent in the case of Agustines vs. Court of First Instance of Bulacan, 80 fraternity among all the catholic countries and the dioceses therein all over
Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila is only the globe, the universality that the word "catholic" implies, merely
a branch of a universal church by the Pope, with permanent residence in characterize their faith, a uniformity in the practice and the interpretation of
Rome, Italy". There is no question that the Roman Catholic Church existing their dogma and in the exercise of their belief, but certainly they are separate
in the Philippines is a tributary and part of the international religious and independent from one another in jurisdiction, governed by different laws
organization, for the word "Roman" clearly expresses its unity with and under which they are incorporated, and entirely independent on the others in
recognizes the authority of the Pope in Rome. However, lest We become the management and ownership of their temporalities. To allow theory that
hasty in drawing conclusions, We have to analyze and take note of the the Roman Catholic Churches all over the world follow the citizenship of their
nature of the government established in the Vatican City, of which it was said: Supreme Head, the Pontifical Father, would lead to the absurdity of finding
the citizens of a country who embrace the Catholic faith and become
GOVERNMENT. In the Roman Catholic Church supreme authority members of that religious society, likewise citizens of the Vatican or of Italy.
and jurisdiction over clergy and laity alike as held by the pope who And this is more so if We consider that the Pope himself may be an Italian or
(since the Middle Ages) is elected by the cardinals assembled in national of any other country of the world. The same thing be said with
conclave, and holds office until his death or legitimate abdication. . . regard to the nationality or citizenship of the corporation sole created under
While the pope is obviously independent of the laws made, and the the laws of the Philippines, which is not altered by the change of citizenship
officials appointed, by himself or his predecessors, he usually of the incumbent bishops or head of said corporation sole.
exercises his administrative authority according to the code of canon
law and through the congregations, tribunals and offices of the Curia We must therefore, declare that although a branch of the Universal Roman
Romana. In their respective territories (called generally dioceses) Catholic Apostolic Church, every Roman Catholic Church in different
and over their respective subjects, the patriarchs, metropolitans or countries, if it exercises its mission and is lawfully incorporated in accordance
archbishops and bishops exercise a jurisdiction which is called with the laws of the country where it is located, is considered an entity or
ordinary (as attached by law to an office given to a person. . . person with all the rights and privileges granted to such artificial being under
(Collier's Encyclopedia, Vol. 17, p. 93). the laws of that country, separate and distinct from the personality of the
Roman Pontiff or the Holy See, without prejudice to its religious relations with
While it is true and We have to concede that in the profession of their faith, the latter which are governed by the Canon Law or their rules and
the Roman Pontiff is the supreme head; that in the religious matters, in the regulations.
exercise of their belief, the Catholic congregation of the faithful throughout
the world seeks the guidance and direction of their Spiritual Father in the

124
We certainly are conscious of the fact that whatever conclusion We may the new dioceses, one of them being petitioner herein, the Roman Catholic
draw on this matter will have a far reaching influence, nor can We overlook Apostolic Administrator of Davao, Inc., which was registered with the
the pages of history that arouse indignation and criticisms against church Securities and Exchange Commission on September 12, 1950, and
landholdings. This nurtured feeling that snowbailed into a strong nationalistic succeeded in the administrative for all the "temporalities" of the Roman
sentiment manifested itself when the provisions on natural to be embodied in Catholic Church existing in Davao.
the Philippine Constitution were framed, but all that has been said on this
regard referred more particularly to landholdings of religious corporations According to our Corporation Law, Public Act No. 1549, approved April 1,
known as "Friar Estates" which have already bee acquired by our 1906, a corporation sole.
government, and not to properties held by corporations sole which, We
repeat, are properties held in trust for the benefit of the faithful residing within is organized and composed of a single individual, the head of any
its territorial jurisdiction. Though that same feeling probably precipitated and religious society or church, for the ADMINISTRATION of the
influenced to a large extent the doctrine laid down in the celebrated Krivenco temporalities of such society or church. By "temporalities" is meant
decision, We have to take this matter in the light of legal provisions and estate and properties not used exclusively for religious worship. The
jurisprudence actually obtaining, irrespective of sentiments. successor in office of such religious head or chief priest incorporated
as a corporation sole shall become the corporation sole on
The question now left for our determination is whether the Universal Roman ascension to office, and shall be permitted to transact business as
Catholic Apostolic Church in the Philippines, or better still, the corporation such on filing with the Securities and Exchange Commission a copy
sole named the Roman Catholic Apostolic Administrator of Davao, Inc., is of his commission, certificate of election or letter of appointment duly
qualified to acquire private agricultural lands in the Philippines pursuant to certified by any notary public or clerk of court of record (Guevara's
the provisions of Article XIII of the Constitution. The Philippine Corporation Law, p. 223).

We see from sections 1 and 5 of said Article quoted before, that only persons The Corporation Law also contains the following provisions:
or corporations qualified to acquire hold lands of the public domain in the
Philippines may acquire or be assigned and hold private agricultural lands. SECTION 159. Any corporation sole may purchase and hold real
Consequently, the decisive factor in the present controversy hinges on the estate and personal; property for its church, charitable, benevolent,
proposition or whether or not the petitioner in this case can acquire or educational purposes, and may receive bequests or gifts of such
agricultural lands of the public domain. purposes. Such corporation may mortgage or sell real property held
by it upon obtaining an order for that purpose from the Court of First
From the data secured from the Securities and Exchange Commission, We Instance of the province in which the property is situated; but before
find that the Roman Catholic Bishop of Zamboanga was incorporated (as a making the order proof must be made to the satisfaction of the Court
corporation sole) in September, 1912, principally to administer its that notice of the application for leave to mortgage or sell has been
temporalities and manage its properties. Probably due to the ravages of the given by publication or otherwise in such manner and for such time
last war, its articles of incorporation were reconstructed in the Securities and as said Court or the Judge thereof may have directed, and that it is
Exchange Commission on April 8, 1948. At first, this corporation sole to the interest of the corporation that leave to mortgage or sell must
administered all the temporalities of the church existing or located in the be made by petition, duly verified by the bishop, chief priest, or
island of Mindanao. Later on, however, new dioceses were formed and new presiding elder acting as corporation sole, and may be opposed by
corporations sole were created to correspond with the territorial jurisdiction of

125
any member of the religious denomination, society or church for which it was created, independently of the nationality of its incumbent
represented by the corporation sole: Provided, however, That in unique and single member and head, the bishop of the dioceses. It can be
cases where the rules, regulations, and discipline of the religious also maintained without fear of being gainsaid that the Roman Catholic
denomination, society or church concerned represented by such Apostolic Church in the Philippines has no nationality and that the framers of
corporation sole regulate the methods of acquiring, holding, selling the Constitution, as will be hereunder explained, did not have in mind the
and mortgaging real estate and personal property, such rules, religious corporations sole when they provided that 60 per centum of the
regulations, and discipline shall control and the intervention of the capital thereof be owned by Filipino citizens.
Courts shall not be necessary.
There could be no controversy as to the fact that a duly registered
It can, therefore, be noticed that the power of a corporation sole to corporation sole is an artificial being having the right of succession and the
purchase real property, like the power exercised in the case at bar, it is not power, attributes, and properties expressly authorized by law or incident to its
restricted although the power to sell or mortgage sometimes is, depending existence (section 1, Corporation Law). In outlining the general powers of a
upon the rules, regulations, and discipline of the church concerned corporation. Public Act. No. 1459 provides among others:
represented by said corporation sole. If corporations sole can purchase and
sell real estate for its church, charitable, benevolent, or educational SEC. 13. Every corporation has the power:
purposes, can they register said real properties? As provided by law, lands
held in trust for specific purposes me be subject of registration (section 69, (5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber,
Act 496), and the capacity of a corporation sole, like petitioner herein, to and otherwise deal with such real and personal property as the
register lands belonging to it is acknowledged, and title thereto may be purpose for which the corporation was formed may permit, and the
issued in its name (Bishop of Nueva Segovia vs. Insular Government, 26 transaction of the lawful business of the corporation may reasonably
Phil. 300-1913). Indeed it is absurd that while the corporations sole that and necessarily require, unless otherwise prescribed in this Act: . . .
might be in need of acquiring lands for the erection of temples where the
faithful can pray, or schools and cemeteries which they are expressly
In implementation of the same and specially made applicable to a form of
authorized by law to acquire in connection with the propagation of the Roman
corporation recognized by the same law, Section 159 aforequoted expressly
Catholic Apostolic faith or in furtherance of their freedom of religion they
allowed the corporation sole to purchase and hold real as well as personal
could not register said properties in their name. As professor Javier J.
properties necessary for the promotion of the objects for which said
Nepomuceno very well says "Man in his search for the immortal and
corporation sole is created. Respondent Land Registration Commissioner,
imponderable, has, even before the dawn of recorded history, erected
however, maintained that since the Philippine Constitution is a later
temples to the Unknown God, and there is no doubt that he will continue to
enactment than public Act No. 1459, the provisions of Section 159 in
do so for all time to come, as long as he continues 'imploring the aid of
amplification of Section 13 thereof, as regard real properties, should be
Divine Providence'" (Nepomuceno's Corporation Sole, VI Ateneo Law
considered repealed by the former.
Journal, No. 1, p. 41, September, 1956). Under the circumstances of this
case, We might safely state that even before the establishment of the
Philippine Commonwealth and of the Republic of the Philippines every There is a reason to believe that when the specific provision of the
corporation sole then organized and registered had by express provision of Constitution invoked by respondent Commissioner was under consideration,
law the necessary power and qualification to purchase in its name private the framers of the same did not have in mind or overlooked this particular
lands located in the territory in which it exercised its functions or ministry and form of corporation. It is undeniable that the naturalization and conservation

126
of our national resources was one of the dominating objectives of the already prepared and capable of doing so. But that is not the case of
Convention and in drafting the present Article XII of the Constitution, the corporations sole in the Philippines, for, We repeat, they are mere
delegates were goaded by the desire (1) to insure their conservation for administrators of the "temporalities" or properties titled in their name and for
Filipino posterity; (2) to serve as an instrument of national defense, helping the benefit of the members of their respective religion composed of an
prevent the extension into the country of foreign control through peaceful overwhelming majority of Filipinos. No mention nor allusion whatsoever is
economic penetration; and (3) to prevent making the Philippines a source of made in the Constitution as to the prohibition against or the liability of the
international conflicts with the consequent danger to its internal security and Roman Catholic Church in the Philippines to acquire and hold agricultural
independence (See The Framing of the Philippine Constitution by Professor lands. Although there were some discussions on landholdings, they were
Jose M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P. 592- mostly confined in the inclusion of the provision allowing the Government to
604). In the same book Delegate Aruego, explaining the reason behind the break big landed estates to put an end to absentee landlordism.
first consideration, wrote:
But let us suppose, for the sake of argument, that the above referred to
At the time of the framing of Philippine Constitution, Filipino capital inhibitory clause of Section 1 of Article XIII of the constitution does have
had been to be rather shy. Filipinos hesitated s a general rule to bearing on the petitioner's case; even so the clause requiring that at least 60
invest a considerable sum of their capital for the development, per centum of the capital of the corporation be owned by Filipinos is
exploitation and utilization of the natural resources of the country. subordinated to the petitioner's aforesaid right already existing at the time of
They had not as yet been so used to corporate as the peoples of the the inauguration of the Commonwealth and the Republic of the Philippines.
west. This general apathy, the delegates knew, would mean the In the language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional
retardation of the development of the natural resources, unless Convention), in his concurring opinion of the case of Gold Creek mining
foreign capital would be encouraged to come and help in that Corporation, petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and
development. They knew that the naturalization of the natural Commerce, and Quirico Abadilla, Director of the Bureau of Mines,
resources would certainly not encourage theINVESTMENT OF respondent, 66 Phil. 259:
FOREIGN CAPITAL into them. But there was a general feeling in the
Convention that it was better to have such a development retarded The saving clause in the section involved of the Constitution was
or even postpone together until such time when the Filipinos would originally embodied in the report submitted by the Committee on
be ready and willing to undertake it rather than permit the natural Naturalization and Preservation of Land and Other Natural
resources to be placed under the ownership or control of foreigners Resources to the Constitutional Convention on September 17, 1954.
in order that they might be immediately be developed, with the It was later inserted in the first draft of the Constitution as section 13
Filipinos of the future serving not as owners but utmost as tenants or of Article XIII thereof, and finally incorporated as we find it now. Slight
workers under foreign masters. By all means, the delegates have been the changes undergone by the proviso from the time
believed, the natural resources should be conserved for Filipino when it comes out of the committee until it was finally adopted. When
posterity. first submitted and as inserted to the first draft of the Constitution it
reads: 'subject to any right, grant, lease, or concession existing in
It could be distilled from the foregoing that the farmers of the Constitution respect thereto on the date of the adoption of the Constitution'. As
intended said provisions as barrier for foreigners or corporations financed by finally adopted, the proviso reads: 'subject to any existing right, grant,
such foreigners to acquire, exploit and develop our natural resources, saving lease, or concession at the time of the inauguration of the
these undeveloped wealth for our people to clear and enrich when they are Government established under this Constitution'. This recognition is

127
not mere graciousness but springs form the just character of the character of the government established. The farmers of the Constitution
government established. The framers of the Constitution were not were not obscured by the rhetoric of democracy or swayed to hostility by an
obscured by the rhetoric of democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our natural
intense spirit of nationalism. They well knew that conservation of our resources did not mean destruction or annihilation of ACQUIRED
natural resources did not mean destruction or annihilation of PROPERTY RIGHTS".
acquired property rights. Withal, they erected a government neither
episodic nor stationary but well-nigh conservative in the protection of But respondents' counsel may argue that the preexisting right of acquisition
property rights. This notwithstanding nationalistic and socialistic traits of public or private lands by a corporation which does not fulfill this 60 per
discoverable upon even a sudden dip into a variety of the provisions cent requisite, refers to purchases of the Constitution and not to later
embodied in the instrument. transactions. This argument would imply that even assuming that petitioner
had at the time of the enactment of the Constitution the right to purchase real
The writer of this decision wishes to state at this juncture that during the property or right could not be exercised after the effectivity of our
deliberation of this case he submitted to the consideration of the Court the Constitution, because said power or right of corporations sole, like the herein
question that may be termed the "vested right saving clause" contained in petitioner, conferred in virtue of the aforequoted provisions of the Corporation
Section 1, Article XII of the Constitution, but some of the members of this Law, could no longer be exercised in view of the requisite therein prescribed
Court either did not agree with the theory of the writer, or were not ready to that at least 60 per centum of the capital of the corporation had to be Filipino.
take a definite stand on the particular point I am now to discuss deferring our It has been shown before that: (1) the corporation sole, unlike the ordinary
ruling on such debatable question for a better occasion, inasmuch as the corporations which are formed by no less than 5 incorporators, is composed
determination thereof is not absolutely necessary for the solution of the of only one persons, usually the head or bishop of the diocese, a unit which
problem involved in this case. In his desire to face the issues squarely, the is not subject to expansion for the purpose of determining any percentage
writer will endeavor, at least as a disgression, to explain and develop his whatsoever; (2) the corporation sole is only the administrator and not the
theory, not as a lucubration of the Court, but of his own, for he deems it owner of the temporalities located in the territory comprised by said
better and convenient to go over the cycle of reasons that are linked to one corporation sole; (3) such temporalities are administered for and on behalf of
another and that step by step lead Us to conclude as We do in the dispositive the faithful residing in the diocese or territory of the corporation sole; and (4)
part of this decision. the latter, as such, has no nationality and the citizenship of the incumbent
Ordinary has nothing to do with the operation, management or administration
It will be noticed that Section 1 of Article XIII of the Constitution provides, of the corporation sole, nor effects the citizenship of the faithful connected
among other things, that "all agricultural lands of the public domain and their with their respective dioceses or corporation sole.
disposition shall be limited to citizens of the Philippines or to corporations at
least 60 per centum of the capital of which is owned by such citizens, In view of these peculiarities of the corporation sole, it would seem obvious
SUBJECT TO ANY EXISTING RIGHT AT THE TIME OF THE that when the specific provision of the Constitution invoked by respondent
INAUGURATION OF THE GOVERNMENT ESTABLISHED UNDER THIS Commissioner (section 1, Art. XIII), was under consideration, the framers of
CONSTITUTION." the same did not have in mind or overlooked this particular form of
corporation. If this were so, as the facts and circumstances already indicated
As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek tend to prove it to be so, then the inescapable conclusion would be that this
Mining Corporation vs. Rodriguez et al., 66 Phil. 259, "this recognition (in the requirement of at least 60 per cent of Filipino capital was never intended to
clause already quoted), is not mere graciousness but springs from the just

128
apply to corporations sole, and the existence or not a vested right becomes The fact that the appellant religious organization has no capital stock
unquestionably immaterial. does not suffice to escape the Constitutional inhibition, since it is
admitted that its members are of foreign nationality. The purpose of
But let us assumed that the questioned proviso is material. yet We might say the sixty per centum requirement is obviously to ensure that
that a reading of said Section 1 will show that it does not refer to any actual corporation or associations allowed to acquire agricultural land or to
acquisition of land up to the right, qualification or power to acquire and hold exploit natural resources shall be controlled by Filipinos; and the
private real property. The population of the Philippines, Catholic to a high spirit of the Constitution demands that in the absence of capital
percentage, is ever increasing. In the practice of religion of their faithful the stock, the controlling membership should be composed of Filipino
corporation sole may be in need of more temples where to pray, more citizens.
schools where the children of the congregation could be taught in the
principles of their religion, more hospitals where their sick could be treated, In that case respondent-appellant Ung Siu Si Temple was not a corporation
more hallow or consecrated grounds or cemeteries where Catholics could be sole but a corporation aggregate, i.e., an unregistered organization operating
buried, many more than those actually existing at the time of the enactment through 3 trustees, all of Chinese nationality, and that is why this Court laid
of our Constitution. This being the case, could it be logically maintained that down the doctrine just quoted. With regard to petitioner, which likewise is a
because the corporation sole which, by express provision of law, has the non-stock corporation, the case is different, because it is a registered
power to hold and acquire real estate and personal property of its churches, corporation sole, evidently of no nationality and registered mainly to
charitable benevolent, or educational purposes (section 159, Corporation administer the temporalities and manage the properties belonging to the
Law) it has to stop its growth and restrain its necessities just because the faithful of said church residing in Davao. But even if we were to go over the
corporation sole is a non-stock corporation composed of only one person record to inquire into the composing membership to determine whether the
who in his unity does not admit of any percentage, especially when that citizenship requirement is satisfied or not, we would find undeniable proof
person is not the owner but merely an administrator of the temporalities of that the members of the Roman Catholic Apostolic faith within the territory of
the corporation sole? The writer leaves the answer to whoever may read and Davao are predominantly Filipino citizens. As indicated before, petitioner has
consider this portion of the decision. presented evidence to establish that the clergy and lay members of this
religion fully covers the percentage of Filipino citizens required by the
Anyway, as stated before, this question is not a decisive factor in disposing Constitution. These facts are not controverted by respondents and our
the case, for even if We were to disregard such saving clause of the conclusion in this point is sensibly obvious.
Constitution, which reads: subject to any existing right, grant, etc., at the
same time of the inauguration of the Government established under this Dissenting OpinionDiscussed. After having developed our theory in the
Constitution, yet We would have, under the evidence on record, sufficient case and arrived at the findings and conclusions already expressed in this
grounds to uphold petitioner's contention on this matter. decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the
In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. transcendental and far-reaching effects that Our ruling on the matter might
No. L-6776, promulgated May 21, 1955, wherein this question was have, this case was thoroughly considered from all points of view, the Court
considered from a different angle, this Court through Mr. Justice J.B.L. sparing no effort to solve the delicate problems involved herein.
Reyes, said:
At the deliberations had to attain this end, two ways were open to a prompt
dispatch of the case: (1) the reversal of the doctrine We laid down in the

129
celebrated Krivenko case by excluding urban lots and properties from the the temporalities of the Roman Catholic Church in the Philippines. In the third
group of the term "private agricultural lands" use in this section 5, Article XIII place, every corporation, be it aggregate or sole, is only entitled to purchase,
of the Constitution; and (2) by driving Our reasons to a point that might convey, sell, lease, let, mortgage, encumber and otherwise deal with real
indirectly cause the appointment of Filipino bishops or Ordinary to head the properties when it is pursuant to or in consonance with the purposes for
corporations sole created to administer the temporalities of the Roman which the corporation was formed, and when the transactions of the lawful
Catholic Church in the Philippines. With regard to the first way, a great business of the corporation reasonably and necessarily require such dealing
majority of the members of this Court were not yet prepared nor agreeable to section 13-(5) of the Corporation Law, Public Act No. 1459 and
follow that course, for reasons that are obvious. As to the second way, it considering these provisions in conjunction with Section 159 of the same law
seems to be misleading because the nationality of the head of a diocese which provides that a corporation sole may only "purchase and hold real
constituted as a corporation sole has no material bearing on the functions of estate and personal properties for its church, charitable, benevolent or
the latter, which are limited to the administration of the temporalities of the educational purposes", the above mentioned fear of revitalization of religious
Roman Catholic Apostolic Church in the Philippines. landholdings in the Philippines is absolutely dispelled. The fact that the law
thus expressly authorizes the corporations sole to receive bequests or gifts
Upon going over the grounds on which the dissenting opinion is based, it of real properties (which were the main source that the friars had to acquire
may be noticed that its author lingered on the outskirts of the issues, thus their big haciendas during the Spanish regime), is a clear indication that the
throwing the main points in controversy out of focus. Of course We fully requisite that bequests or gifts of real estate be for charitable, benevolent, or
agree, as stated by Professor Aruego, that the framers of our Constitution educational purposes, was, in the opinion of the legislators, considered
had at heart to insure the conservation of the natural resources of Our sufficient and adequate protection against the revitalization of religious
motherland of Filipino posterity; to serve them as an instrument of national landholdings.
defense, helping prevent the extension into the country of foreign
control through peaceful economic penetration; and to prevent making the Finally, and as previously stated, We have reason to believe that when the
Philippines a source of international conflicts with the consequent danger to Delegates to the Constitutional Convention drafted and approved Article XIII
its internal security and independence. But all these precautions adopted by of the Constitution they do not have in mind the corporation sole. We come to
the Delegates to Our Constitutional Assembly could have not been intended this finding because the Constitutional Assembly, composed as it was by a
for or directed against cases like the one at bar. The emphasis and great number of eminent lawyers and jurists, was like any other legislative
wonderings on the statement that once the capacity of a corporation sole to body empowered to enact either the Constitution of the country or any public
acquire private agricultural lands is admitted there will be no limit to the areas statute, presumed to know the conditions existing as to particular subject
that it may hold and that this will pave the way for the "revival or revitalization matter when it enacted a statute (Board of Commerce of Orange Country vs.
of religious landholdings that proved so troublesome in our past", cannot Bain, 92 S.E. 176; N. C. 377).
even furnish the "penumbra" of a threat to the future of the Filipino people. In
the first place, the right of Filipino citizens, including those of foreign Immemorial customs are presumed to have been always in the mind
extraction, and Philippine corporations, to acquire private lands is not subject of the Legislature in enacting legislation. (In re Kruger's Estate, 121
to any restriction or limit as to quantity or area, and We certainly do not see A. 109; 277 P. 326).
any wrong in that. The right of Filipino citizens and corporations to acquire
public agricultural lands is already limited by law. In the second place, The Legislative is presumed to have a knowledge of the state of the
corporations sole cannot be considered as aliens because they have no law on the subjects upon which it legislates. (Clover Valley Land and
nationality at all. Corporations sole are, under the law, mere administrators of Stock Co. vs. Lamb et al., 187, p. 723,726.)

130
The Court in construing a statute, will assume that the legislature who according to the Constitution must be a Filipino (sections 1 and
acted with full knowledge of the prior legislation on the subject and 5, Article XIII).
its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E.
899, 44 Ind. App. 620.). 5. That section 159 of the Corporation Law expressly authorized the
corporation sole to purchase and holdreal estate for its church,
The Legislature is presumed to have been familiar with the subject charitable, benevolent or educational purposes, and to receive
with which it was dealing . . . . (Landers vs. Commonwealth, 101 S. bequests or giftsfor such purposes;
E. 778, 781.).
6. That in approving our Magna Carta the Delegates to the
The Legislature is presumed to know principles of statutory Constitutional Convention, almost all of whom were Roman
construction. (People vs. Lowell, 230 N. W. 202, 250 Mich. 349, Catholics, could not have intended to curtail the propagation of the
followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.). Roman Catholic faith or the expansion of the activities of their
church, knowing pretty well that with the growth of our population
It is not to be presumed that a provision was inserted in a more places of worship, more schools where our youth could be
constitution or statute without reason, or that a result was intended taught and trained; more hallow grounds where to bury our dead
inconsistent with the judgment of men of common sense guided by would be needed in the course of time.
reason" (Mitchell vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See City of
Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and may other Long before the enactment of our Constitution the law authorized the
authorities that can be cited in support hereof. corporations sole even to receive bequests or gifts of real estates and this
Court could not, without any clear and specific provision of the Constitution,
Consequently, the Constitutional Assembly must have known: declare that any real property donated, let as say this year, could no longer
be registered in the name of the corporation sole to which it was conveyed.
1. That a corporation sole is organized by and composed of a single That would be an absurdity that should not receive our sanction on the
individual, the head of any religious society or church operating pretext that corporations sole which have no nationality and are non-stock
within the zone, area or jurisdiction covered by said corporation sole corporations composed of only one person in the capacity of administrator,
(Article 155, Public Act No. 1459); have to establish first that at least sixty per centum of their capital belong to
Filipino citizens. The new Civil Code even provides:
2. That a corporation sole is a non-stock corporation;
ART. 10. In case of doubt in the interpretation or application of
laws, it is presumed that the lawmaking body intended right and
3. That the Ordinary ( the corporation sole proper) does not own the
justice to prevail.
temporalities which he merely administers;

Moreover, under the laws of the Philippines, the administrator of the


4. That under the law the nationality of said Ordinary or of any
properties of a Filipino can acquire, in the name of the latter, private lands
administrator has absolutely no bearing on the nationality of the
without any limitation whatsoever, and that is so because the properties thus
person desiring to acquire real property in the Philippines by
acquired are not for and would not belong to the administrator but to the
purchase or other lawful means other than by hereditary succession,

131
Filipino whom he represents. But the dissenting Justice inquires: If the subjects himself to the jurisdiction of the Philippine courts of justice and these
Ordinary is only the administrator, for whom does he administer? And who tribunals can thus entertain grievances arising out of or with respect to the
can alter or overrule his acts? We will forthwith proceed to answer these temporalities of the church which came into the possession of the corporation
questions. The corporations sole by reason of their peculiar constitution and sole as administrator. It may be alleged that the courts cannot intervene as to
form of operation have no designed owner of its temporalities, although by the matters of doctrine or teachings of the Roman Catholic Church. That is
the terms of the law it can be safely implied that the Ordinary holds them in correct, but the courts may step in, at the instance of the faithful for whom the
trust for the benefit of the Roman Catholic faithful to their respective locality temporalities are being held in trust, to check undue exercise by the
or diocese. Borrowing the very words of the law, We may say that the corporation sole of its power as administrator to insure that they are used for
temporalities of every corporation sole are held in trust for the use, purpose, the purpose or purposes for which the corporation sole was created.
behalf and benefit of the religious society, or order so incorporated or of the
church to which the diocese, synod, or district organization is an organized American authorities have these to say:
and constituent part (section 163 of the Corporation Law).
It has been held that the courts have jurisdiction over an action
In connection with the powers of the Ordinary over the temporalities of the brought by persons claiming to be members of a church, who allege
corporation sole, let us see now what is the meaning and scope of the word a wrongful and fraudulent diversion of the church property to uses
"control". According to the Merriam-Webster's New International Dictionary, foreign to the purposes of the church, since no ecclesiastical
2nd ed., p. 580, on of the acceptations of the word "control" is: question is involved and equity will protect from wrongful diversion of
the property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4
4. To exercise restraining or directing influence over; to dominate; L.R.A. n.s. 1154).
regulate; hence, to hold from action; to curb; subject; also, Obs. to
overpower. The courts of the State have no general jurisdiction and control over
the officers of such corporations in respect to the performance of
SYN: restrain, rule, govern, guide, direct; check, subdue. their official duties; but as in respect to the property which they hold
for the corporation, they stand in position of TRUSTEES and the
It is true that under section 159 of the Corporation Law, the intervention of courts may exercise the same supervision as in other cases of
the courts is not necessary, to mortgage or sell real property held by the trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30
corporation sole where the rules, regulations and discipline of the religious L.R.A. n.s. 665; Hendryx vs. Peoples United Church, supra.).
denomination, society or church concerned presented by such corporation
sole regulates the methods of acquiring, holding, selling and mortgaging real Courts of the state do not interfere with the administration of church
estate, and that the Roman Catholic faithful residing in the jurisdiction of the rules or discipline unless civil rights become involved and which must
corporation sole has no say either in the manner of acquiring or of selling real be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45
property. It may be also admitted that the faithful of the diocese cannot S.E. 753, and others). (All cited in Vol. II, Cooley's Constitutional
govern or overrule the acts of the Ordinary, but all this does not mean that Limitations, p. 960-964.).
the latter can administer the temporalities of the corporation sole without
check or restraint. We must not forget that when a corporation sole is If the Constitutional Assembly was aware of all the facts above enumerated
incorporated under Philippine laws, the head and only member thereof and of the provisions of law relative to existing conditions as to management

132
and operation of corporations sole in the Philippines, and if, on the other formulation. The courts have had to define those policies and have
hand, almost all of the Delegates thereto embraced the Roman Catholic faith, often drawn on natural law and natural rights theories in doing so.
can it be imagined even for an instant that when Article XIII of the The interpretation of constitutions tends to respond to changing
Constitution was approved the framers thereof intended to prevent or curtail conceptions of political and social values. The extent to which these
from then on the acquisition sole, either by purchase or donation, of real extraneous aids affect the judicial construction of constitutions
properties that they might need for the propagation of the faith and for there cannot be formulated in precise rules, but their influence cannot be
religious and Christian activities such as the moral education of the youth, ignored in describing the essentials of the process (Rottschaeffer on
the care, attention and treatment of the sick and the burial of the dead of the Constitutional Law, 1939 ed., p. 18-19).
Roman Catholic faithful residing in the jurisdiction of the respective
corporations sole? The mere indulgence in said thought would impress upon There are times that when even the literal expression of legislation
Us a feeling of apprehension and absurdity. And that is precisely the leit may be inconsistent with the general objectives of policy behind it,
motiv that permeates the whole fabric of the dissenting opinion. and on the basis of equity or spirit of the statute the courts rationalize
a restricted meaning of the latter. A restricted interpretation is usually
It seems from the foregoing that the main problem We are confronted with in applied where the effect of literal interpretation will make for injustice
this appeal, hinges around the necessity of a proper and adequate and absurdity or, in the words of one court, the language must be so
interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us unreasonable 'as to shock general common sense'. (Vol. 3,
then be guided by the principles of statutory construction laid down by the Sutherland on Statutory Construction, 3rd ed., 150.).
authorities on the matter:
A constitution is not intended to be a limitation on the development of
The most important single factor in determining the intention of the a country nor an obstruction to its progress and foreign relations
people from whom the constitution emanated is the language in (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and
which it is expressed. The words employed are to be taken in their Trust Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).
natural sense, except that legal or technical terms are to be given
their technical meaning. The imperfections of language as a vehicle Although the meaning or principles of a constitution remain fixed and
for conveying meanings result in ambiguities that must be resolved unchanged from the time of its adoption, a constitution must be
by result to extraneous aids for discovering the intent of the framers. construed as if intended to stand for a great length of time, and it is
Among the more important of these are a consideration of the history progressive and not static. Accordingly, it should not receive too
of the times when the provision was adopted and of the purposes narrow or literal an interpretation but rather the meaning given it
aimed at in its adoption. The debates of constitutional convention, should be applied in such manner as to meet new or changed
contemporaneous construction, and practical construction by the conditions as they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed.,
legislative and executive departments, especially if long continued, 1368).
may be resorted to resolve, but not to create,
ambiguities. . . . Consideration of the consequences flowing from Effect should be given to the purpose indicated by a fair
alternative constructions of doubtful provisions constitutes an interpretation of the language used and that construction which
important interpretative device. . . . The purposes of many of the effectuates, rather than that which destroys a plain intent or purpose
broadly phrased constitutional limitations were the promotion of
policies that do not lend themselves to definite and specific

133
of a constitutional provision, is not only favored but will be adopted thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51
(State ex rel. Randolph Country vs. Walden, 206 S.W. 2d 979). Phil. 498). But the case at bar has to be considered as an exception to the
rule because among the rights granted by section 159 of the Corporation
It is quite generally held that in arriving at the intent and purpose the Law was the right to receive bequests or gifts of real properties for charitable,
construction should be broad or liberal or equitable, as the better benevolent and educational purposes. And this right to receive such
method of ascertaining that intent, rather than technical (Great bequests or gifts (which implies donations in futuro), is not a mere potentiality
Southern Life Ins. Co. vs. City of Austin, 243 S.W. 778). that could be impaired without any specific provision in the Constitution to
that effect, especially when the impairment would disturbingly affect the
All these authorities uphold our conviction that the framers of the Constitution propagation of the religious faith of the immense majority of the Filipino
had not in mind the corporations sole, nor intended to apply them the people and the curtailment of the activities of their Church. That is why the
provisions of section 1 and 5 of said Article XIII when they passed and writer gave us a basis of his contention what Professor Aruego said in his
approved the same. And if it were so as We think it is, herein petitioner, the book "The Framing of the Philippine Constitution" and the enlightening
Roman Catholic Apostolic Administrator of Davao, Inc., could not be deprived opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional
of the right to acquire by purchase or donation real properties for charitable, Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs.
benevolent and educational purposes, nor of the right to register the same in Eulogio Rodriguez et al., 66 Phil. 259. Anyway the majority of the Court did
its name with the Register of Deeds of Davao, an indispensable requisite not deem necessary to pass upon said "vested right saving clause" for the
prescribed by the Land Registration Act for lands covered by the Torrens final determination of this case.
system.
JUDGMENT
We leave as the last theme for discussion the much debated question above
referred to as "the vested right saving clause" contained in section 1, Article Wherefore, the resolution of the respondent Land Registration Commission
XIII of the Constitution. The dissenting Justice hurls upon the personal of September 21, 1954, holding that in view of the provisions of sections 1
opinion expressed on the matter by the writer of the decision the most and 5 of Article XIII of the Philippine Constitution the vendee (petitioner) is
pointed darts of his severe criticism. We think, however, that this strong not qualified to acquire lands in the Philippines in the absence of proof that at
dissent should have been spared, because as clearly indicated before, some least 60 per centum of the capital, properties or assets of the Roman
members of this Court either did not agree with the theory of the writer or Catholic Apostolic Administrator of Davao, Inc. is actually owned or controlled
were not ready to take a definite stand on that particular point, so that there by Filipino citizens, and denying the registration of the deed of sale in the
being no majority opinion thereon there was no need of any dissension absence of proof of compliance with such requisite, is hereby reversed.
therefrom. But as the criticism has been made the writer deems it necessary Consequently, the respondent Register of Deeds of the City of Davao is
to say a few words of explanation. ordered to register the deed of sale executed by Mateo L. Rodis in favor of
the Roman Catholic Apostolic Administrator of Davao, Inc., which is the
The writer fully agrees with the dissenting Justice that ordinarily "a capacity subject of the present litigation. No pronouncement is made as to costs. It is
to acquire (property) in futuro, is not in itself a vested or existing property so ordered.
right that the Constitution protects from impairment. For a property right to be
vested (or acquired) there must be a transition from the potential or Bautista Angelo and Endencia, JJ., concur.
contingent to the actual, and the proprietary interest must have attached to a

134
Paras, C.J., and Bengzon, J., concur in the result.

135
136
G.R. No. L-55289 June 29, 1982 its predecessors-in-interest had possessed the land for more than thirty
years. It invoked section 48(b) of the Public Land Law, which provides:
REPUBLIC OF THE PHILIPPINES, represented by the Director of
Lands, petitioner-appellant, Chapter VIII.Judicial confirmation of imperfect or
vs. incomplete titles.
JUDGE CANDIDO P. VILLANUEVA, of the Court of First Instance of
Bulacan, Malolos Branch VII, and IGLESIA NI CRISTO, as a corporation xxx xxx xxx
sole, represented by ERAO G. MANALO, as Executive
Minister,respondents-appellees. SEC. 48. The following-described citizens of the Philippines,
occupying lands of the public domain or claiming to own any
such lands or an interest therein, but whose titles have not
been perfected or completed, may apply to the Court of First
AQUINO, J.: Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate
Like L-49623, Manila Electric Company vs. Judge Castro-Bartolome, this of title therefore, under the Land Register Act, to wit:
case involves the prohibition in section 11, Article XIV of the Constitution that
"no private corporation or association may hold alienable lands of the public xxx xxx xxx
domain except by lease not to exceed one thousand hectares in area".
(b) Those who by themselves or through their predecessors-
Lots Nos. 568 and 569, located at Barrio Dampol, Plaridel, Bulacan, with an in-interest have been in open, continuous, exclusive, and
area of 313 square meters and an assessed value of P1,350 were acquired notorious possession and occupation of agricultural lands of
by the Iglesia Ni Cristo on January 9, 1953 from Andres Perez in exchange the public domain, under a bona fide claim of acquisition of
for a lot with an area of 247 square meters owned by the said church (Exh. ownership, for at least thirty years immediately preceding the
D). filing of the application for confirmation of title except when
prevented by war or force majeure. These shall be
The said lots were already possessed by Perez in 1933. They are not conclusively presumed to have performed all the conditions
included in any military reservation. They are inside an area which was essential to a Government grant and shall be entitled to a
certified as alienable or disposable by the Bureau of Forestry in 1927. The certificate of title under the provisions of this chapter." (As
lots are planted to santol and mango trees and banana plants. A chapel amended by Republic Act No. 1942, approved on June 22,
exists on the said land. The land had been declared for realty tax purposes. 1957.)
Realty taxes had been paid therefor (Exh. N).
The Republic of the Philippines, through the Direct/r of Lands, opposed the
On September 13, 1977, the Iglesia Ni Cristo, a corporation sole, duly application on the grounds that applicant, as a private corporation, is
existing under Philippine laws, filed with the Court of First Instance of disqualified to hold alienable lands of the public domain, that the land applied
Bulacan an application for the registration of the two lots. It alleged that it and for is public land not susceptible of private appropriation and that the
applicant and its predecessors-in-interest have not been in the open,

137
continuous, exclusive and notorious possession of the land since June 12, since time immemorial, for such possession would justify the presumption
1945. that the land had never been part of the public domain or that it had been a
private property even before the Spanish conquest. "
After hearing, the trial court ordered the registration of the two lots, as
described in Plan Ap-04-001344 (Exh. E), in the name of the Iglesia Ni In Uy Un vs. Perez, 71 Phil. 508, it was noted that the right of an occupant of
Cristo, a corporation sole, represented by Executive Minister Erao G. public agricultural land to obtain a confirmation of his title under section 48(b)
Manalo, with office at the corner of Central and Don Mariano Marcos of the Public Land Law is a "derecho dominical incoativo"and that before the
Avenues, Quezon City, From that decision, the Republic of the Philippines issuance of the certificate of title the occupant is not in the juridical sense the
appealed to this Court under Republic Act No. 5440. The appeal should be true owner of the land since it still pertains to the State.
sustained.
The lower court's judgment is reversed and set aside. The application for
As correctly contended by the Solicitor General, the Iglesia Ni Cristo, as a registration of the Iglesia Ni Cristo is dismissed with costs against said
corporation sole or a juridical person, is disqualified to acquire or hold applicant.
alienable lands of the public domain, like the two lots in question, because of
the constitutional prohibition already mentioned and because the said church SO ORDERED.
is not entitled to avail itself of the benefits of section 48(b) which applies only
to Filipino citizens or natural persons. A corporation sole (an "unhappy freak Barredo, Makasiar, Guerrero, Melencio-Herrera, Escolin, Vasquez, Relova
of English law") has no nationality (Roman Catholic Apostolic Adm. of Davao, and Gutierrez, Jr., JJ., concur.
Inc. vs. Land Registration Commission, 102 Phil. 596. See Register of Deeds
vs. Ung Siu Si Temple, 97 Phil. 58 and sec. 49 of the Public Land Law).
Concepcion, Jr., J., is on leave.

The contention in the comments of the Iglesia Ni Cristo (its lawyer did not file
Plana, J., took no part.
any brief) that the two lots are private lands, following the rule laid down in
Susi vs. Razon and Director of Lands, 48 Phil. 424, is not correct. What was
considered private land in the Susi case was a parcel of land possessed by a
Filipino citizen since time immemorial, as in Cario vs. Insular
Government, 212 U.S. 449, 53 L. ed. 594, 41 Phil. 935 and 7 Phil. 132. The
lots sought to be registered in this case do not fall within that category. They
are still public lands. A land registration proceeding under section 48(b)
"presupposes that the land is public" (Mindanao vs. Director of Lands, L-
19535, July 10, 1967, 20 SCRA 641, 644).

As held in Oh Cho vs. Director of Lands, 75 Phil. 890, "all lands that were not
acquired from the Government, either by purchase or by grant, belong to the
public domain. An exception to the rule would be any land that should have
been in the possession of an occupant and of his predecessors-in-interest

138
139
Office of the Solicitor General for petitioner.
V. Jaime and L. E. Petilla for respondent.

PAREDES, J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing
the decision of the Collector of Internal Revenue, assessing against and
demanding from the "Club Filipino, Inc. de Cebu", the sum of P12,068.84 as
fixed and percentage taxes, surcharge and compromise penalty, allegedly
due from it as a keeper of bar and restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu,"
(Club, for short), is a civic corporation organized under the laws of the
Philippines with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to it "proporcionar,
operar, y mantener un campo de golf, tenis, gimnesio (gymnasiums), juego
de bolos (bowling alleys), mesas de billar y pool, y toda clase de juegos no
prohibidos por leyes generales y ordenanzas generales; y desarollar y
cultivar deportes de toda clase y denominacion cualquiera para el recreo y
entrenamiento saludable de sus miembros y accionistas" (sec. 2, Escritura
de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or by-
laws is there a provision relative to dividends and their distribution, although
it is covenanted that upon its dissolution, the Club's remaining assets, after
paying debts, shall be donated to a charitable Philippine Institution in Cebu
(Art. 27, Estatutos del Club, Exh. A-a.).

The Club owns and operates a club house, a bowling alley, a golf course (on
a lot leased from the government), and a bar-restaurant where it sells wines
and liquors, soft drinks, meals and short orders to its members and their
guests. The bar-restaurant was a necessary incident to the operation of the
G.R. No. L-12719 May 31, 1962 club and its golf-course. The club is operated mainly with funds derived from
membership fees and dues. Whatever profits it had, were used to defray its
THE COLLECTOR OF INTERNAL REVENUE, petitioner, overhead expenses and to improve its golf-course. In 1951. as a result of a
vs. capital surplus, arising from the re-valuation of its real properties, the value or
THE CLUB FILIPINO, INC. DE CEBU, respondent. price of which increased, the Club declared stock dividends; but no actual
cash dividends were distributed to the stockholders. In 1952, a BIR agent

140
discovered that the Club has never paid percentage tax on the gross receipts 2. Whether it is liable for the payment of the sum of P500.00 as compromise
of its bar and restaurant, although it secured B-4, B-9(a) and B-7 licenses. In penalty.
a letter dated December 22, 1852, the Collector of Internal Revenue
assessed against and demanded from the Club, the following sums: Section 182, of the Tax Code states, "Unless otherwise provided, every
person engaging in a business on which the percentage tax is imposed shall
pay in full a fixed annual tax of ten pesos for each calendar year or fraction
thereof in which such person shall engage in said business." Section 183
As percentage tax on its gross receipts
provides in general that "the percentage taxes on business shall be payable
during the tax years 1946 to 1951 P9,599.07
at the end of each calendar quarter in the amount lawfully due on the
business transacted during each quarter; etc." And section 191, same Tax
Code, provides "Percentage tax . . . Keepers of restaurants, refreshment
parlors and other eating places shall pay a tax three per centum, and
Surcharge therein 2,399.77
keepers of bar and cafes where wines or liquors are served five per
centum of their gross receipts . . .". It has been held that the liability for fixed
and percentage taxes, as provided by these sections, does not ipso
As fixed tax for the years 1946 to 1952 70.00 factoattach by mere reason of the operation of a bar and restaurant. For the
liability to attach, the operator thereof must be engaged in the business as a
barkeeper and restaurateur. The plain and ordinary meaning of business is
restricted to activities or affairs where profit is the purpose or livelihood is the
Compromise penalty 500.00 motive, and the term business when used without qualification, should be
construed in its plain and ordinary meaning, restricted to activities for profitor
livelihood (The Coll. of Int. Rev. v. Manila Lodge No. 761 of the BPOE [Manila
Elks Club] & Court of Tax Appeals, G.R. No. L-11176, June 29, 1959, giving
The Club wrote the Collector, requesting for the cancellation of the full definitions of the word "business"; Coll. of Int. Rev. v. Sweeney, et al.
assessment. The request having been denied, the Club filed the instant [International Club of Iloilo, Inc.], G.R. No. L-12178, Aug. 21, 1959, the facts
petition for review. of which are similar to the ones at bar; Manila Polo Club v. B. L. Meer, etc.,
No. L-10854, Jan. 27, 1960).
The dominant issues involved in this case are twofold:
Having found as a fact that the Club was organized to develop and cultivate
1. Whether the respondent Club is liable for the payment of the sum of sports of all class and denomination, for the healthful recreation and
12,068.84, as fixed and percentage taxes and surcharges prescribed in entertainment of its stockholders and members; that upon its dissolution, its
sections 182, 183 and 191 of the Tax Code, under which the assessment remaining assets, after paying debts, shall be donated to a charitable
was made, in connection with the operation of its bar and restaurant, during Philippine Institution in Cebu; that it is operated mainly with funds derived
the periods mentioned above; and from membership fees and dues; that the Club's bar and restaurant catered
only to its members and their guests; that there was in fact no cash dividend
distribution to its stockholders and that whatever was derived on retail from
its bar and restaurant was used to defray its overall overhead expenses and

141
to improve its golf-course (cost-plus-expenses-basis), it stands to reason that A tax is a burden, and, as such, it should not be deemed imposed upon
the Club is not engaged in the business of an operator of bar and restaurant fraternal, civic, non-profit, nonstock organizations, unless the intent to the
(same authorities, cited above). contrary is manifest and patent" (Collector v. BPOE Elks Club, et al., supra),
which is not the case in the present appeal.
It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making Having arrived at the conclusion that respondent Club is not engaged in the
enterprise. The bar and restaurant are necessary adjuncts of the Club to business as an operator of a bar and restaurant, and therefore, not liable for
foster its purposes and the profits derived therefrom are necessarily fixed and percentage taxes, it follows that it is not liable for any penalty, much
incidental to the primary object of developing and cultivating sports for the less of a compromise penalty.
healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As WHEREFORE, the decision appealed from is affirmed without costs.
has been remarked a club should always strive, whenever possible, to have
surplus (Jesus Sacred Heart College v. Collector of Int. Rev., G.R. No. L- Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera and
6807, May 24, 1954; Collector of Int. Rev. v. Sinco Educational Corp., G.R. Dizon, JJ., concur.
No. L-9276, Oct. 23, 1956).1wph1.t Bengzon, C.J., is on leave.

It is claimed that unlike the two cases just cited (supra), which are non-stock,
the appellee Club is a stock corporation. This is unmeritorious. The facts that
the capital stock of the respondent Club is divided into shares, does not
detract from the finding of the trial court that it is not engaged in the business
of operator of bar and restaurant. What is determinative of whether or not the
Club is engaged in such business is its object or purpose, as stated in its
articles and by-laws. It is a familiar rule that the actual purpose is not
controlled by the corporate form or by the commercial aspect of the business
prosecuted, but may be shown by extrinsic evidence, including the by-laws
and the method of operation. From the extrinsic evidence adduced, the Tax
Court concluded that the Club is not engaged in the business as a barkeeper
and restaurateur.

Moreover, for a stock corporation to exist, two requisites must be complied


with, to wit: (1) a capital stock divided into shares and (2) an authority to
distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of the shares held (sec. 3, Act No. 1459). In the
case at bar, nowhere in its articles of incorporation or by-laws could be found
an authority for the distribution of its dividends or surplus profits. Strictly
speaking, it cannot, therefore, be considered a stock corporation, within the
contemplation of the corporation law.

142
Virgilio E. Dulay for petitioners.

Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.:

This is a petition for review on certiorari to annul and set aside the
decision 1 of the Court of Appeals affirming the decision 2 of the Regional Trial
Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the
dispositive portion of which reads, as follows:

Wherefore, in view of all the foregoing considerations, in this


Court hereby renders judgment, as follows:

In Civil Case No. 2880-P, the petition filed by Manuel R.


Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or
declaration of nullity of the decision of the Metropolitan Trial
Court, Branch 46, Pasay City, in its Civil Case No. 38-81
entitled "Edgardo D. Pabalan, et al., vs. Spouses Florentino
Manalastas, et al.," is dismissed for lack of merits;

In Civil Case No. 8278-P, the complaint filed by Manuel R.


Dulay Enterprises, Inc. for cancellation of title of Manuel A.
Torres, Jr. (TCT No. 24799 of the Register of Deeds of
Pasay City) and reconveyance, is dismissed for lack or
G.R. No. 91889 August 27, 1993 merit, and,

MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND In Civil Case No. 8198-P, defendants Manuel R. Dulay
NEPOMUCENO REDOVAN, petitioners, Enterprises, Inc. and Virgilio E. Dulay are ordered to
vs. surrender and deliver possession of the parcel of land,
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, together with all the improvements thereon, described in
MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND Transfer Certificate of Title No. 24799 of the Register of
CASTRENSE C. VELOSO, respondents. Deeds of Pasay City, in favor of therein plaintiffs Manuel A.
Torres, Jr. as owner and Edgardo D. Pabalan as real estate

143
administrator of said Manuel A. Torres, Jr.; to account for and On December 23, 1976, Manuel Dulay by virtue of Board Resolution
return to said plaintiffs the rentals from dwelling unit No. 8-A No 18 6 of petitioner corporation sold the subject property to private
of the apartment building (Dulay Apartment) from June 1980 respondents spouses Maria Theresa and Castrense Veloso in the amount of
up to the present, to indemnify plaintiffs, jointly and severally, P300,000.00 as evidenced by the Deed of Absolute Sale. 7 Thereafter, TCT
expenses of litigation in the amount of P4,000.00 and No. 17880 was cancelled and TCT No. 23225 was issued to private
attorney's fees in the sum of P6,000.00, for all the three (3) respondent Maria Theresa Veloso. 8 Subsequently, Manuel Dulay and private
cases. Co-defendant Nepomuceno Redovan is ordered to respondents spouses Veloso executed a Memorandum to the Deed of
pay the current and subsequent rentals on the premises Absolute Sale of December 23, 1976 9 dated December 9, 1977 giving
leased by him to plaintiffs. Manuel Dulay within (2) years or until December 9, 1979 to repurchase the
subject property for P200,000.00 which was, however, not annotated either in
The counterclaim of defendants Virgilio E. Dulay and Manuel TCT No. 17880 or TCT No. 23225.
R. Dulay Enterprises, Inc. and N. Redovan, dismissed for
lack of merit. With costs against the three (3) aforenamed On December 24, 1976, private respondent Maria Veloso, without the
defendants. 3 knowledge of Manuel Dulay, mortgaged the subject property to private
respondent Manuel A. Torres for a loan of P250,000.00 which was duly
The facts as found by the trial court are as follows: annotated as Entry No. 68139 in TCT No. 23225. 10

Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the Upon the failure of private respondent Maria Veloso to pay private
following as members of its Board of Directors: Manuel R. Dulay with 19,960 respondent Torres, the subject property was sold on April 5, 1978 to private
shares and designated as president, treasurer and general manager, Atty. respondent Torres as the highest bidder in an extrajudicial foreclosure sale
Virgilio E. Dulay with 10 shares and designated as vice-president; Linda E. as evidenced by the Certificate of Sheriff's Sale 11 issued on April 20, 1978.
Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel
C. Jose with 10 shares and designated as secretary, owned a property On July 20, 1978, private respondent Maria Veloso executed a Deed of
covered by TCT No. 17880 4 and known as Dulay Apartment consisting of Absolute Assignment of the Right to Redeem 12 in favor of Manuel Dulay
sixteen (16) apartment units on a six hundred eighty-nine (689) square assigning her right to repurchase the subject property from private
meters lot, more or less, located at Seventh Street (now Buendia Extension) respondent Torres as a result of the extra sale held on April 25, 1978.
and F.B. Harrison Street, Pasay City.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay
Petitioner corporation through its president, Manuel Dulay, obtained various was able to redeem the subject property within the one year statutory period
loans for the construction of its hotel project, Dulay Continental Hotel (now for redemption, private respondent Torres filed an Affidavit of Consolidation of
Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay Ownership 13 with the Registry of Deeds of Pasay City and TCT No.
to be able to continue the hotel project. As a result of said loan, petitioner 24799 14 was subsequently issued to private respondent Manuel Torres on
Virgilio Dulay occupied one of the unit apartments of the subject property April 23, 1979.
since property since 1973 while at the same time managing the Dulay
Apartment at his shareholdings in the corporation was subsequently On October 1, 1979, private respondent Torres filed a petition for the
increased by his father. 5 issuance of a writ of possession against private respondents spouses Veloso

144
and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner 3. Ordering the defendants to pay attorney's fees in the sum
Virgilio Dulay was never authorized by the petitioner corporation to sell or of P2,000.00 and P1,000.00 as other expenses of litigation
mortgage the subject property, the trial court ordered private respondent and for them to pay the costs of the suit. 15
Torres to implead petitioner corporation as an indispensable party but the
latter moved for the dismissal of his petition which was granted in an Order Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed
dated April 8, 1980. an action against the presiding judge of the Metropolitan Trial Court of Pasay
City, private respondents Pabalan and Torres for the annulment of said
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real decision with the Regional Trial Court of Pasay in Civil Case No. 2880-P.
estate administrator of Torres, filed an action against petitioner corporation,
Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit Thereafter, the three (3) cases were jointly tried and the trial court rendered a
No. 8-A for the recovery of possession, sum of money and damages with decision in favor of private respondents.
preliminary injunction in Civil Case, No. 8198-P with the then Court of First
Instance of Rizal. Not satisfied with said decision, petitioners appealed to the Court of Appeals
which rendered a decision on October 23, 1989, the dispositive portion of
On July 21, 1980, petitioner corporation filed an action against private which reads, as follows:
respondents spouses Veloso and Torres for the cancellation of the Certificate
of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then PREMISES CONSIDERED, the decision being appealed
Court of First Instance of Rizal. should be as it is hereby AFFIRMED in full. 16

On January 29, 1981, private respondents Pabalan and Torres filed an action On November 8, 1989, petitioners filed a Motion for Reconsideration which
against spouses Florentino and Elvira Manalastas, a tenant of Dulay was denied on January 26, 1990.
Apartment Unit No. 7-B, with petitioner corporation as intervenor for
ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay
Hence, this petition.
City which rendered a decision on April 25, 1985, dispositive portion of which
reads, as follows:
During the pendency of this petition, private respondent Torres died on April
3, 1991 as shown in his death certificate 17 and named Torres-Pabalan Realty
Wherefore, judgment is hereby rendered in favor of the
& Development Corporation as his heir in his holographic will 18 dated
plaintiff (herein private respondents) and against the
October 31, 1986.
defendants:

Petitioners contend that the respondent court had acted with grave abuse of
1. Ordering the defendants and all persons claiming
discretion when it applied the doctrine of piercing the veil of corporate entity
possession under them to vacate the premises.
in the instant case considering that the sale of the subject property between
private respondents spouses Veloso and Manuel Dulay has no binding effect
2. Ordering the defendants to pay the rents in the sum of on petitioner corporation as Board Resolution No. 18 which authorized the
P500.000 a month from May, 1979 until they shall have sale of the subject property was resolved without the approval of all the
vacated the premises with interest at the legal rate;

145
members of the board of directors and said Board Resolution was prepared proper call or notice in a close corporation is deemed ratified by the absent
by a person not designated by the corporation to be its secretary. director unless the latter promptly files his written objection with the secretary
of the corporation after having knowledge of the meeting which, in his case,
We do not agree. petitioner Virgilio Dulay failed to do.

Section 101 of the Corporation Code of the Philippines provides: It is relevant to note that although a corporation is an entity which has a
personality distinct and separate from its individual stockholders or
Sec. 101. When board meeting is unnecessary or improperly members, 19 the veil of corporate fiction may be pierced when it is used to
held. Unless the by-laws provide otherwise, any action by defeat public convenience justify wrong, protect fraud or defend crime. 20 The
the directors of a close corporation without a meeting shall privilege of being treated as an entity distinct and separate from its
nevertheless be deemed valid if: stockholder or members is therefore confined to its legitimate uses and is
subject to certain limitations to prevent the commission of fraud or other
illegal or unfair act. When the corporation is used merely as an alter ego or
1. Before or after such action is taken, written consent
business conduit of a person, the law will regard the corporation as the act of
thereto is signed by all the directors, or
that person. 21 The Supreme Court had repeatedly disregarded the separate
personality of the corporation where the corporate entity was used to annul a
2. All the stockholders have actual or implied knowledge of valid contract executed by one of its members.
the action and make no prompt objection thereto in writing;
or
Petitioners' claim that the sale of the subject property by its president,
Manuel Dulay, to private respondents spouses Veloso is null and void as the
3. The directors are accustomed to take informal action with alleged Board Resolution No. 18 was passed without the knowledge and
the express or implied acquiese of all the stockholders, or consent of the other members of the board of directors cannot be sustained.
As correctly pointed out by the respondent Court of Appeals:
4. All the directors have express or implied knowledge of the
action in question and none of them makes prompt objection Appellant Virgilio E. Dulay's protestations of complete
thereto in writing. innocence to the effect that he never participated nor was
even aware of any meeting or resolution authorizing the
If a directors' meeting is held without call or notice, an action mortgage or sale of the subject premises (see par. 8,
taken therein within the corporate powers is deemed ratified affidavit of Virgilio E. Dulay, dated May 31, 1984, p. 14, Exh.
by a director who failed to attend, unless he promptly files "21") is difficult to believe. On the contrary, he is very much
his written objection with the secretary of the corporation privy to the transactions involved. To begin with, he is a
after having knowledge thereof. incorporator and one of the board of directors designated at
the time of the organization of Manuel R. Dulay Enterprise,
In the instant case, petitioner corporation is classified as a close corporation Inc. In ordinary parlance, the said entity is loosely referred to
and consequently a board resolution authorizing the sale or mortgage of the as a "family corporation". The nomenclature, if imprecise,
subject property is not necessary to bind the corporation for the action of its however, fairly reflects the cohesiveness of a group and the
president. At any rate, corporate action taken at a board meeting without parochial instincts of the individual members of such an

146
aggrupation of which Manuel R. Dulay Enterprises, Inc. is Moreover, the appellate courts will not disturb the findings of the trial judge
typical: four-fifths of its incorporators being close relatives unless he has plainly overlooked certain facts of substance and value that, if
namely, three (3) children and their father whose name considered, might affect the result of the case, 25 which is not present in the
identifies their corporation (Articles of Incorporation of instant case.
Manuel R. Dulay Enterprises, Inc. Exh. "31-A"). 22
Petitioners' contention that private respondent Torres never acquired
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an ownership over the subject property since the latter was never in actual
affidavit 23 that he was a signatory witness to the execution of the post-dated possession of the subject property nor was the property ever delivered to him
Deed of Absolute Sale of the subject property in favor of private respondent is also without merit.
Torres indicates that he was aware of the transaction executed between his
father and private respondents and had, therefore, adequate knowledge Paragraph 1, Article 1498 of the New Civil Code provides:
about the sale of the subject property to private respondents.
When the sale is made through a public instrument, the
Consequently, petitioner corporation is liable for the act of Manuel Dulay and execution thereof shall be equivalent to the delivery of the
the sale of the subject property to private respondents by Manuel Dulay is thing which is the object of the contract, if from the deed the
valid and binding. As stated by the trial court: contrary do not appear or cannot clearly be inferred.

. . . the sale between Manuel R. Dulay Enterprises, Inc. and Under the aforementioned article, the mere execution of the deed of sale in a
the spouses Maria Theresa V. Veloso and Castrense C. public document is equivalent to the delivery of the property. Likewise, this
Veloso, was a corporate act of the former and not a personal Court had held that:
transaction of Manuel R. Dulay. This is so because Manuel
R. Dulay was not only president and treasurer but also the It is settled that the buyer in a foreclosure sale becomes the
general manager of the corporation. The corporation was a absolute owner of the property purchased if it is not
closed family corporation and the only non-relative in the redeemed during the period of one year after the registration
board of directors was Atty. Plaridel C. Jose who appeared of the sale. As such, he is entitled to the possession of the
on paper as the secretary. There is no denying the fact, said property and can demand it at any time following the
however, that Maria Socorro R. Dulay at times acted as consolidation of ownership in his name and the issuance to
secretary. . . ., the Court can not lose sight of the fact that the him of a new transfer certificate of title. The buyer can in fact
Manuel R. Dulay Enterprises, Inc. is a closed family demand possession of the land even during the redemption
corporation where the incorporators and directors belong to period except that he has to post a bond in accordance with
one single family. It cannot be concealed that Manuel R. Section 7 of Act No. 3133 as amended. No such bond is
Dulay as president, treasurer and general manager almost required after the redemption period if the property is not
had absolute control over the business and affairs of the redeemed. Possession of the land then becomes an
corporation. 24 absolute right of the purchaser as confirmed owner. 26

147
Therefore, prior physical delivery or possession is not legally required since
the execution of the Deed of Sale in deemed equivalent to delivery.

Finally, we hold that the respondent appellate court did not err in denying
petitioner's motion for reconsideration despite the fact that private
respondents failed to submit their comment to said motion as required by the
respondent appellate court from resolving petitioners' motion for
reconsideration without the comment of the private respondent which was
required merely to aid the court in the disposition of the motion. The courts
are as much interested as the parties in the early disposition of cases before
them. To require otherwise would unnecessarily clog the courts' dockets.

WHEREFORE, the petition is DENIED and the decision appealed from is


hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Regalado, JJ., concur.

Puno, J., took no part.

148
defendant corporation by J. Amado Araneta, and asking that the corporation
be dissolved; that J. Amado Araneta be declared personally accountable for
the amounts of the unauthorized and fraudulent disbursements and
disposition of assets made by him, and that he be required to account for
said assets, and that pending trial and disposition of the case on its merits a
receiver be appointed to take possession of the books, records and assets of
the defendant corporation preparatory to its dissolution and liquidation and
distribution of the assets. Over the strong objection of the defendants, the
trial court presided by respondent Judge Jose Teodoro, granted the petition
for the appointment of a receiver and designated Mr. Alfredo Yulo as such
receiver with a bond of P50,000. Failing to secure a reconsideration of the
order appointing a receiver, the defendants in said case, Financing
Corporation of the Philippines and J. Amado Araneta, as petitioners, have
filed the present petition for certiorari with preliminary injunction to revoke
and set aside the order. Acting upon that part of the petition asking for a writ
G.R. No. L-4900 August 31, 1953 of preliminary injunction, a majority of the court granted the same upon the
filing of a bond by the petitioners in the sum of P50,000.
FINANCING CORPORATION OF THE PHILIPPINES and J. AMADO
ARANETA, petitioners, The main contention of the petitioners in opposing the appointment of a
vs. receiver in this case is that said appointment is merely an auxiliary remedy;
HON. JOSE TEODORO, Judge of the Court of First Instance of Negros that the principal remedy sought by the respondents in the action in Negros
Occidental, Branch II, and ENCARNACION LIZARES VDA. DE Occidental was the dissolution of the Financing Corporation of the
PANLILIO, respondents. Philippines; that according to the law a suit for the dissolution of a
corporation can be brought and maintained only by the State through its legal
Vicente Hilado for petitioners. counsel, and that respondents, much less the minority stockholders of said
Antonio Barredo for respondents. corporation, have no right or personality to maintain the action for dissolution,
and that inasmuch as said action cannot be maintained legally by the
respondents, then the auxiliary remedy for the appointment of a receiver has
MONTEMAYOR, J.:
no basis.

In civil case No. 1924 of the Court of First Instance of Negros Occidental,
True it is that the general rule is that the minority stockholders of a
Asuncion Lopez Vda. de Lizares, Encarnacion Lizares Vda. de Panlilio and
corporation cannot sue and demand its dissolution. However, there are cases
Efigenia Vda. de Paredes, in their own behalf and in behalf of the other
that hold that even minority stockholders may ask for dissolution, this, under
minority stockholders of the Financing Corporation of the Philippines, filed a
the theory that such minority members, if unable to obtain redress and
complaint against the said corporation and J. Amado Araneta, its president
protection of their rights within the corporation, must not and should not be
and general manager, claiming among other things alleged gross
left without redress and remedy. This was what probably prompted this Court
mismanagement and fraudulent conduct of the corporate affairs of the
to state in the case of Hall, et al. vs. Judge Piccio,* G.R. No. L-2598 (47 Off.

149
Gaz. No. 12 Supp., p. 200) that even the existence of a de jure corporation Considering plaintiffs' complaint and verified motion for appointment
may be terminated in a private suit for its dissolution by the stockholders of a receiver together, as they have been treated jointly in the
without the intervention of the State. It was therein further held that although opposition of the defendants, the grounds of the prayer for
there might be some room for argument on the right of minority stockholders receivership may be briefly stated to be: (1) imminent danger of
to ask for dissolution,-that question does not affect the court's jurisdiction insolvency; (2) fraud and mismanagement, such as, particularly, (a)
over the case, and that the remedy by the party dissatisfied was to appeal wrongful and unauthorized diversion from corporate purposes and
from the decision of the trial court. We repeat that although as a rule, minority use for personal benefit of defendant Araneta, for the benefit of the
stockholders of a corporation may not ask for its dissolution in a private suit, corporations under his control and of which he is majority
and that such action should be brought by the Government through its legal stockholder and/or for the benefit of his relatives, personal friends
officer in a quo warranto case, at their instance and request, there might be and the political organization to which he is affiliated of approximately
exceptional cases wherein the intervention of the State, for one reason or over one and a half million pesos of the funds of the defendant
another, cannot be obtained, as when the State is not interested because the corporation in the form of uncollected allowances and loans, either
complaint is strictly a matter between the stockholders and does not involve, without or with uncollected interest, and either unsecured or
in the opinion of the legal officer of the Government, any of the acts or insufficiently secured, and sometimes with a securities appearing in
omissions warranting quo warranto proceedings, in which minority favor of defendant Araneta as if the funds advanced or loaned were
stockholders are entitled to have such dissolution. When such action or his own; (b) unauthorized and profitless pledging of securities owned
private suit is brought by them, the trial court had jurisdiction and may or may by defendant corporation to secure obligations amounting to
not grant the prayer, depending upon the facts and circumstances attending P588,645.34 of another corporation controlled by defendant Araneta;
it. The trial court's decision is of course subject to review by the appellate (c) unauthorized and profitless using of the name of the defendant
tribunal. Having such jurisdiction, the appointment of a receiver pendente corporation in the shipping of sugar belonging to other corporations
lite is left to the sound discretion of the trial court. As was said in the case controlled by defendant Araneta to the benefit of said corporations in
of Angeles vs. Santos (64 Phil., 697), the action having been properly the amount of at least P104,343.36; (d) refusal by defendant Araneta
brought and the trial court having entertained the same, it was within the to endorse to the defendant corporation shares of stock and other
power of said court upon proper showing to appoint a receiverpendente securities belonging to it but which are still in his name; (e) negligent
lite for the corporation; that although the appointment of a receiver upon failure to endorse other shares of stock belonging to defendant
application of the minority stockholders is a power to be exercised with great corporation but still in the names of the respective vendors; and (f)
caution, nevertheless, it should be exercised necessary in order not to illegal and unauthorized transfer and deposit in the United States of
entirely ignore and disregard the rights of said minority stockholders, America of 6,426,281 shares of the Atok-Big Wedge Mining
especially when said minority stockholders are unable to obtain redress and Company; (3) violations of the corporation law and the by-laws of the
protection of their rights within the corporation itself. corporation such as (a) refusal to allow minority stockholders to
examine the books and records of the corporation; (b) failure to call
In that civil case No. 1924 of Negros Occidental court, allegations of and hold stockholders' and directors' meetings; (c) virtual disregard
mismanagement and misconduct by its President and Manager were made, and ignoring of the board of directors by defendant Araneta who has
specially in connection with the petition for the appointment of a receiver. in been and is conducting the affairs of the corporation under his
order to have an idea of the seriousness of said allegations, we reproduce a absolute control and for his personal benefit and for the benefit of the
pertinent portion of the order of respondent Judge Teodoro dated June 23, corporations controlled by him, to the prejudice and in disregard of
1951, subject of these certiorari proceedings: the rights of the plaintiffs and other minority stockholders; and (d)

150
irregularity in the keeping and (e) errors and omissions in the books
and failure of the same to reflect the real and actual transactions of
the defendant corporations; (4) failure to achieve the fundamental
purpose of the corporation; (5) if administration, possession and
control of the affairs, books, etc. of defendant corporation are left in
the hands of the defendant Araneta and the present corporate
officials, under his power and influence, the remaining assets of the
corporation are in danger of being further dissipated, wasted or lost
and of becoming ultimately unavailable for distribution among its
stockholders; and (6) the best means to protect and preserve the
assets of defendant corporation is the appointment of a receiver.

In conclusion, we hold that the trial court through respondent Judge Teodoro
had jurisdiction and properly entertained the original case; that he also had
jurisdiction to appoint a receiver pendente lite, and considering the
allegations made in connection with the petition for the appointment of a
receiver, he neither exceeded his jurisdiction nor abused his discretion in
appointing a receiver. The petition for certiorari is hereby denied, with costs.
The writ of preliminary injunction heretofore issued is hereby ordered
dissolved.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Reyes, Jugo, Bautista Angelo, G.R. No. L-43350 December 23, 1937
and Labrador, JJ., concur.
CAGAYAN FISHING DEVELOPMENT CO., INC., plaintiff-appellant,
vs.
TEODORO SANDIKO, defendant-appellee.

Arsenio P. Dizon for appellant.


Sumulong, Lavides and Sumulong for appellee.

LAUREL, J.:

This is an appeal from a judgment of the Court of First Instance of Manila


absolving the defendant from the plaintiff's complaint.

151
Manuel Tabora is the registered owner of four parcels of land situated in the The defendant having failed to pay the sum stated in the promissory note,
barrio of Linao, town of Aparri, Province of Cagayan, as evidenced by plaintiff, on January 25, 1934, brought this action in the Court of First
transfer certificate of title No. 217 of the land records of Cagayan, a copy of Instance of Manila praying that judgment be rendered against the defendant
which is in evidence as Exhibit 1. To guarantee the payment of a loan in the for the sum of P25,300, with interest at legal rate from the date of the filing of
sum of P8,000, Manuel Tabora, on August 14, 1929, executed in favor of the the complaint, and the costs of the suits. After trial, the court below, on
Philippine National Bank a first mortgage on the four parcels of land above- December 18, 1934, rendered judgment absolving the defendant, with costs
mentioned. A second mortgage in favor of the same bank was in April of against the plaintiff. Plaintiff presented a motion for new trial on January 14,
1930 executed by Tabora over the same lands to guarantee the payment of 1935, which motion was denied by the trial court on January 19 of the same
another loan amounting to P7,000. A third mortgage on the same lands was year. After due exception and notice, plaintiff has appealed to this court and
executed on April 16, 1930 in favor of Severina Buzon to whom Tabora was makes an assignment of various errors.
indebted in the sum of P2,9000. These mortgages were registered and
annotations thereof appear at the back of transfer certificate of title No. 217. In dismissing the complaint against the defendant, the court below, reached
the conclusion that Exhibit B is invalid because of vice in consent and
On May 31, 1930, Tabora executed a public document entitled "Escritura de repugnancy to law. While we do not agree with this conclusion, we have
Transpaso de Propiedad Inmueble" (Exhibit A) by virtue of which the four however voted to affirm the judgment appealed from the reasons which we
parcels of land owned by him was sold to the plaintiff company, said to under shall presently state.
process of incorporation, in consideration of one peso (P1) subject to the
mortgages in favor of the Philippine National Bank and Severina Buzon and, The transfer made by Tabora to the Cagayan fishing Development Co., Inc.,
to the condition that the certificate of title to said lands shall not be plaintiff herein, was affected on May 31, 1930 (Exhibit A) and the actual
transferred to the name of the plaintiff company until the latter has fully and incorporation of said company was affected later on October 22, 1930
completely paid Tabora's indebtedness to the Philippine National Bank. (Exhibit 2). In other words, the transfer was made almost five months before
the incorporation of the company. Unquestionably, a duly organized
The plaintiff company filed its article incorporation with the Bureau of corporation has the power to purchase and hold such real property as the
Commerce and Industry on October 22, 1930 (Exhibit 2). A year later, on purposes for which such corporation was formed may permit and for this
October 28, 1931, the board of directors of said company adopted a purpose may enter into such contracts as may be necessary (sec. 13, pars. 5
resolution (Exhibit G) authorizing its president, Jose Ventura, to sell the four and 9, and sec. 14, Act No. 1459). But before a corporation may be said to
parcels of lands in question to Teodoro Sandiko for P42,000. Exhibits B, C be lawfully organized, many things have to be done. Among other things, the
and D were thereafter made and executed. Exhibit B is a deed of sale law requires the filing of articles of incorporation (secs. 6 et seq., Act. No.
executed before a notary public by the terms of which the plaintiff sold ceded 1459). Although there is a presumption that all the requirements of law have
and transferred to the defendant all its right, titles, and interest in and to the been complied with (sec. 334, par. 31 Code of Civil Procedure), in the case
four parcels of land described in transfer certificate in turn obligated himself before us it can not be denied that the plaintiff was not yet incorporated when
to shoulder the three mortgages hereinbefore referred to. Exhibit C is a it entered into a contract of sale, Exhibit A. The contract itself referred to the
promisory note for P25,300. drawn by the defendant in favor of the plaintiff, plaintiff as "una sociedad en vias de incorporacion." It was not even a de
payable after one year from the date thereof. Exhibit D is a deed of mortgage facto corporation at the time. Not being in legal existence then, it did not
executed before a notary public in accordance with which the four parcels of possess juridical capacity to enter into the contract.
land were given a security for the payment of the promissory note, Exhibit C.
All these three instrument were dated February 15, 1932.

152
Corporations are creatures of the law, and can only come into 78 N. E., 128; Holyoke Envelope Co., vs. U. S. Envelope Co., 182 Mass.,
existence in the manner prescribed by law. As has already been 171; 65 N. E., 54.) It should be observed that Manuel Tabora was the
stated, general law authorizing the formation of corporations are registered owner of the four parcels of land, which he succeeded in
general offers to any persons who may bring themselves within their mortgaging to the Philippine National Bank so that he might have the
provisions; and if conditions precedent are prescribed in the statute, necessary funds with which to convert and develop them into fishery. He
or certain acts are required to be done, they are terms of the offer, appeared to have met with financial reverses. He formed a corporation
and must be complied with substantially before legal corporate composed of himself, his wife, and a few others. From the articles of
existence can be acquired. (14 C. J., sec. 111, p. 118.) incorporation, Exhibit 2, it appears that out of the P48,700, amount of capital
stock subscribed, P45,000 was subscribed by Manuel Tabora himself and
That a corporation should have a full and complete organization and P500 by his wife, Rufina Q. de Tabora; and out of the P43,300, amount paid
existence as an entity before it can enter into any kind of a contract on subscription, P42,100 is made to appear as paid by Tabora and P200 by
or transact any business, would seem to be self evident. . . . A his wife. Both Tabora and His wife were directors and the latter was treasurer
corporation, until organized, has no being, franchises or faculties. as well. In fact, to this day, the lands remain inscribed in Tabora's name. The
Nor do those engaged in bringing it into being have any power to defendant always regarded Tabora as the owner of the lands. He dealt with
bind it by contract, unless so authorized by the charter there is not a Tabora directly. Jose Ventura, president of the plaintiff corporation, intervened
corporation nor does it possess franchise or faculties for it or others only to sign the contract, Exhibit B, in behalf of the plaintiff. Even the
to exercise, until it acquires a complete existence. (Gent vs. Philippine National Bank, mortgagee of the four parcels of land, always
Manufacturers and Merchant's Mutual Insurance Company, 107 Ill., treated Tabora as the owner of the same. (SeeExhibits E and F.) Two civil
652, 658.) suits (Nos. 1931 and 38641) were brought against Tabora in the Court of
First Instance of Manila and in both cases a writ of attachment against the
Boiled down to its naked reality, the contract here (Exhibit A) was entered four parcels of land was issued. The Philippine National Bank threatened to
into not between Manuel Tabora and a non-existent corporation but between foreclose its mortgages. Tabora approached the defendant Sandiko and
the Manuel Tabora as owner of the four parcels of lands on the one hand and succeeded in the making him sign Exhibits B, C, and D and in making him,
the same Manuel Tabora, his wife and others, as mere promoters of a among other things, assume the payment of Tabora's indebtedness to the
corporations on the other hand. For reasons that are self-evident, these Philippine National Bank. The promisory note, Exhibit C, was made payable
promoters could not have acted as agent for a projected corporation since to the plaintiff company so that it may not attached by Tabora's creditors, two
that which no legal existence could have no agent. A corporation, until of whom had obtained writs of attachment against the four parcels of land.
organized, has no life and therefore no faculties. It is, as it were, a child in
ventre sa mere. This is not saying that under no circumstances may the acts If the plaintiff corporation could not and did not acquire the four parcels of
of promoters of a corporation be ratified by the corporation if and when land here involved, it follows that it did not possess any resultant right to
subsequently organized. There are, of course, exceptions (Fletcher Cyc. of dispose of them by sale to the defendant, Teodoro Sandiko.
Corps., permanent edition, 1931, vol. I, secs. 207 et seq.), but under the
peculiar facts and circumstances of the present case we decline to extend Some of the members of this court are also of the opinion that the transfer
the doctrine of ratification which would result in the commission of injustice or from Manuel Tabora to the Cagayan Fishing Development Company, Inc.,
fraud to the candid and unwary.(Massachusetts rule, Abbott vs. Hapgood, which transfer is evidenced by Exhibit A, was subject to a condition
150 Mass., 248; 22 N. E. 907, 908; 5 L. R. A., 586; 15 Am. St. Rep., 193; precedent (condicion suspensiva), namely, the payment of the mortgage debt
citing English cases; Koppel vs. Massachusetts Brick Co., 192 Mass., 223; of said Tabora to the Philippine National Bank, and that this condition not

153
having been complied with by the Cagayan Fishing Development Company, RIZAL LIGHT & ICE CO., INC., petitioner,
Inc., the transfer was ineffective. (Art. 1114, Civil Code; Wise & Co. vs. Kelly vs.
and Lim, 37 Phil., 696; Manresa, vol. 8, p. 141.) However, having arrived at THE PUBLIC SERVICE COMMISSION and MORONG ELECTRIC CO.,
the conclusion that the transfer by Manuel Tabora to the Cagayan Fishing INC., respondents.
Development Company, Inc. was null because at the time it was affected the
corporation was non-existent, we deem it unnecessary to discuss this Amado A. Amador, Jr. for petitioner.
point.lawphil.net Atilano C. Bautista and Pompeyo F. Olivas for respondents.

The decision of the lower court is accordingly affirmed, with costs against the
appellant. So Ordered.
ZALDIVAR, J.:
Villa-Real, Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
These two cases, being interrelated, are decided together.

Case G.R. No. L-20993 is a petition of the Rizal Light & Ice Co., Inc. to
review and set aside the orders of respondent Public Service
Commission, 1 dated August 20, 1962, and February 15, 1963, in PSC Case
No. 39716, cancelling and revoking the certificate of public convenience and
necessity and forfeiting the franchise of said petitioner. In the same petition,
the petitioner prayed for the issuance of a writ of preliminary injunction ex
parte suspending the effectivity of said orders and/or enjoining respondents
Commission and/or Municipality of Morong, Rizal, from enforcing in any way
the cancellation and revocation of petitioner's franchise and certificate of
public convenience during the pendency of this appeal. By resolution of
March 12, 1963, this Court denied the petition for injunction, for lack of merit.

G.R. No. L-20993 September 28, 1968


Case G. R. L-21221 is likewise a petition of the Rizal Light & Ice Co., Inc. to
review and set aside the decision of the Commission dated March 13, 1963
RIZAL LIGHT & ICE CO., INC., petitioner, in PSC Case No. 62-5143 granting a certificate of public convenience and
vs. necessity to respondent Morong Electric Co., Inc. 2 to operate an electric light,
THE MUNICIPALITY OF MORONG, RIZAL and THE PUBLIC SERVICE heat and power service in the municipality of Morong, Rizal. In the petition
COMMISSION, respondents. Rizal Light & Ice Co., Inc. also prayed for the issuance of a writ of preliminary
injunction ex parte suspending the effectivity of said decision. Per resolution
---------------------------- of this Court, dated May 6, 1963, said petition for injunction was denied.

G.R. No. L-21221 September 28, 1968 The facts, as they appear in the records of both cases, are as follows:

154
Petitioner Rizal Light & Ice Co., Inc. is a domestic corporation with business of public convenience and to forfeit its franchise on the ground, among other
address at Morong, Rizal. On August 15, 1949, it was granted by the things, that it failed to comply with the conditions of said certificate and
Commission a certificate of public convenience and necessity for the franchise. Said petition was set for hearing jointly with the order to show
installation, operation and maintenance of an electric light, heat and power cause. The hearings had been postponed several times.
service in the municipality of Morong, Rizal.
Meanwhile, inspections had been made of petitioner's electric plant and
In an order dated December 19, 1956, the Commission required the installations by the engineers of the Commission, as follows: April 15, 1958
petitioner to appear before it on February 18, 1957 to show cause why it by Engineer Antonio M. Alli; September 18, 1959, July 12-13, 1960, and June
should not be penalized for violation of the conditions of its certificate of 21-24, 1961, by Engineer Meliton S. Martinez. The inspection on June 21-24,
public convenience and the regulations of the Commission, and for failure to 1961 was made upon the request of the petitioner who manifested during the
comply with the directives to raise its service voltage and maintain them hearing on December 15, 1960 that improvements have been made on its
within the limits prescribed in the Revised Order No. 1 of the Commission, service since the inspection on July 12-13, 1960, and that, on the basis of the
and to acquire and install a kilowattmeter to indcate the load in kilowatts at inspection report to be submitted, it would agree to the submission of the
any particular time of the generating unit. 3 case for decision without further hearing.

For failure of the petitioner to appear at the hearing on February 18, 1957, When the case was called for hearing on July 5, 1961, petitioner failed to
the Commission ordered the cancellation and revocation of petitioner's appear. Respondent municipality was then allowed to present its
certificate of public convenience and necessity and the forfeiture of its documentary evidence, and thereafter the case was submitted for decision.
franchise. Petitioner moved for reconsideration of said order on the ground
that its manager, Juan D. Francisco, was not aware of said hearing. On July 7, 1961, petitioner filed a motion to reopen the case upon the ground
Respondent municipality opposed the motion alleging that petitioner has not that it had not been furnished with a copy of the report of the June 21-24,
rendered efficient and satisfactory service and has not complied with the 1961 inspection for it to reply as previously agreed. In an order dated August
requirements of the Commission for the improvement of its service. The 25, 1961, petitioner was granted a period of ten (10) days within which to
motion was set for hearing and Mr. Pedro S. Talavera, Chief, Industrial submit its written reply to said inspection report, on condition that should it
Division of the Commission, was authorized to conduct the hearing for the fail to do so within the said period the case would be considered submitted
reception of the evidence of the parties. 4 for decision. Petitioner failed to file the reply. In consonance with the order of
August 25, 1961, therefore, the Commission proceeded to decide the case.
Finding that the failure of the petitioner to appear at the hearing set for On July 29, 1962 petitioner's electric plant was burned.
February 18, 1957 the sole basis of the revocation of petitioner's
certificate was really due to the illness of its manager, Juan D. Francisco, In its decision, dated August 20, 1962, the Commission, on the basis of the
the Commission set aside its order of revocation. Respondent municipality inspection reports of its aforenamed engineers, found that the petitioner had
moved for reconsideration of this order of reinstatement of the certificate, but failed to comply with the directives contained in its letters dated May 21,
the motion was denied. 1954 and September 4, 1954, and had violated the conditions of its
certificate of public convenience as well as the rules and regulations of the
In a petition dated June 25, 1958, filed in the same case, respondent Commission. The Commission concluded that the petitioner "cannot render
municipality formally asked the Commission to revoke petitioner's certificate the efficient, adequate and satisfactory electric service required by its

155
certificate and that it is against public interest to allow it to continue its there was an absence of electric service in the municipality of Morong and
operation." Accordingly, it ordered the cancellation and revocation of that applicant Morong Electric, a Filipino-owned corporation duly organized
petitioner's certificate of public convenience and the forfeiture of its franchise. and existing under the laws of the Philippines, has the financial capacity to
maintain said service. These circumstances, considered together with the
On September 18, 1962, petitioner moved for reconsideration of the decision, denial of the motion for reconsideration filed by petitioner in Case No. 39715
alleging that before its electric plant was burned on July 29, 1962, its service on February, 15, 1963, such that as far as the Commission was concerned
was greatly improved and that it had still existing investment which the the certificate of the petitioner was already declared revoked and cancelled,
Commission should protect. But eight days before said motion for the Commission approved the application of Morong Electric and ordered the
reconsideration was filed, or on September 10, 1962, Morong Electric, having issuance in its favor of the corresponding certificate of public convenience
been granted a municipal franchise on May 6, 1962 by respondent and necessity.1awphl.nt
municipality to install, operate and maintain an electric heat, light and power
service in said municipality approved by the Provincial Board of Rizal on On March 8, 1963, petitioner filed with this Court a petition to review the
August 31, 1962 filed with the Commission an application for a certificate decision in Case No. 39715 (now G. R. No. L-20993). Then on April 26,
of public convenience and necessity for said service. Said application was 1963, petitioner also filed a petition to review the decision in Case No. 62-
entitled "Morong Electric Co., Inc., Applicant", and docketed as Case No. 62- 5143 (now G. R. No. L-21221).
5143.
In questioning the decision of the Commission in Case No. 39715, petitioner
Petitioner opposed in writing the application of Morong Electric, alleging contends: (1) that the Commission acted without or in excess of its
among other things, that it is a holder of a certificate of public convenience to jurisdiction when it delegated the hearing of the case and the reception of
operate an electric light, heat and power service in the same municipality of evidence to Mr. Pedro S. Talavera who is not allowed by law to hear the
Morong, Rizal, and that the approval of said application would not promote same; (2) that the cancellation of petitioner's certificate of public convenience
public convenience, but would only cause ruinous and wasteful competition. was unwarranted because no sufficient evidence was adduced against the
Although the opposition is dated October 6, 1962, it was actually received by petitioner and that petitioner was not able to present evidence in its defense;
the Commission on November 8, 1962, or twenty four days after the order of (3) that the Commission failed to give protection to petitioner's investment;
general default was issued in open court when the application was first called and (4) that the Commission erred in imposing the extreme penalty of
for hearing on October 15, 1962. On November 12, 1962, however, the revocation of the certificate.
petitioner filed a motion to lift said order of default. But before said motion
could be resolved, petitioner filed another motion, dated January 4, 1963, this In questioning the decision in Case No. 62-5143, petitioner contends: (1) that
time asking for the dismissal of the application upon the ground that applicant the Commission erred in denying petitioner's motion to dismiss and
Morong Electric had no legal personality when it filed its application on proceeding with the hearing of the application of the Morong Electric; (2) that
September 10, 1962, because its certificate of incorporation was issued by the Commission erred in granting Morong Electric a certificate of public
the Securities and Exchange Commission only on October 17, 1962. This convenience and necessity since it is not financially capable to render the
motion to dismiss was denied by the Commission in a formal order issued on service; (3) that the Commission erred when it made findings of facts that are
January 17, 1963 on the premise that applicant Morong Electric was a de not supported by the evidence adduced by the parties at the trial; and (4) that
facto corporation. Consequently, the case was heard on the merits and both the Commission erred when it did not give to petitioner protection to its
parties presented their respective evidence. On the basis of the evidence investment a reiteration of the third assignment of error in the other
adduced, the Commission, in its decision dated March 13, 1963, found that case.1awphl.nt

156
We shall now discuss the appeals in these two cases separately. without or in excess of jurisdiction in so authorizing Mr. Talavera should be
dismissed. 9
G.R. No. L-20993
2. Anent the second assigned error, the gist of petitioner's contention is that
1. Under the first assignment of error, petitioner contends that while Mr. the evidence consisting of inspection reports upon which the
Pedro S. Talavera, who conducted the hearings of the case below, is a Commission based its decision is insufficient and untrustworthy in that (1) the
division chief, he is not a lawyer. As such, under Section 32 of authors of said reports had not been put to test by way of cross-examination;
Commonwealth Act No. 146, as amended, the Commission should not have (2) the reports constitute only one side of the picture as petitioner was not
delegated to him the authority to conduct the hearings for the reception of able to present evidence in its defense; (3) judicial notice was not taken of
evidence of the parties. the testimony of Mr. Harry B. Bernardino, former mayor of respondent
municipality, in PSC Case No. 625143 (the other case, G. R. No. L-21221) to
We find that, really, Mr. Talavera is not a lawyer. 5 Under the second the effect that the petitioner had improved its service before its electric power
paragraph of Section 32 of Commonwealth Act No. 146, as amended, 6 the plant was burned on July 29, 1962 which testimony contradicts the
Commission can only authorize a division chief to hear and investigate a inspection reports; and (4) the Commission acted both as prosecutor and
case filed before it if he is a lawyer. However, the petitioner is raising this judge passing judgment over the very same evidence presented by it as
question for the first time in this appeal. The record discloses that petitioner prosecutor a situation "not conducive to the arrival at just and equitable
never made any objection to the authority of Mr. Talavera to hear the case decisions."
and to receive the evidence of the parties. On the contrary, we find that
petitioner had appeared and submitted evidence at the hearings conducted Settled is the rule that in reviewing the decision of the Public Service
by Mr. Talavera, particularly the hearings relative to the motion for Commission this Court is not required to examine the proof de novo and
reconsideration of the order of February 18, 1957 cancelling and revoking its determine for itself whether or not the preponderance of evidence really
certificate. We also find that, through counsel, petitioner had entered into justifies the decision. The only function of this Court is to determine whether
agreements with Mr. Talavera, as hearing officer, and the counsel for or not there is evidence before the Commission upon which its decision
respondent municipality, regarding procedure in order to abbreviate the might reasonably be based. This Court will not substitute its discretion for
proceedings. 7 It is only after the decision in the case turned out to be adverse that of the Commission on questions of fact and will not interfere in the
to it that petitioner questioned the proceedings held before Mr. Talavera. latter's decision unless it clearly appears that there is no evidence to support
it. 10 Inasmuch as the only function of this Court in reviewing the decision of
This Court in several cases has ruled that objection to the delegation of the Commission is to determine whether there is sufficient evidence before
authority to hear a case filed before the Commission and to receive the the Commission upon which its decision can reasonably be based, as it is
evidence in connection therewith is a procedural, not a jurisdictional point, not required to examine the proof de novo, the evidence that should be made
and is waived by failure to interpose timely the objection and the case had the basis of this Court's determination should be only those presented in this
been decided by the Commission. 8 Since petitioner has never raised any case before the Commission. What then was the evidence presented before
objection to the authority of Mr. Talavera before the Commission, it should be the Commission and made the basis of its decision subject of the present
deemed to have waived such procedural defect, and consonant with the appeal? As stated earlier, the Commission based its decision on the
precedents on the matter, petitioner's claim that the Commission acted inspection reports submitted by its engineers who conducted the inspection
of petitioner's electric service upon orders of the Commission. 11 Said
inspection reports specify in detail the deficiencies incurred, and violations

157
committed, by the petitioner resulting in the inadequacy of its service. We by us for the reason that he is a technical man and he knows well as he has
consider that said reports are sufficient to serve reasonably as bases of the done a good job and I think our proposition would expedite the matter. We
decision in question. It should be emphasized, in this connection that said sincerely believe that the inspection report will be the best evidence to decide
reports, are not mere documentary proofs presented for the consideration of this matter.
the Commission, but are the results of the Commission's own observations
and investigations which it can rightfully take into consideration, 12 particularly xxx xxx xxx
in this case where the petitioner had not presented any evidence in its
defense, and speaking of petitioner's failure to present evidence, as well as ATTY. LUQUE:
its failure to cross-examine the authors of the inspection reports, petitioner
should not complain because it had waived not only its right to cross-
... This is a very important matter and to show the good faith of respondent in
examine but also its right to present evidence. Quoted hereunder are the
this case we will not even cross-examine the engineer when he makes a new
pertinent portions of the transcripts of the proceedings where the petitioner,
report. We will agree to the findings and, your honor please, considering as
through counsel, manifested in clear language said waiver and its decision to
we have manifested before that Engineer Martinez is an experienced
abide by the last inspection report of Engineer Martinez:
engineer of this Commission and the points reported by Engineer Martinez
on the situation of the plant now will prevent the necessity of having a
Proceedings of December 15, 1960 hearing, of us bringing new evidence and complainant bringing new
evidence. ... .
COMMISSION:
xxx xxx xxx
It appears at the last hearing of this case on September 23, 1960, that an
engineer of this Commission has been ordered to make an inspection of all COMMISSION (to Atty. Luque):
electric services in the province of Rizal and on that date the engineer of this
Commission is still undertaking that inspection and it appears that the said
Q Does the Commission understand from the counsel for
engineer had actually made that inspection on July 12 and 13, 1960. The
applicant that if the motion is granted he will submit this order to
engineer has submitted his report on November 18, 1960 which is attached
show cause for decision without any further hearing and the decision
to the records of this case.
will be based on the report of the engineer of this Commission?

ATTY. LUQUE (Councel for Petitioner):


A We respectfully reply in this manner that we be allowed or
be given an opportunity just to read the report and 99%, we will
... (W)e respectfully state that while the report is, as I see it attached to the agree that the report will be the basis of that decision. We just want
records, clear and very thorough, it was made sometime July of this year and to find out the contents of the report, however, we request that we be
I understand from the respondent that there is some improvement since this furnished with a copy of the report before the hearing so that we will
report was made ... we respectfully request that an up-to-date inspection be just make a manifestation that we will agree.
made ... . An inspector of this Commission can be sent to the plant and
considering that the engineer of this Commission, Engineer Meliton Martinez,
COMMISSION (to Atty. Luque):
is very acquainted to the points involved we pray that his report will be used

158
Q In order to prevent the delay of the disposition of this case COMMISSION:
the Commission will allow counsel for the applicant to submit his
written reply to the report that the engineer of this Commission. Will To give applicant a chance to have a day in court the Commission grants the
he submit this case without further hearing upon the receipt of that request of applicant that it be given 10 days within which to submit a written
written reply? reply on the report of the engineer of the Commission who inspected the
electric service, in the municipality of Morong, Rizal, and after the submission
A Yes, your honor. of the said written reply within 10 days from today this case will be
considered submitted for decision.
Proceedings of August 25, 1961
The above-quoted manifestation of counsel for the petitioner, specifically the
ATTY. LUQUE (Counsel for petitioner): statement referring to the inspection report of Engineer Martinez as the "best
evidence to decide this matter," can serve as an argument against
In order to avoid any delay in the consideration of this case we are petitioner's claim that the Commision should have taken into consideration
respectfully move (sic) that instead of our witnesses testifying under oath that the testimony of Mr. Bernardino. But the primary reasons why the
we will submit a written reply under oath together with the memorandum Commission could not have taken judicial cognizance of said testimony are:
within fifteen (15) days and we will furnish a copy and upon our submission first, it is not a proper subject of judicial notice, as it is not a "known" fact
of said written reply under oath and memorandum we consider this case that is, well established and authoritatively settled, without qualification and
submitted. This suggestion is to abbreviate the necessity of presenting contention; 13 second, it was given in a subsequent and distinct case after the
witnesses here which may prolong the resolution of this case. petitioner's motion for reconsideration was heard by the Commission en
banc and submitted for decision, 14 and third, it was not brought to the
attention of the Commission in this case through an appropriate pleading. 15
ATTY. OLIVAS (Counsel for respondent municipality):

Regarding the contention of petitioner that the Commission had acted both
I object on the ground that there is no resolution by this Commission on the
as prosecutor and judge, it should be considered that there are two matters
action to reopen the case and second this case has been closed.
that had to be decided in this case, namely, the order to show cause dated
December 19, 1956, and the petition or complaint by respondent municipality
ATTY. LUQUE: dated June 25, 1958. Both matters were heard jointly, and the record shows
that respondent municipality had been allowed to present its evidence to
With regard to the testimony on the ground for opposition we respectfully substantiate its complaint. It can not be said, therefore, that in this case the
submit to this Commission our motion to submit a written reply together with Commission had acted as prosecutor and judge. But even assuming, for the
a memorandum. Also as stated to expedite the case and to avoid further sake of argument, that there was a commingling of the prosecuting and
hearing we will just submit our written reply. According to our records we are investigating functions, this exercise of dual function is authorized by Section
furnished with a copy of the report of July 17, 1961. We submit your honor. 17(a) of Commonwealth Act No. 146, as amended, under which the
Commission has power "to investigate, upon its own initiative or upon
xxx xxx xxx complaint in writing, any matter concerning any public service as regards
matters under its jurisdiction; to, require any public service to furnish safe,
adequate, and proper service as the public interest may require and warrant;

159
to enforce compliance with any standard, rule, regulation, order or other to render adequate, sufficient and satisfactory service and had violated the
requirement of this Act or of the Commission ... ." Thus, in the case important conditions of its certificate as well as the directives and the rules
of Collector of Internal Revenue vs. Estate of F. P. Buan, L-11438, July 31, and regulations of the Commission, the rule cannot apply. To apply that rule
1958, this Court held that the power of the Commission to cancel and revoke unqualifiedly is to encourage violation or disregard of the terms and
a certificate of public convenience and necessity may be exercised by it even conditions of the certificate and the Commission's directives and regulations,
without a formal charge filed by any interested party, with the only limitation and would close the door to other applicants who could establish, operate
that the holder of the certificate should be given his day in court. and provide adequate, efficient and satisfactory service for the benefit and
convenience of the inhabitants. It should be emphasized that the paramount
It may not be amiss to add that when prosecuting and investigating duties consideration should always be the public interest and public convenience.
are delegated by statute to an administrative body, as in the case of the The duty of the Commission to protect investment of a public utility operator
Public Service Commission, said body may take steps it believes appropriate refers only to operators of good standing those who comply with the laws,
for the proper exercise of said duties, particularly in the manner of informing rules and regulations and not to operators who are unconcerned with the
itself whether there is probable violation of the law and/or its rules and public interest and whose investments have failed or deteriorated because of
regulations. It may initiate an investigation, file a complaint, and then try the their own fault. 18
charge as preferred. So long as the respondent is given a day in court, there
can be no denial of due process, and objections to said procedure cannot be 4. The last assignment of error assails the propriety of the penalty imposed
sustained. by the Commission on the petitioner that is, the revocation of the
certificate and the forfeiture of the franchise. Petitioner contends that the
3. In its third assignment of error, petitioner invokes the "protection-of- imposition of a fine would have been sufficient, as had been done by the
investment rule" enunciated by this Court in Batangas Transportation Co. vs. Commission in cases of a similar nature.
Orlanes 16 in this wise:
It should be observed that Section 16(n) of Commonwealth Act No. 146, as
The Government having taken over the control and supervision of all amended, confers upon the Commission ample power and discretion to order
public utilities, so long as an operator under a prior license complies the cancellation and revocation of any certificate of public convenience
with the terms and conditions of his license and reasonable rules and issued to an operator who has violated, or has willfully and contumaciously
regulations for its operation and meets the reasonable demands of refused to comply with, any order, rule or regulation of the Commission or
the public, it is the duty of the Commission to protect rather than to any provision of law. What matters is that there is evidence to support the
destroy his investment by the granting of the second license to action of the Commission. In the instant case, as shown by the evidence, the
another person for the same thing over the same route of travel. The contumacious refusal of the petitioner since 1954 to comply with the
granting of such a license does not serve its convenience or promote directives, rules and regulations of the Commission, its violation of the
the interests of the public. conditions of its certificate and its incapability to comply with its commitment
as shown by its inadequate service, were the circumstances that warranted
The above-quoted rule, however, is not absolute, for nobody has exclusive the action of the Commission in not merely imposing a fine but in revoking
right to secure a franchise or a certificate of public convenience. 17 Where, as altogether petitioner's certificate. To allow petitioner to continue its operation
in the present case, it has been shown by ample evidence that the petitioner, would be to sacrifice public interest and convenience in favor of private
despite ample time and opportunity given to it by the Commission, had failed interest.

160
A grant of a certificate of public convenience confers no property Coming now to the other case, let it be stated at the outset that before any
rights but is a mere license or privilege, and such privilege is forfeited certificate may be granted, authorizing the operation of a public service, three
when the grantee fails to comply with his commitments behind which requisites must be complied with, namely: (1) the applicant must be a citizen
lies the paramount interest of the public, for public necessity cannot of the Philippines or of the United States, or a corporation or co-partnership,
be made to wait, nor sacrificed for private convenience. (Collector of association or joint-stock company constituted and organized under the laws
Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and of the Philippines, sixty per centum at least of the stock or paid-up capital of
Santiago Sambrano, et al. v. PSC, et al., L-11439 & L-11542-46, July which belongs entirely to citizens of the Philippines or of the United
31, 1958) States; 19 (2) the applicant must be financially capable of undertaking the
proposed service and meeting the responsibilities incident to its
(T)he Public Service Commission, ... has the power to specify and operation; 20 and (3) the applicant must prove that the operation of the public
define the terms and conditions upon which the public utility shall be service proposed and the authorization to do business will promote the public
operated, and to make reasonable rules and regulations for its interest in a proper and suitable manner. 21
operation and the compensation which the utility shall receive for its
services to the public, and for any failure to comply with such rules As stated earlier, in the decision appealed from, the Commission found that
and regulations or the violation of any of the terms and conditions for Morong Electric is a corporation duly organized and existing under the laws
which the license was granted, the Commission has ample power to of the Philippines, the stockholders of which are Filipino citizens, that it is
enforce the provisions of the license or even to revoke it, for any financially capable of operating an electric light, heat and power service, and
failure or neglect to comply with any of its terms and provisions. that at the time the decision was rendered there was absence of electric
(Batangas Trans. Co. v. Orlanes, 52 Phil. 455, 460; emphasis service in Morong, Rizal. While the petitioner does not dispute the need of an
supplied) electric service in Morong, Rizal, 22 it claims, in effect, that Morong Electric
should not have been granted the certificate of public convenience and
Presumably, the petitioner has in mind Section 21 of Commonwealth Act No. necessity because (1) it did not have a corporate personality at the time it
146, as amended, which provides that a public utility operator violating or was granted a franchise and when it applied for said certificate; (2) it is not
failing to comply with the terms and conditions of any certificate, or any financially capable of undertaking an electric service, and (3) petitioner was
orders, decisions or regulations of the Commission, shall be subject to a fine rendering efficient service before its electric plant was burned, and therefore,
and that the Commission is authorized and empowered to impose such fine, being a prior operator its investment should be protected and no new party
after due notice and hearing. It should be noted, however, that the last should be granted a franchise and certificate of public convenience and
sentence of said section states that the remedy provided therein "shall not be necessity to operate an electric service in the same locality.
a bar to, or affect any other remedy provided in this Act but shall be
cumulative and additional to such remedy or remedies." In other words, the 1. The bulk of petitioner's arguments assailing the personality of Morong
imposition of a fine may only be one of the remedies which the Commission Electric dwells on the proposition that since a franchise is a contract, 23 at
may resort to, in its discretion. But that remedy is not exclusive of, or has least two competent parties are necessary to the execution thereof, and
preference over, the other remedies. And this Court will not substitute its parties are not competent except when they are in being. Hence, it is
discretion for that of the Commission, as long as there is evidence to support contended that until a corporation has come into being, in this jurisdiction, by
the exercise of that discretion by the Commission. the issuance of a certificate of incorporation by the Securities and Exchange
Commission (SEC) it cannot enter into any contract as a corporation. The
G. R. No. L-21221 certificate of incorporation of the Morong Electric was issued by the SEC on

161
October 17, 1962, so only from that date, not before, did it acquire juridical While a franchise cannot take effect until the grantee corporation is
personality and legal existence. Petitioner concludes that the franchise organized, the franchise may, nevertheless, be applied for before the
granted to Morong Electric on May 6, 1962 when it was not yet in esse is null company is fully organized.
and void and cannot be the subject of the Commission's consideration. On
the other hand, Morong Electric argues, and to which argument the A grant of a street franchise is valid although the corporation is not
Commission agrees, that it was a de factocorporation at the time the created until afterwards. (Fletcher, Cyclopedia Corp. Permanent
franchise was granted and, as such, it was not incapacitated to enter into any Edition, Rev. Vol. 6-A, Sec. 2881)
contract or to apply for and accept a franchise. Not having been
incapacitated, Morong Electric maintains that the franchise granted to it is And Thompson gives the reason for the rule:
valid and the approval or disapproval thereof can be properly determined by
the Commission.
(I)n the matter of the secondary franchise the authorities are
numerous in support of the proposition that an ordinance granting a
Petitioner's contention that Morong Electric did not yet have a legal privilege to a corporation is not void because the beneficiary of the
personality on May 6, 1962 when a municipal franchise was granted to it is ordinance is not fully organized at the time of the introduction of the
correct. The juridical personality and legal existence of Morong Electric ordinance. It is enough that organization is complete prior to the
began only on October 17, 1962 when its certificate of incorporation was passage and acceptance of the ordinance. The reason is that a
issued by the SEC. 24 Before that date, or pending the issuance of said privilege of this character is a mere license to the corporation until it
certificate of incorporation, the incorporators cannot be considered as de accepts the grant and complies with its terms and conditions.
facto corporation. 25 But the fact that Morong Electric had no corporate (Thompson on Corporations, Vol. 4, 3rd Ed., Sec. 2929) 26
existence on the day the franchise was granted in its name does not render
the franchise invalid, because later Morong Electric obtained its certificate of
The incorporation of Morong Electric on October 17, 1962 and its acceptance
incorporation and then accepted the franchise in accordance with the terms
of the franchise as shown by its action in prosecuting the application filed
and conditions thereof. This view is sustained by eminent American
with the Commission for the approval of said franchise, not only perfected a
authorities. Thus, McQuiuin says:
contract between the respondent municipality and Morong Electric but also
cured the deficiency pointed out by the petitioner in the application of Morong
The fact that a company is not completely incorporated at the time EIectric. Thus, the Commission did not err in denying petitioner's motion to
the grant is made to it by a municipality to use the streets does not, dismiss said application and in proceeding to hear the same. The efficacy of
in most jurisdictions, affect the validity of the grant. But such grant the franchise, however, arose only upon its approval by the Commission on
cannot take effect until the corporation is organized. And in Illinois it March 13, 1963. The reason is that
has been decided that the ordinance granting the franchise may be
presented before the corporation grantee is fully organized, where
Under Act No. 667, as amended by Act No. 1022, a municipal council
the organization is completed before the passage and acceptance.
has the power to grant electric franchises, subject to the approval of
(McQuillin, Municipal Corporations, 3rd Ed., Vol. 12, Chap. 34, Sec.
the provincial board and the President. However, under Section
34.21)
16(b) of Commonwealth Act No. 146, as amended, the Public
Service Commission is empowered "to approve, subject to
Fletcher says: constitutional limitations any franchise or privilege granted under the

162
provisions of Act No. 667, as amended by Act No. 1022, by any of cases, this Court has said it will not disturb unless patently unsupported by
political subdivision of the Philippines when, in the judgment of the evidence. An examination of the record of this case readily shows that the
Commission, such franchise or privilege will properly conserve the testimony of Mr. Ingal and the documents he presented to establish the
public interests and the Commission shall in so approving impose financial capability of Morong Electric provide reasonable grounds for the
such conditions as to construction, equipment, maintenance, service, above finding of the Commission.
or operation as the public interests and convenience may reasonably
require, and to issue certificates of public convenience and necessity It is now a very well-settled rule in this jurisdiction that the findings
when such is required or provided by any law or franchise." Thus, the and conclusions of fact made by the Public Service Commission,
efficacy of a municipal electric franchise arises, therefore, only after after weighing the evidence adduced by the parties in a public
the approval of the Public Service Commission. (Almendras vs. service case, will not be disturbed by the Supreme Court unless
Ramos, 90 Phil. 231) . those findings and conclusions appear not to be reasonably
supported by evidence. (La Mallorca and Pampanga Bus Co. vs.
The conclusion herein reached regarding the validity of the franchise granted Mercado, L-19120, November 29, 1965)
to Morong Electric is not incompatible with the holding of this Court
in Cagayan Fishing Development Co., Inc. vs. Teodoro Sandiko 27upon which For purposes of appeal, what is decisive is that said testimonial
the petitioner leans heavily in support of its position. In said case this Court evidence provides reasonable support for the Public Service
held that a corporation should have a full and complete organization and Commission's findings of financial capacity on the part of applicants,
existence as an entity before it can enter into any kind of a contract or rendering such findings beyond our power to disturb. (Del Pilar
transact any business. It should be pointed out, however, that this Court did Transit vs. Silva, L-21547, July 15, 1966)
not say in that case that the rule is absolute or that under no circumstances
may the acts of promoters of a corporation be ratified or accepted by the It may be worthwhile to mention in this connection that per inspection report
corporation if and when subsequently organized. Of course, there are dated January 20, 1964 29 of Mr. Meliton Martinez of the Commission, who
exceptions. It will be noted that American courts generally hold that a inspected the electric service of Morong on January 15-16, 1964, Morong
contract made by the promoters of a corporation on its behalf may be Electric "is serving electric service to the entire area covered by its approved
adopted, accepted or ratified by the corporation when organized. 28 plan and has constructed its line in accordance with the plans and
specifications approved by the Commission." By reason thereof, it was
2. The validity of the franchise and the corporate personality of Morong recommended that the requests of Morong Electric (1) for the withdrawal of
Electric to accept the same having been shown, the next question to be its deposit in the amount of P1,000.00 with the Treasurer of the Philippines,
resolved is whether said company has the financial qualification to operate and (2) for the approval of Resolution No. 160 of the Municipal Council of
an electric light, heat and power service. Petitioner challenges the financial Morong, Rizal, exempting the operator from making the additional P9,000.00
capability of Morong Electric, by pointing out the inconsistencies in the deposit mentioned in its petition, dated September 16, 1963, be granted. This
testimony of Mr. Jose P. Ingal, president of said company, regarding its report removes any doubt as to the financial capability of Morong Electric to
assets and the amount of its initial investment for the electric plant. In this operate and maintain an electric light, heat and power service.
connection it should be stated that on the basis of the evidence presented on
the matter, the Commission has found the Morong Electric to be "financially 3. With the financial qualification of Morong Electric beyond doubt, the
qualified to install, maintain and operate the proposed electric light, heat and remaining question to be resolved is whether, or not, the findings of fact of
power service." This is essentially a factual determination which, in a number

163
the Commission regarding petitioner's service are supported by evidence. It Co., Inc. vs. Mercado, L-19120, November 29, 1965 citing
is the contention of the petitioner that the Commission made some findings of Pangasinan Trans. Co., Inc. vs. Dela Cruz, 96 Phil. 278)
fact prejudicial to its position but which do not find support from the evidence
presented in this case. Specifically, petitioner refers to the statements or For that matter, petitioner's pretension that it has a prior right to the operation
findings that its service had "turned from bad to worse," that it miserably of an electric service in Morong, Rizal, is not tenable; and its plea for
failed to comply with the oft-repeated promises to bring about the needed protection of its investment, as in the previous case, cannot be entertained.
improvement, that its equipment is unserviceable, and that it has no longer
any plant site and, therefore, has discredited itself. Petitioner further states WHEREFORE, the two decisions of the Public Service Commission,
that such statements are not only devoid of evidentiary support but contrary appealed from, should be, as they are hereby affirmed, with costs in the two
to the testimony of its witness, Mr. Harry Bernardino, who testified that cases against petitioner Rizal Light & Ice Co., Inc. It is so ordered.
petitioner was rendering efficient and satisfactory service before its electric
plant was burned on July 29, 1962.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro,
Angeles and Fernando, JJ., concur.
On the face of the decision appealed from, it is obvious that the Commission
in describing the kind of service petitioner was rendering before its certificate
was ordered revoked and cancelled, took judicial notice of the records of the
previous case (PSC Case No. 39715) where the quality of petitioner's service
had been squarely put in issue. It will be noted that the findings of the
Commission were made notwithstanding the fact that the aforementioned
testimony of Mr. Bernardino had been emphasized and pointed out in
petitioner's Memorandum to the Commission. 30 The implication is simple:
that as between the testimony of Mr. Bernardino and the inspection reports of
the engineers of the Commission, which served as the basis of the
revocation order, the Commission gave credence to the latter. Naturally,
whatever conclusion or finding of fact that the Commission arrived at
regarding the quality of petitioner's service are not borne out by the evidence
presented in this case but by evidence in the previous case. 31 In this
connection, we repeat, the conclusion, arrived at by the Commission after
weighing the conflicting evidence in the two related cases, is a conclusion of
fact which this Court will not disturb.

And it has been held time and again that where the Commission has
reached a conclusion of fact after weighing the conflicting evidence,
that conclusion must be respected, and the Supreme Court will not
interfere unless it clearly appears that there is no evidence to support
the decision of the Commission. (La Mallorca and Pampanga Bus

164
165
CRUZ, J.:

We gave limited due course to this petition on the question of the solidary
liability of the petitioners with their co-defendants in the lower court 1 because
of the challenge to the following paragraph in the dispositive portion of the
decision of the respondent court: *

1. Defendants are hereby ordered to jointly and severally pay the


plaintiff the amount of P50,000.00 for the preparation of the project
study and his technical services that led to the organization of the
defendant corporation, plus P10,000.00 attorney's fees; 2

The petitioners claim that this order has no support in fact and law because
they had no contract whatsoever with the private respondent regarding the
above-mentioned services. Their position is that as mere subsequent
investors in the corporation that was later created, they should not be held
solidarily liable with the Filipinas Orient Airways, a separate juridical entity,
and with Barretto and Garcia, their co-defendants in the lower court, ** who
were the ones who requested the said services from the private
respondent. 3

We are not concerned here with the petitioners' co-defendants, who have not
appealed the decision of the respondent court and may, for this reason, be
presumed to have accepted the same. For purposes of resolving this case
before us, it is not necessary to determine whether it is the promoters of the
proposed corporation, or the corporation itself after its organization, that shall
be responsible for the expenses incurred in connection with such
organization.
G.R. No. L-48627

The only question we have to decide now is whether or not the petitioners
FERMIN Z. CARAM, JR. and ROSA O. DE CARAM, petitioners
themselves are also and personallyliable for such expenses and, if so, to
vs.
what extent.
THE HONORABLE COURT OF APPEALS and ALBERTO V.
ARELLANO, respondents.
The reasons for the said order are given by the respondent court in its
decision in this wise:

166
As to the 4th assigned error we hold that as to the remuneration due corporation. By the same token, We find no reason why the plaintiff
the plaintiff for the preparation of the project study and the pre- should not be similarly compensated not only for having actively
organizational services in the amount of P50,000.00, not only the participated in the preparation of the project study for several months
defendant corporation but the other defendants including defendants and its subsequent revision but also in his having been involved in
Caram should be jointly and severally liable for this amount. As we the pre-organization of the defendant corporation, in the preparation
above related it was upon the request of defendants Barretto and of the franchise, in inviting the interest of the financiers and in the
Garcia that plaintiff handled the preparation of the project study training and screening of personnel. We agree that for these special
which project study was presented to defendant Caram so the latter services of the plaintiff the amount of P50,000.00 as compensation is
was convinced to invest in the proposed airlines. The project study reasonable. 5
was revised for purposes of presentation to financiers and the banks.
It was on the basis of this study that defendant corporation was The above finding bolsters the conclusion that the petitioners were not
actually organized and rendered operational. Defendants Garcia and involved in the initial stages of the organization of the airline, which were
Caram, and Barretto became members of the Board and/or officers being directed by Barretto as the main promoter. It was he who was putting
of defendant corporation. Thus, not only the defendant corporation all the pieces together, so to speak. The petitioners were merely among the
but all the other defendants who were involved in the preparatory financiers whose interest was to be invited and who were in fact persuaded,
stages of the incorporation, who caused the preparation and/or on the strength of the project study, to invest in the proposed airline.
benefited from the project study and the technical services of plaintiff
must be liable. 4 Significantly, there was no showing that the Filipinas Orient Airways was a
fictitious corporation and did not have a separate juridical personality, to
It would appear from the above justification that the petitioners were not justify making the petitioners, as principal stockholders thereof, responsible
really involved in the initial steps that finally led to the incorporation of the for its obligations. As a bona fide corporation, the Filipinas Orient Airways
Filipinas Orient Airways. Elsewhere in the decision, Barretto was described should alone be liable for its corporate acts as duly authorized by its officers
as "the moving spirit." The finding of the respondent court is that the project and directors.
study was undertaken by the private respondent at the request of Barretto
and Garcia who, upon its completion, presented it to the petitioners to induce In the light of these circumstances, we hold that the petitioners cannot be
them to invest in the proposed airline. The study could have been presented held personally liable for the compensation claimed by the private
to other prospective investors. At any rate, the airline was eventually respondent for the services performed by him in the organization of the
organized on the basis of the project study with the petitioners as major corporation. To repeat, the petitioners did not contract such services. It was
stockholders and, together with Barretto and Garcia, as principal officers. only the results of such services that Barretto and Garcia presented to them
and which persuaded them to invest in the proposed airline. The most that
The following portion of the decision in question is also worth considering: can be said is that they benefited from such services, but that surely is no
justification to hold them personally liable therefor. Otherwise, all the other
... Since defendant Barretto was the moving spirit in the pre- stockholders of the corporation, including those who came in later, and
organization work of defendant corporation based on his experience regardless of the amount of their share holdings, would be equally and
and expertise, hence he was logically compensated in the amount of personally liable also with the petitioners for the claims of the private
P200,000.00 shares of stock not as industrial partner but more for respondent.
his technical services that brought to fruition the defendant

167
The petition is rather hazy and seems to be flawed by an ambiguous
ambivalence. Our impression is that it is opposed to the imposition of solidary
responsibility upon the Carams but seems to be willing, in a vague,
unexpressed offer of compromise, to accept joint liability. While it is true that
it does here and there disclaim total liability, the thrust of the petition seems
to be against the imposition of solidary liability only rather than against any
liability at all, which is what it should have categorically argued.

Categorically, the Court holds that the petitioners are not liable at all, jointly
or jointly and severally, under the first paragraph of the dispositive portion of
the challenged decision. So holding, we find it unnecessary to examine at
this time the rules on solidary obligations, which the parties-needlessly, as it
turns out have belabored unto death.

WHEREFORE, the petition is granted. The petitioners are declared not liable
under the challenged decision, which is hereby modified accordingly. It is so
ordered.

Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano and Sarmiento, JJ.,


concur.
Gancayco, J., took no part.

168
G.R. No. L-5003 June 27, 1953

NAZARIO TRILLANA, administrator-appellee,


vs.
QUEZON COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap and Blanco for appellant.


Delgado, Flores & Macapagal for appellee.

PARAS, J.:

Damasa Crisostomo sent the following letter to the Board of Trustees of the
Quezon College:

June 1, 1948

The BOARD OF TRUSTEES


Quezon College
Manila

Gentlemen:

Please enter my subscription to dalawang daan (200) shares of your


capital stock with a par value of P100 each. Enclosed you will find
(Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng
isda) pesos as my initial payment and the balance payable in
accordance with law and the rules and regulations of the Quezon
College. I hereby agree to shoulder the expenses connected with
said shares of stock. I further submit myself to all lawful demands,
decisions or directives of the Board of Trustees of the Quezon
College and all its duly constituted officers or authorities (ang nasa
itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking
nalalaman).

169
subscription for 200 shares be entered) not only did not enclose any initial
payment but stated that "babayaran kong lahat pagkatapos na ako ay
Very respectfully, makapagpahuli ng isda." There is nothing in the record to show that the
Quezon College, Inc. accepted the term of payment suggested by Damasa
(Sgd.) DAMASA CRISOSTOMO Crisostomo, or that if there was any acceptance the same came to her
Signature of subscriber knowledge during her lifetime. As the application of Damasa Crisostomo is
obviously at variance with the terms evidenced in the form letter issued by
the Quezon College, Inc., there was absolute necessity on the part of the
College to express its agreement to Damasa's offer in order to bind the latter.
Nilagdaan sa aming harapan:
Conversely, said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's promise to
JOSE CRISOSTOMO pay the price of the subscription after she had caused fish to be caught. In
EDUARDO CRISOSTOMO other words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the latter
Damasa Crisostomo died on October 26, 1948. As no payment appears to offered its stock for subscription on the terms stated in the form letter, and
have been made on the subscription mentioned in the foregoing letter, the Damasa applied for subscription fixing her own plan of payment, a
Quezon College, Inc. presented a claim before the Court of First Instance of relation, in the absence as in the present case of acceptance by the Quezon
Bulacan in her testate proceeding, for the collection of the sum of P20,000, College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened
representing the value of the subscription to the capital stock of the Quezon into an enforceable contract.
College, Inc. This claim was opposed by the administrator of the estate, and
the Court of First Instance of Bulacan, after hearing issued an order Indeed, the need for express acceptance on the part of the Quezon College,
dismissing the claim of the Quezon College, Inc. on the ground that the Inc. becomes the more imperative, in view of the proposal of Damasa
subscription in question was neither registered in nor authorized by the Crisostomo to pay the value of the subscription after she has harvested fish,
Securities and Exchange Commission. From this order the Quezon College, a condition obviously dependent upon her sole will and, therefore, facultative
Inc. has appealed. in nature, rendering the obligation void, under article 1115 of the old Civil
Code which provides as follows: "If the fulfillment of the condition should
It is not necessary for us to discuss at length appellant's various assignments depend upon the exclusive will of the debtor, the conditional obligation shall
of error relating to the propriety of the ground relief upon by the trial court, be void. If it should depend upon chance, or upon the will of a third person,
since, as pointed out in the brief for the administrator and appellee, there are the obligation shall produce all its effects in accordance with the provisions of
other decisive considerations which, though not touched by the lower court, this code." It cannot be argued that the condition solely is void, because it
amply sustained the appealed order. would have served to create the obligation to pay, unlike a case, exemplified
by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition
It appears that the application sent by Damasa Crisostomo to the Quezon was held void because it referred merely to the fulfillment of an already
College, Inc. was written on a general form indicating that an applicant will existing indebtedness.
enclose an amount as initial payment and will pay the balance in accordance
with law and the regulations of the College. On the other hand, in the letter In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court
actually sent by Damasa Crisostomo, the latter (who requested that her already held that "a condition, facultative as to the debtor, is obnoxious to the

170
first sentence contained in article 1115 and renders the whole obligation
void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs


against appellant.

Tuason, Padilla and Reyes, JJ., concur in the result.

171
172
G.R. Nos. L-48195 and 48196 May 1, 1942 Municipality of Silang, Province of Cavite, Philippine Islands, party of
the Second Part, hereinafter called the seller,
SOFRONIO T. BAYLA, ET AL., petitioners,
vs. WITNESSETH:
SILANG TRAFFIC CO., INC., respondent.
SILANG TRAFFIC CO., petitioner, vs. SOFRONIO BAYLA, ET That the subscriber promises to pay personally or by his duly
AL., respondents. authorized agent to the seller at the Municipality of Silang, Province
of Cavite, Philippine Islands, the sum of one thousand five hundred
E. A. Beltran for petitioners. pesos (P1,500), Philippine currency, as purchase price of FIFTEEN
Conrado V. Sanchez, Melchor C. Benitez, and Enrique M. Fernando for (15) shares of capital stock, said purchase price to be paid as
respondent. follows, to wit: five (5%) per cent upon the execution of the contract,
the receipt whereof is hereby acknowledged and confessed, and the
OZAETA, J.: remainder in installments of five per cent, payable within the first
month of each and every quarter thereafter, commencing on the 1st
Petitioners in G.R. No. 48195 instituted this action in the Court of First day of July, 1935, with interest on deferred payments at the rate of
Instance of Cavite against the respondent Silang Traffic Co., Inc. (cross- SIX (6%) per cent per annum until paid.
petitioner in G.R. No. 48196), to recover certain sums of money which they
had paid severally to the corporation on account of shares of stock they That the said subscriber further agrees that if he fails to pay any of
individually agreed to take and pay for under certain specified terms and said installment when due, or to perform any of the aforesaid
conditions, of which the following referring to the petitioner Josefa Naval, is conditions, or if said shares shall be attached or levied upon by
typical: creditors of the said subscriber, then the said shares are to revert to
the seller and the payments already made are to be forfeited in favor
AGREEMENT FOR INSTALLMENT SALE OF SHARES IN THE of said seller, and the latter may then take possession, without
"SILANG TRAFFIC COMPANY, INC.," resorting to court proceedings.

The said seller upon receiving full payment, at the time and manner
hereinbefore specified, agrees to execute and deliver to said
Silang, Cavite, P. I. subscriber, or to his heirs and assigns, the certificate of title of said
shares, free and clear of all encumbrances.

In testimony whereof, the parties have hereunto set their hands in


THIS AGREEMENT, made and entered into between Mrs. Josefa
the Municipality of Silang, Province of Cavite, Philippine Islands, this
Naval, of legal age, married and resident of the Municipality of
30th day of March, 1935.
Silang, Province of Cavite, Philippine Islands, party of the First Part,
hereinafter called the subscriber, and the "Silang Traffic Company,
Inc.," a corporation duly organized and existing by virtue of and
under the laws of the Philippine Islands, with its principal office in the

173
(Sgd.) JOSEFA NAVAL Toledo................
SILANG TRAFFIC COMPANY, INC.
Subscriber

By (Sgd.) LINO GOMEZ Petitioners' action for the recovery of the sums above mentioned is based on
President. a resolution by the board of directors of the respondent corporation on
August 1, 1937, of the following tenor:

A mocion sel Sr. Marcos Caparas y secundado por el Sr. Alejandro


(Exhibit 1. Notarial acknowledgment omitted.) Bayla, que para el bien de la corporacion y la pronta terminacion del
asunto civil No. 3125 titulado "Vicente F. Villanueva et al. vs. Lino
The agreements signed by the other petitioners were of the same date Gomez et al.," en el Juzgado de Primera Instancia de Cavite, donde
(March 30, 1935) and in identical terms as the foregoing except as to the se gasto y se gastara no poca cantidad de la Corporacion, se
number of shares and the corresponding purchase price. The petitioners resolvio y se aprobo por la Junta Directiva los siguientes:
agreed to purchase the following number of shares and, up to April 30, 1937,
had paid the following sums on account thereof: (a) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3
de marzo, 1935, art. 11, sec. 162, sobre las cobranzas que se haran
por el Secretario Tesorero de la Corporacion a los accionistas que
habian tomado o suscrito nuevas acciones y que se permitia a estos
Sofronio T. 8 shares P360 pagar 20% del valor de las acciones suscritas en un ao, con interes
Bayla....... de 6% y el pago o jornal que se hara por trimestre.

(b) Se dejara sin efecto, en vista de que aun no esta pagado todo el
valor de las 123 acciones, tomadas de las acciones no expedidas
Venancio 8 shares 375 (unissued stock) de la Corporacion y que fueron suscritas por los
Toledo........ siguienes:

Josefa 15 shares 675 Lino 10 Acciones


Naval.............. Gomez.....................

Paz 15 shares 675 Venancio 8 Acciones

174
Toledo............. Sofronio 8 Acciones
Bayla.................

Melchor P. 17 Acciones
Benitez........ Dionisio 3 Acciones
Dungca.............

Isaias 14 Acciones
y devolver a las personas arriba descritas toda la cantidad que estas habian
Videa.................
pagado por las 123 acciones.

(c) Que se dejara sin efecto lo aprobado por la Junta Directiva el 3


marzo, 1935, art. V. sec. 165, sobre el cambio o trueque de las 31
Esteban 10 Acciones
acciones del Treasury Stock, contra las 32 acciones del Sr.
Velasco............
Numeriano Aldaba, en la corporacion Northern Luzon Transportation
Co. y que se devuelva al Sr. Numeriano Aldaba las 32 acciones
mencionadas despues que el haya devuelto el certificado de las 31
acciones de la Silang Traffic Co., Inc.
Numeriano S. 15 Acciones
Aldaba.... (d) Permitir al Tesorero de la Corporacion para que devuelva a las
personas arriba indicadas, las cantidades pagadas por las 123
acciones. (Exhibit A-1.)

Inocencio 8 Acciones The respondent corporation set up the following defenses: (1) That the
Cruz................. above-quoted resolution is not applicable to the petitioners Sofronio T. Bayla,
Josefa Naval, and Paz Toledo because on the date thereof "their subscribed
shares of stock had already automatically reverted to the defendant, and the
installments paid by them had already been forfeited"; and (2) that said
Josefa 15 Acciones resolution of August 1, 1937, was revoked and cancelled by a subsequent
Naval .................. resolution of the board of directors of the defendant corporation dated August
22, 1937.

175
The trial court absolved the defendant from the complaint and declared Whether a particular contract is a subscription or a sale of stock is a matter of
canceled (forfeited) in favor of the defendant the shares of stock in question. construction and depends upon its terms and the intention of the parties (4
It held that the resolution of August 1, 1937, was null and void, citing Velasco Fletcher, Cyclopedia of Corporation [permanent edition], 29, cited in Salmon,
vs. Poizat (37 Phil., 802), wherein this Court held that "a corporation has no Dexter & Co. vs. Unson (47 Phil. 649, 652). In the Unson case just cited, this
legal capacity to release an original subscriber to its capital stock from the Court held that a subscription to stock in an existing corporation is, as
obligation to pay for shares; and any agreement to this effect is invalid" between the subscriber and the corporation, simply a contract of purchase
Plaintiffs below appealed to the Court of Appeals, which modified of the trial and sale.
court as follows:
It seems clear from the terms of the contracts in question that they are
That part of the judgment dismissing plaintiff's complaint is affirmed, contracts of sale and not of subscription. The lower courts erred in
but that part thereof declaring their subscription canceled is overlooking the distinction between subscription and purchase "A
reversed. Defendant is directed to grant plaintiffs 30 days after final subscription, properly speaking, is the mutual agreement of the subscribers
judgment within which to pay the arrears on their subscription. to take and pay for the stock of a corporation, while a purchase is an
Without pronouncement as to costs. independent agreement between the individual and the corporation to buy
shares of stock from it at stipulated price." (18 C. J. S., 760.) In some
Both parties appealed to this Court by petition and cross-petition particulars the rules governing subscriptions and sales of shares are
for certiorari. Petitioners insist that they have the right to recover the amounts different. For instance, the provisions of our Corporation Law regarding calls
involved under the resolution of August 1, 1937, while the respondent and for unpaid subscription and assessment of stock (sections 37-50) do not
cross-petitioner on its part contends that said amounts have been apply to a purchase of stock. Likewise the rule that corporation has no legal
automatically forfeited and the shares of stock have reverted to the capacity to release an original subscriber to its capital stock from the
corporation under the agreement hereinabove quoted. obligation to pay for his shares, is inapplicable to a contract of purchase of
shares.
The parties litigant, the trial court, and the Court of Appeals have interpreted
or considered the said agreement as a contract of subscription to the capital The next question to determine is whether under the contract between the
stock of the respondent corporation. It should be noted, however, that said parties the failure of the purchaser to pay any of the quarterly installments on
agreement is entitled "Agreement for Installment Sale of Shares in the Silang the purchase price automatically gave rise to the forfeiture of the amounts
Traffic Company, Inc.,"; that while the purchaser is designated as already paid and the reversion of the shares to the corporation. The contract
"subscriber," the corporation is described as "seller"; that the agreement was provides for interest of the rate of six per centum per annum on deferred
entered into on March 30, 1935, long after the incorporation and organization payments. It is also provides that if the purchaser fails to pay any of said
of the corporation, which took place in 1927; and that the price of the stock installments when due, the said shares are to revert to the seller and the
was payable in quarterly installments spread over a period of five years. It payments already made are to be forfeited in favor of said seller. The
also appears that in civil case No. 3125 of the Court of First Instance of respondent corporation contends that when the petitioners failed to pay the
Cavite mentioned in the resolution of August 1, 1937, the right of the installment which fell due on or before July 31, 1937, forfeiture automatically
corporation to sell the shares of stock to the person named in said resolution took place, that is to say, without the necessity of any demand from the
(including herein petitioners) was impugned by the plaintiffs in said case, who corporation, and that therefore the resolution of August 1, 1937, authorizing
claimed a preferred right to buy said shares. the refund of the installments already paid was inapplicable to the petitioners,
who had already lost any and all rights under said contract. The contention

176
is, we think, untenable. The provision regarding interest on deferred Wherefore, the judgment of the court of appeals is hereby reversed and
payments would not have been inserted if it had been the intention of the another judgment will be entered against the defendant Silang Traffic Co.,
parties to provide for automatic forfeiture and cancelation of the contract. Inc., ordering it to pay to the plaintiffs Sofronio T. Bayla, Venancio Toledo,
Moreover, the contract did not expressly provide that the failure of the Josefa Naval, and Paz Toledo, the sums of P360, P375, P675, and P675,
purchaser to pay any installment would give rise to forfeiture and cancelation respectively, with legal interest on each of said sums from May 28, 1938, the
without the necessity of any demand from the seller; and under article 1100 date of the filing of the complaint, until the date of payment, and with costs in
of the Civil Code persons obliged to deliver or do something are not in default the three instances. So ordered.
until the moment the creditor demands of them judicially or extrajudicially the
fulfillment of their obligation, unless (1) the obligation or the law expressly Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.
provides that demand shall not be necessary in order that default may arise,
(2) by reason of the nature and circumstances of the obligation it shall
appear that the designation of the time at which that thing was to be
delivered or the service rendered was the principal inducement to the
creation of the obligation.

Is the resolution of August 1, 1937, valid? The contract in question being one
of purchase and not subscription as we have heretofore pointed out, we see
no legal impediment to its rescission by agreement of the parties. According
to the resolution of August 1, 1937, the recission was made for the good of
the corporation and in order to terminate the then pending civil case involving
the validity of the sale of the shares in question among others. To that
rescission the herein petitioners apparently agreed, as shown by their
demand for the refund of the amounts they had paid as provided in said
resolution. It appears from the record that said civil case was subsequently
dismissed, and that the purchasers of shares of stock, other than the herein
petitioners, who were mentioned in said resolution were able to benefit by G.R. No. L-11528 March 15, 1918
said resolution. It would be an unjust discrimination to deny the same benefit
to the herein petitioners.
MIGUEL VELASCO, assignee of The Philippine Chemical Product Co.
(Ltd.), plaintiff-appellant,
We may add that there is no intimation in this case that the corporation was vs.
insolvent, or that the right of any creditor of the same was in any way JEAN M. POIZAT, defendant-appellee.
prejudiced by the rescission.
Vicente Rodriguez for appellant.
The attempted revocation of said rescission by the resolution of August 22, A. J. Burke for appellee.
1937, was invalid, it not having been agreed to by the petitioners.
STREET, J.:

177
From the amended complaint filed in this cause upon February 5, 1915, it provided that, in case he should refuse to make such payment, the
appears that the plaintiff, as assignee in insolvency of "The Philippine management of the corporation should be authorized to undertake judicial
Chemical Product Company" (Ltd.) is seeking to recover of the defendant, proceedings against him. When notification of this resolution reached Poizat
Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the through the mail it evoked from him a manifestation of surprise and pain,
corporate stock of said company. It appears that the corporation in question which found expression in a letter written by him in reply, dated July 27,
was originally organized by several residents of the city of Manila, where the 1914, and addressed to Velasco, as treasurer and administrator. In this letter
company had its principal place of business, with a capital of P50,000, Poizat states that he had been given to understand by some member of the
divided into 500 shares. The defendant subscribed for 20 shares of the stock board of directors that he was to be relieved from his subscription upon the
of the company, an paid in upon his subscription the sum of P500, the par terms conceded to Infante; and he added:
value of 5 shares . The action was brought to recover the amount subscribed
upon the remaining shares. My desire to be relieved from the payment of the remaining 75 per
cent arises from the poor opinion which I entertain of the business
It appears that the defendant was a stock holder in the company from the and the faint hope of ever recovering any money invested. In
inception of the enterprise, and for sometime acted as its treasurer and consequence, I prefer to lose the whole of the 25 per cent I have
manager. While serving in this capacity he called in and collected all already paid rather than to continue investing more money in what I
subscriptions to the capital stock of the company, except the aforesaid 15 consider to be ruinous proposition.
shares subscribed by himself and another 15 shares owned by Jose R.
Infante. Within a short while the unfavorable opinion entertained by Poizat as to the
prospect of the company was found to be fully justified, as the company soon
Upon July 13, 1914, a meeting of the board of directors of the company was went into voluntary insolvency, Velasco being named as the assignee. He
held at which a majority of the stock was presented. Up[on this occasion two qualified at once by giving bond, and was duly inducted into the office of
resolutions, important to be here noted, were adopted. The first was a assignee upon November 25, 1914, by virtue of a formal transfer executed
proposal that the directors, or shareholders, of the company should make by the clerk in pursuance of section 32 of Act No. 1956.
good by new subscriptions, in proportion to their respective holdings, 15
shares which had been surrendered by Infante. It seems that this The answer of the defendant consisted of a general denial and a so-called
shareholder had already paid 25 per cent of his subscription upon 20 shares, special defense, consisting of a concatenation of statements more
leaving 15 shares unpaid for, and an understanding had been reached by appropriate for a demurrer than as material for a special defense. The
him and the management by which he was to be released from the obligation principal contention is that the call made by the board of directors of the
of his subscription, it being understood that what he had already paid should company on July 13, 1914 , was not made pursuant to the requirements of
not be refunded. Accordingly the directors present at this meeting subscribed sections 37 and 38 of the Corporation Law (Act No. 1459), and in particular
P1,200 toward taking up his shares, leaving a deficiency of P300 to be that the action was instituted before the expiration of the 30 days specified in
recovered by voluntary subscriptions from stockholders not present at the section 38.
meeting.
At the hearing of the Court of First Instance, judgment was rendered in favor
The other proposition was o the effect that Juan [Jean] M. Poizat, who was of the defendant, and the complaint was dismissed. From this action the
absent, should be required to pay the amount of his subscription upon the 15 plaintiff has appealed.
shares for which he was still indebted to the company. The resolution further

178
We think that Poizat is liable upon this subscription. A stock subscription is a conditions should be determined with reference to the rules governing
contract between the corporation on one side, and the subscriber on the contract liability in general; and where it appears as in this case that a
other, and courts will enforce it for or against either. It is a rule, accepted by matured stock subscription is unpaid, none of the provisions contained in
the Supreme Court of the United States, that a subscription for shares of section 38 to 48, inclusive, of Act No. 1459 can be permitted to obstruct or
stock does not require an express promise to pay the amount subscribed, as impede the action to recover thereon. By virtue of the first subsection of
the law implies a promise to pay on the part of the subscriber. (7 Ruling Case section 36 of the Insolvency Law (Act No. 1956) the assignee of the insolvent
Law, sec. 191.) Section 36 of the Corporation Law clearly recognizes that a corporation succeeds to all the corporate rights of action vested in the
stock subscription is subsisting liability from the time the subscription is corporation prior to its insolvency; and the assignee therefore has the same
made, since it requires the subscriber to pay interest quarterly from that date freedom with respect to suing upon the stock subscription as the directors
unless he is relieved from such liability by the by-laws of the corporation. The themselves would have had under section 49 above cited.
subscriber is as much bound to pay the amount of the share subscribed by
him as he would be to pay any other debt, and the right of the company to But there is another reason why the present plaintiff must prevail in this case,
demand payment is no less incontestable. even supposing that the failure of the directors to comply with the
requirements of the provisions of sections 38 to 48, inclusive, of Act No. 1459
The provisions of the Corporation Law (Act No. 1459) given recognition of might have been an obstacle to a recovery by the corporation itself. That
two remedies for the enforcement of stock subscriptions. The first and most reason is this: When insolvency supervenes upon a corporation and the court
special remedy given by the statute consists in permitting the corporation to assumes jurisdiction to wind up, all unpaid stock subscriptions become
put up the unpaid stock for sale and dispose of it for the account of the payable on demand, and are at once recoverable in an action instituted by
delinquent subscriber. In this case the provisions of section 38 to 48, the assignee or receiver appointed by the court. This rule apparently had
inclusive , of the Corporation Law are applicable and must be followed. The origin in a recognition of the principle that a court of equity, having jurisdiction
other remedy is by action in court, concerning which we find in section 49 the of the insolvency proceedings, could, if necessary, make the call itself, in its
following provision: capacity as successor to the powers exercised by the board of directors of
the defunct company. Later a further rule gained recognition to the effect that
Nothing in this Act shall prevent the directors from collecting, by the receiver or assignee, in an action instituted by proper authority, could
action in any court of proper jurisdiction, the amount due on any himself proceed to collect the subscription without the necessity of any prior
unpaid subscription, together with accrued interest and costs and call whatever. This conclusion is well supported by reference to the following
expenses incurred. authorities:

It is generally accepted doctrine that the statutory right to sell the subscriber's . . . a court of equity may enforce payment of the stock subscriptions,
stock is merely a remedy in addition to that which proceeds by action in although there have been no calls for them by the company.
court; and it has been held that the ordinary legal remedy by action exists (Hatch vs. Dana, 101 U. S., 205.)
even though no express mention thereof is made in the statute.
(Instone vs. Frankfort Bridge Co., 2 Bibb [Ky.], 576; 5 Am. Dec., 638.) It is again insisted that the plaintiffs cannot recover because the suit
was not preceded by a call or assessment against no right of action
No attempt is made in the Corporation Law to define the precise conditions accrues. In a suit by a solvent going corporation to collect a
under which an action may be maintained upon a stock subscription, as such subscription, and in certain suits provided by the statute this would
be true; but it is now quite well settled that when the corporation

179
becomes insolvent, with proceedings instituted by creditors to wind the board transcended its powers, and he no doubt still remained liable on
up and distribute its assets, no call or assessment is necessary such of his shares as were not taken up and paid for by other persons.
before the institution of suits to collect unpaid balances on
subscription. (Ross-Meehan Shoe F. Co. vs. Southern Malleable Iron The general doctrine is that the corporation has no legal capacity to
Co., 72 Fed., 957, 960; see also Henry vs. Vermillion etc. R. R. Co., release an original subscriber to its capital stock from the obligation
17 Ohio, 187, and Thompson on Corporations 2d ed., vol. 3, sec. of paying for his shares, in whole or in part, . . . (10 Cyc., 450.)
2697.)
The suggestion contained in Poizat's letter of July 27, 1914, to the effect that
It evidently cannot be permitted that a subscriber should escape from his he understood that he was to be relieved upon the same terms as Infante is,
lawful obligation by reason of the failure of the officers of the corporation to for the same reason, of no merit as matter of defense, even if an agreement
perform their duty in making a call; and when the original model of making to that effect had been duly proved.
the call becomes impracticable, the obligation must be treated as due upon
demand. If the corporation must be treated still an active entity, and this From what has been said it is manifest that the defendant is liable for P1,500,
action should be dismissed for irregularity in the making of the call, other the amount of his subscription upon the unpaid shares. Under section 36 of
steps could be taken by the board to cure the defect and another action the Corporation Law he is also liable for interest at the lawful rate from the
could be brought; but where the company is being wound up, no such date of his subscription, unless relieved from this liability by the by-laws of
procedure would be practicable. The better doctrine is that when insolvency the company. These by-laws have not been introduced in evidence and there
supervenes all unpaid subscriptions become at once due and enforceable. is no proof showing the exact date upon which the subscription was made,
though it is alleged in the original complaint that the company was organized
The printed bill of exceptions in this cause does not contain the original upon March 23, 1914. This allegation is not admitted in the agreed statement
complaint, nor does it state who was plaintiff therein or the date when the of facts. The defendant, however, inferentially admits in his letter of July 27,
action was instituted. It may, however, be gathered from the papers 1914, that his subscription had been made prior to July 13, 1914. It resulted
transmitted to this court that the action was originally instituted in the name of that in our opinion he should be held liable for interest from that date.
the Philippine Chemical Product Co. (Ltd.), prior to its insolvency, and that
later the assignee was substituted as plaintiff and then filed the amended The judgment of the lower court is therefore reversed, and judgment will be
complaint, with the permission of the court. Now, if we concede that no right rendered in favor of the plaintiff and against the defendant for the sum of one
of action existed when the original complaint was filed, a right of action thousand five hundred pesos (P1,500), with interest from July 13, 1014, and
certainly existed when the assignee filed his amended complaint; and as the costs of both instances. So ordered.
bill of exceptions fails to show that any exception was taken to the action of
the court in allowing the amended complaint to be filed, no objection would
Arellano, C.J., Torres, Johnson, Carson, Araullo, Malcolm, Avancea and
be here entertained on the ground that the action was prematurely brought.
Fisher, JJ., concur.

The circumstance that the board of directors in their meeting of July 13,
1914, resolved to release Infante from his obligation upon a subscription for
15 shares is no wise prejudicial to the right of the corporation or its assignee
to recover from Poizat upon a subscription made by him. In releasing Infante

180
G.R. Nos. L-24177-85 June 29, 1968

PHILIPPINE NATIONAL BANK, plaintiff-appellee,


vs.

181
BITULOK SAWMILL, INC., DINGALAN LUMBER CO., INC., SIERRA command, considering the persuasiveness of the plea that defendants-
MADRE LUMBER CO., INC., NASIPIT LUMBER CO., INC., appellees would "not have subscribed to [the] capital stock" of the Philippine
WOODWORKS, INC., GONZALO PUYAT, TOMAS B. MORATO, FINDLAY Lumber Distributing Agency "were it not for the assurance of the [then]
MILLAR LUMBER CO., INC., ET AL., INSULAR LUMBER CO., ANAKAN President of the Republic of the Philippines that the Government would back
LUMBER CO., AND CANTILAN LUMBER CO., INC., defendants-appellees. [it] up by investing P9.00 for every peso" 4 subscribed, a condition which was
not fulfilled, such commitment not having been complied with, be justified?
Tomas Besa, Simplicio N. Angeles and Jose B. Galang for plaintiff-appellee. The answer must be in the negative.
Bausa, Ampil and Suarez for defendant-appellant Woodworks, Inc.
Pacifico de Ocampo for defendant-appellant Anakan Lumber Co. It cannot be otherwise even if an element of unfairness and injustice could be
Ross, Selph, Salcedo, Del Rosario, Bito and Misa for defendant-appellant predicated, as the lower court, in a rather sympathetic mood, did find in the
Insular Lumber Co. plaintiff bank, as creditor, compelling defendant lumber producers under the
Garin, Boquiren and Tamesis for defendant-appellant Nasipit Lumber Co., above circumstances to pay the balance of their subscriptions. For a plain
Inc. and statutory command, if applicable, must be respected. The rule of law
Feria, Manglapus and Associates for defendant-appellant Gonzalo Puyat. cannot be satisfied with anything less. The appeal must be sustained.
Sycip, Salazar and Associates for defendant-appellant Cantilan Lumber Co.,
Inc. In these various suits decided jointly, the Philippine National Bank, as
Ozaeta, Gibbs and Ozaeta for defendant-appellant Findlay Millar Lumber creditor, and therefore the real party in interest, was allowed by the lower
Co., Inc. court to substitute the receiver of the Philippine Lumber Distributing Agency
Dominador Alafriz for defendant-appellant Bitulok Sawmill, Inc. in these respective actions for the recovery from defendant lumber producers
De la Costa and De la Costa for defendant-appellant Tomas B. Morato. the balance of their stock subscriptions. The amount sought to be collected
from defendants-appellees Bitulok Sawmill, Inc., Dingalan Lumber Co., Inc.,
FERNANDO, J.: and Sierra Madre Lumber Co., Inc., is P5,000.00, defendants-appellees
having made a partial payment of P15,000.00 of their total subscription worth
In the face of a statutory norm, which, as interpreted in a uniform line of P20,000.00; from defendant-appellee Nasipit Lumber Co., Inc., the sum of
decisions by this Court, speaks unequivocally and is free from doubt, the P10,000.00, defendant-appellee having made a partial payment of
lower court with full recognition that the case for the plaintiff creditor, P10,000.00 of its total subscription worth P20,000.00; from defendant-
Philippine National Bank, "is meritorious strictly from the legal appellee Woodworks, Inc., the sum of P10,886.00, defendant-appellee
standpoint" 1 but apparently unable to "close its eyes to the equity of the having made a partial payment of P9,114.00 of its total subscription worth
case" 2 dismissed nine (9) cases filed by it, seeking "to recover from the P20,000.00; from defendant-appellee Gonzalo Puyat the sum of P10,000.00,
defendant lumber producers [Bitulok Sawmill, Inc.; Dingalan Lumber Co., defendant-appellee having made a partial payment of P10,000.00 of his total
Inc., Sierra Madre Lumber Co., Inc.; Nasipit Lumber Co., Inc.; Woodworks, subscription worth P20,000.00; from defendant-appellee Tomas Morato the
Inc.; Gonzalo Puyat; Tomas B. Morato; Findlay Millar Lumber Co., Inc.; sum of P10,000.00, defendant-appellee having made a partial payment of
Insular Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan Lumber Co., P10,000.00 of his total subscription worth P20,000.00; from defendant-
Inc.] the balance of their stock subscriptions to the Philippine Lumber appellee Findlay Millar Lumber Co., Inc., the sum of P10,000.00, defendant-
Distributing Agency, Inc." 3 In essence then, the crucial question posed by this appellee having made a partial payment of P10,000.00 of its total
appeal from such a decision of the lower court is adherence to the rule of subscription worth P20,000.00; from defendant-appellee Insular Lumber Co.,
law. Otherwise stated, would non-compliance with a plain statutory Inc., the sum of P5,000.00, defendant-appellee having made a partial

182
payment of P15,000.00 of its total subscription worth P20,000.00; from President Roxas instructed the Hon. Emilio Abello, then Executive Secretary
defendant-appellee Anakan Lumber Co., Inc., the sum of P15,000.00, and Chairman of the Board of Directors of the Philippine National Bank, for
defendant-appellee having made a partial payment of P5,000.00 of its total the latter to grant said agency an overdraft in the original sum of
subscription worth P20,000.00; and from defendant-appellee Cantilan P250,000.00 which was later increased to P350,000.00, which was approved
Lumber Co., Inc., the sum of P7,500.00, defendant-appellee having made a by said Board of Directors of the Philippine National Bank on July 28, 1947,
partial payment of P2,500.00 of its total subscription worth P10,000.00, plus payable on or before April 30, 1958, with interest at the rate of 6% per
interest at the legal rate from the filing of the suits and the costs of the suits annum, and secured by the chattel mortgages on the stock of lumber of said
in all the nine (9) cases. agency." 7 The Philippine Government did not invest the P9.00 for every peso
coming from defendant lumber producers. The loan extended to the
The Philippine Lumber Distributing Agency, Inc., according to the lower court, Philippine Lumber Distributing Agency by the Philippine National Bank was
"was organized sometime in the early part of 1947 upon the initiative and not paid. Hence, these suits.
insistence of the late President Manuel Roxas of the Republic of the
Philippines who for the purpose, had called several conferences between For the lower court, the above facts sufficed for their dismissal. To its mind "it
him and the subscribers and organizers of the Philippine Lumber Distributing is grossly unfair and unjust for the plaintiff bank now to compel the lumber
Agency, Inc." 5 The purpose was praiseworthy, to insure a steady supply of producers to pay the balance of their subscriptions .... Indeed, when the late
lumber, which could be sold at reasonable prices to enable the war sufferers President Roxas made representations to the plaintiff bank, thru the Hon.
to rehabilitate their devastated homes. The decision continues: "He Emilio Abello, who was then the Executive Secretary and Chairman of its
convinced the lumber producers to form a lumber cooperative and to pool Board of Directors, to grant said overdraft to the agency, it was the only way
their sources together in order to wrest, particularly, the retail trade from by which President Roxas could make good his commitment that the
aliens who were acting as middlemen in the distribution of lumber. At the Government would invest in said agency to the extent already mentioned
beginning, the lumber producers were reluctant to organize the cooperative because, according to said late President Roxas, the legislature had not
agency as they believed that it would not be easy to eliminate from the retail appropriated any amount for such counterpart. Consequently, viewing from
trade the alien middlemen who had been in this business from time all considerations of equity in the case, the Court finds that plaintiff bank
immemorial, but because the late President Roxas made it clear that such a should not collect any more from the defendants the balance of their
cooperative agency would not be successful without a substantial working subscriptions to the capital stock of the Philippine Lumber Distributing
capital which the lumber producers could not entirely shoulder, and as an Agency, Inc." 8
inducement he promised and agreed to finance the agency by making the
Government invest P9.00 by way of counterpart for every peso that the Even with the case for defendant lumber producers being put forth in its
members would invest therein,...." 6 strongest possible light in the appealed decision, the plaintiff creditor, the
Philippine National Bank, should have been the prevailing party. On the law
This was the assurance relied upon according to the decision, which stated as it stands, the judgment reached by the lower court cannot be sustained.
that the amount thus contributed by such lumber producers was not enough The appeal, as earlier made clear, possesses merit.
for the operation of its business especially having in mind the primary
purpose of putting an end to alien domination in the retail trade of lumber In Philippine Trust Co. v. Rivera, 9 citing the leading case of Velasco v.
products. Nor was there any appropriation by the legislature of the Poizat, 10 this Court held: "It is established doctrine that subscriptions to the
counterpart fund to be put up by the Government, namely, P9.00 for every capital of a corporation constitute a fund to which creditors have a right to
peso invested by defendant lumber producers. Accordingly, "the late look for satisfaction of their claims and that the assignee in insolvency can

183
maintain an action upon any unpaid stock subscription in order to realize What it decrees must be followed; what it commands must be obeyed. It
assets for the payment of its debt.... A corporation has no power to release must be respected, the wishes of the President, to the contrary
an original subscriber to its capital stock from the obligation of paying for his notwithstanding, even if impelled by the most worthy of motives and the most
shares, without a valuable consideration for such release; and as against persuasive equitable considerations. To repeat, such is not the case here.
creditors a reduction of the capital stock can take place only in the manner For at no time did President Roxas ever give defendant lumber producers to
and under the conditions prescribed by the statute or the charter or the understand that the failure of the Government for any reason to put up the
articles of incorporation. Moreover, strict compliance with the statutory counterpart fund could terminate their statutory liability.
regulations is necessary...." The Poizat doctrine found acceptance in later
cases. 11One of the latest cases, Lingayen Gulf Electric Power v. Such is not the law. Unfortunately, the lower court was of a different mind.
Baltazar, 12 Speaks to this effect: "In the case of Velasco v. Poizat, 13 the That is not to pay homage to the rule of law. Its decision then, one it is to be
corporation involved was insolvent, in which case all unpaid stock repeated influenced by what it considered to be the "equity of the case", is
subscriptions become payable on demand and are immediately recoverable not legally impeccable.
in an action instituted by the assignee."
WHEREFORE, the decision of the lower court is reversed and the cases
It would be unwarranted to ascribe to the late President Roxas the view that remanded to the lower court for judgment according to law, with full
the payment of the stock subscriptions, as thus required by law, could be consideration of the legal defenses raised by defendants-appellees, Bitulok
condoned in the event that the counterpart fund to be invested by the Sawmill, Inc.; Dingalan Lumber Co., Inc.; Sierra Madre Lumber Co., Inc.;
Government would not be available. Even if such were the case, however, Nasipit Lumber Co., Inc.; Woodworks, Inc.; Gonzalo Puyat; Tomas B. Morato;
and such a promise were in fact made, to further the laudable purpose to Findlay Millar Lumber Co., Inc.; Anakan Lumber Co., Inc.; and Cantilan
which the proposed corporation would be devoted and the possibility that the Lumber Co., Inc. No pronouncement as to costs.
lumber producers would lose money in the process, still the plain and specific
wording of the applicable legal provision as interpreted by this Court must be Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and
controlling. It is a well-settled principle that with all the vast powers lodged in Angeles, JJ., concur.
the Executive, he is still devoid of the prerogative of suspending the Castro, J., took no part.
operation of any statute or any of its terms.

The emphatic and categorical language of an American decision cited by the


late Justice Laurel, in People v. Vera, 14 comes to mind: "By the twentieth
article of the declaration of rights in the constitution of this commonwealth, it
is declared that the power of suspending the laws, or the execution of the
laws, ought never to be exercised but by the legislature, or by authority
derived from it, to be exercised in such particular cases only as the
legislature shall expressly provide for...." Nor could it be otherwise
considering that the Constitution specifically enjoins the President to see to it
that all laws be faithfully executed. 15 There may be a discretion as to what a
particular legal provision requires; there can be none whatsoever as to the
enforcement and application thereof once its meaning has been ascertained.

184
185
six telegraph wires of the Government, or whether it is only required to
furnish poles with crosspieces sufficient to carry four wires only.

It is admitted that the present poles and crosspieces between said


municipalities are sufficient to carry four telegraph wires and that they do now
carry four telegraph wires, by virtue of an agreement between the
respondents and the Bureau of the Posts of the Philippine Government. It is
admitted that the poles and not sufficient to carry six telegraph wires.

The petitioner relies upon the provisions of section 84 of act No. 1459. Act
No. 1459 is the General Corporation Law and was adopted by the United
States Philippine Commission on March 1, 1906. (Vol. 5, Pub. Laws, pp. 224-
268.) Section 84 of the said Act provides:
G.R. No. L-30646 January 30, 1929
The railroad corporation shall establish along the whole length of the
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, petitioner, road a telegraph line for the use of the railroad. The posts of this line
vs. may be used for Government wires and shall be of sufficient length
THE MANILA RAILROAD COMPANY and JOSE PAEZ as Manager of said and strength and equipped with sufficient crosspiece to carry the
Company, respondents. number of wires which the Government may consider necessary for
the public service. The establishment, protection, and maintenance
Attorney-General Jaranilla for petitioner. of the wires and stations necessary for the public service shall be at
Jose Abreu for respondents. the cost of the Government. (Vol. 5, P. L., p. 247.)

JOHNSON, J.: The plaintiff contends that under said section 84 the defendant company is
required to erect and maintain posts for its telegraph wires, of sufficient
This is a petition in the Supreme Court of the extraordinary legal writ length and strength, and equipped with sufficient crosspieces to carry the
of mandamus presented by the Government of the Philippine Islands, number of wires which the Government may consider necessary for the
praying that the writ be issued to compel the Manila Railroad Company and public service, and that six wires are now necessary for the public service.
Jose Paez, as its manager, to provide and equip the telegraph poles of said
company between the municipality of Paniqui, Province of Tarlac, and the The respondents answered by a general and special defense. In their special
Municipality of San Fernando, Province of La Union, with crosspieces for six defense they contend that section 84 of Act No. 1459 has been repealed by
telegraph wires belonging to the Government, which, it is alleged, are section 1, paragraph 8 of Act No. 1510 of the United States Philippine
necessary for public service between said municipalities. Commission (vol. 5, P. L., pp. 350-358), and that under the provisions of said
Act No. 1510 the Government is entitled to place on the poles of the
The only question raised by the petition is whether the dependant company company four wires only. Act No. 1510 is the charter of the Manila Railroad
is required to provide and equip its telegraph poles with crosspieces to carry

186
Company. It was adopted by the United States Philippine Commission on said charter or contract it would be seen that there is no indication that the
July 7, 1906. Section 1, paragraph 8, of said Act No. 1510 provides: Government intended to impose upon said company any other conditions as
obligations not expressly found in said charter or contract. If that is true, then
8. The grantee (the Manila Railroad Company) shall have the right to certainly the Government cannot impose upon said company any conditions
construct and operate telegraph, telephone, and electrical or obligations found in any general law, which does not expressly modify said
transmission lines over said railways for the use of the railways and contract.
their business, and also, with the approval of the Secretary of War,
for public service and commercial purposes but these latter Section 84 of the Corporation Law (Act No. 1459) was intended to apply to all
privileges shall be subject to the following provisions: railways in the Philippine Islands which did not have a special charter
contract. Act No. 1510 applies only to the Manila Railroad Company, one of
In the construction of telegraph or telephone lines along the right of the respondents, and being a special charter of said company, its adoption
way the grantee (the Manila Railroad Company) shall erect and had the effect of superseding the provisions of the general Corporation Law
maintain poles with sufficient space thereon to permit the Philippine which are applicable to railraods in general. The special charter (Act No.
Government, at the expense of said Government, to place, operate, 1510) had the effect of superseding the general Corporation Law upon all
and maintain four wires for telegraph, telephone, and electrical matters covered by said special charter. Said Act, inasmuch as it contained a
transmission for any Government purposes between the termini of special provision relating to the erection of telegraph and telephone poles,
the lines of railways main or branch; and the Philippine Government and the number of wires which the Government might place thereon,
reserves to itself the right to construct, maintain, and operate superseded the general law upon that question.
telegraph, telephone, or electrical transmission lines over the right of
way of said railways for commercial military, or government Act No. 1510 is a special charter of the respondent company. It constitutes a
purposes, without unreasonably interfering with the construction, contract between the respondent company and the state; and the state and
maintenance, and operation by the grantee of its railways, telegraph, the grantee of a charter are equally bound by its provisions. For the state to
telephone, and electrical transmission lines. impose an obligation or a duty upon the respondent company, which is not
expressly provided for in the charter (Act No. 1510), would amount to a
To answer the question above stated, it becomes necessary to determine violation of said contract between the state and the respondent company.
whether section 84 of Act No. 1459 is applicable to the Manila Railroad The provisions of Act No. 1459 relating to the number of wires which the
Company, or whether the manila Railroad Company is governed by section Government may place upon the poles of the company are different and
1, paragraph 8, of Act No. 1510. As has been said, Act No. 1459 is a general more enerous than the provisions of the charter upon the same question.
law applicable to corporations generally, while Act No. 1510 is the charter of Therefore, to allow the plaintiff to require of the respondent company a
the Manila Railroad Company and constitute a contract between it and the compliance with said section 84 of Act No. 1459, would be to require of the
Government. respondent company and the performance of an obligation which is not
imposed upon it by its charter. The charter of a corporation is a contract
Inasmuch as Act No. 1510 is the charter of Manila Railroad Company and between three parties: (a) it is a contract between the state and the
constitute a contract between it and the Governmemnt, it would seem that corporation to which the charter is granted; (b) it is a contact between the
the company is governd by its contract and not by the provisions of any stockholders and the state and (c) it is also a contract between the
general law upon questions covered by said contract. From a reading of the corporation and its stockholders. (Cook on Corporations, vol. 2, sec. 494 and
cases cited.)

187
The question is not whether Act No. 1510 repealed Act No. 1459; but
whether, after the adoption of Act No. 1510, the respondents are obliged to
comply with the special provision above mentioned, contained in Act No.
1459. We must answer that question in the native. Both laws are still in force,
unless otherwise repealed. Act No. 1510 is applicable to respondents upon
the question before us, while Act No. 1459 is not applicable.

The petitioner, in view of all the foregoing facts and the law applicable
thereto, has not shown itself entitled to the remedy prayed for. The prayer of
the petition must, therefore, be denied. And without any finding as to costs, it
is so ordered.

Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ.,


concur.

188
(2) There exist valid reasons for refusing to register the transfer of the subject
of stock, namely:

(a) a pending controversy over the ownership of the


certificates of stock with the Regional Trial Court;

(b) claims that the Deeds of Assignment covering the subject


certificates of stock were fictitious and antedated; and
G.R. No. 96674 June 26, 1992
(c) claims on a resultant possible deprivation of inheritance
RURAL BANK OF SALINAS, INC., MANUEL SALUD, LUZVIMINDA TRIAS share in relation with a conflicting claim over the subject
and FRANCISCO TRIAS, petitioners, certificates of stock.

vs. The facts are not disputed.

COURT OF APPEALS*, SECURITIES AND EXCHANGE COMMISSION, On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of
MELANIA A. GUERRERO, LUZ ANDICO, WILHEMINA G. ROSALES, Salinas, Inc., executed a Special Power of Attorney in favor of his wife,
FRANCISCO M. GUERRERO, JR., and FRANCISCO GUERRERO , private respondent Melania Guerrero, giving and granting the latter full power
SR.,respondents. and authority to sell or otherwise dispose of and/or mortgage 473 shares of
stock of the Bank registered in his name (represented by the Bank's stock
certificates nos. 26, 49 and 65), to execute the proper documents therefor,
and to receive and sign receipts for the dispositions.

PARAS, J.:
On February 27, 1980, and pursuant to said Special Power of Attorney,
private respondent Melania Guerrero, as Attorney-in-Fact, executed a Deed
The basic controversy in this case is whether or not the respondent court of Assignment for 472 shares out of the 473 shares, in favor of private
erred in sustaining the Securities and Exchange Commission when it respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and
compelled by Mandamus the Rural Bank of Salinas to register in its stock Francisco Guerrero, Jr. (5 shares).
and transfer book the transfer of 473 shares of stock to private respondents.
Petitioners maintain that the Petition for Mandamus should have been denied
Almost four months later, or two (2) days before the death of Clemente
upon the following grounds.
Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant
to the same Special Power of Attorney, executed a Deed of Assignmentfor
(1) Mandamus cannot be a remedy cognizable by the Securities and the remaining one (1) share of stock in favor of private respondent Francisco
Exchange Commission when the purpose is to register certificates of stock in Guerrero, Sr.
the names of claimants who are not yet stockholders of a corporation:

189
Subsequently, private respondent Melania Guerrero presented to petitioner hearing officer denied the Motion for Intervention for lack of merit. On appeal,
Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a the SEC En Banc affirmed the decision of the hearing officer.
request for the transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock certificates in the name Intervenor Guerrero filed a complaint before the then Court of First Instance
of Clemente G. Guerrero, and the issuance of new stock certificates covering of Rizal, Quezon City Branch, against private respondents for the annulment
the transferred shares of stocks in the name of the new owners thereof. of the Deeds of Assignment, docketed as Civil Case No. Q-32050.
However, petitioner Bank denied the request of respondent Melania Petitioners, on the other hand, filed a Motion to Dismiss and/or to Suspend
Guerrero. Hearing of SEC Case No. 1979 until after the question of whether the subject
Deeds of Assignment are fictitious, void or simulated is resolved in Civil Case
On December 5, 1980, private respondent Melania Guerrero filed with the No. Q-32050. The SEC Hearing Officer denied said motion.
Securities and Exchange Commission" (SEC) an action
for mandamus against petitioners Rural Bank of Salinas, its President and On December 10, 1984, the SEC Hearing Officer rendered a Decision
Corporate Secretary. The case was docketed as SEC Case No. 1979. granting the writ of Mandamus prayed for by the private respondents and
directing petitioners to cancel stock certificates nos. 26, 49 and 65 of the
Petitioners filed their Answer with counterclaim on December 19, 1980 Bank, all in the name of Clemente G. Guerrero, and to issue new certificates
alleging the upon the death of Clemente G. Guerrero, his 473 shares of stock in the names of private respondents, except Melania Guerrero. The
became the property of his estate, and his property and that of his widow dispositive, portion of the decision reads:
should first be settled and liquidated in accordance with law before any
distribution can be effected so that petitioners may not be a party to any WHEREFORE, judgment is hereby rendered in favor of the
scheme to evade payment of estate or inheritance tax and in order to avoid petitioners and against the respondents, directing the latter,
liability to any third persons or creditors of the late Clemente G. Guerrero. particularly the corporate secretary of respondent Rural
Bank of Salinas, Inc., to register in the latter's Stock and
On January 29, 1981, a motion for intervention was filed by Maripol Transfer Book the transfer of 473 shares of stock of
Guerrero, a legally adopted daughter of the late Clemente G. Guerrero and respondent Bank and to cancel Stock Certificates Nos. 26,
private respondent Melania Guerrero, who stated therein that on November 45 and 65 and issue new Stock Certificates covering the
26, 1980 (almost two weeks before the filing of the petition for Mandamus) a transferred shares in favor of petitioners, as follows:
Petition for the administration of the estate of the late Clemente G. Guerrero
had been filed with the Regional Trial Court, Pasig, Branch XI, docketed as 1. Luz Andico 457 shares
Special Proceedings No. 9400. Maripol Guerrero further claimed that the
Deeds of Assignment for the subject shares of stock are fictitious and 2. Wilhelmina Rosales 10 shares
antedated; that said conveyances are donations since the considerations
therefor are below the book value of the shares, the assignees/private
3. Francisco Guerrero, Jr. 5 shares
respondents being close relatives of private respondent Melania Guerrero;
and that the transfer of the shares in question to assignees/private
respondents, other than private respondent Melania Guerrero, would deprive 4. Francisco Guerrero, Sr. 1 share
her (Maripol Guerrero) of her rightful share in the inheritance. The SEC

190
and to pay to the above-named petitioners, the dividends for In the case of Fleisher vs. Botica Nolasco, 47 Phil. 583, the Court
said shares corresponding to the years 1981, 1982, 1983 interpreted Sec. 63 in his wise:
and 1984 without interest.
Said Section (Sec. 35 of Act 1459 [now Sec. 63 of the
No pronouncement as to costs. Corporation Code]) contemplates no restriction as to whom
the stocks may be transferred. It does not suggest that any
SO ORDERED. (p. 88, Rollo) discrimination may be created by the corporation in favor of,
or against a certain purchaser. The owner of shares, as
On appeal, the SEC En Banc affirmed the decision of the Hearing Officer. owner of personal property, is at liberty, under said section to
Petitioner filed a petition for review with the Court of Appeals but said Court dispose them in favor of whomever he pleases, without
likewise affirmed the decision of the SEC. limitation in this respect, than the general provisions of
law. . . .
We rule in favor of the respondents.
The only limitation imposed by Section 63 of the Corporation Code is
when the corporation holds any unpaid claim against the shares
Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive
intended to be transferred, which is absent here.
jurisdiction to hear and decide cases involving intracorporate controversies.
An intracorporate controversy has been defined as one which arises between
a stockholder and the corporation. There is no distinction, qualification, nor A corporation, either by its board, its by-laws, or the act of its officers, cannot
any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The create restrictions in stock transfers, because:
case at bar involves shares of stock, their registration, cancellation and
issuances thereof by petitioner Rural Bank of Salinas. It is therefore within . . . Restrictions in the traffic of stock must have their source
the power of respondent SEC to adjudicate. in legislative enactment, as the corporation itself cannot
create such impediment. By-laws are intended merely for the
Respondent SEC correctly ruled in favor of the registering of the shares of protection of the corporation, and prescribe regulation, not
stock in question in private respondent's names. Such ruling finds support restriction; they are always subject to the charter of the
under Section 63 of the Corporation Code, to wit: corporation. The corporation, in the absence of such power,
cannot ordinarily inquire into or pass upon the legality of the
transactions by which its stock passes from one person to
Sec. 63. . . . Shares of stock so issued are personal property
another, nor can it question the consideration upon which a
and may be transferred by delivery of the certificate or
sale is based. . . . (Tomson on Corporation Sec.
certificates indorsed by the owner or his attorney-in-fact or
4137, citedin Fleisher vs. Nolasco, Supra).
other person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the The right of a transferee/assignee to have stocks transferred to his name is
corporation . . . an inherent right flowing from his ownership of the stocks. Thus:

191
Whenever a corporation refuses to transfer and register
stock in cases like the present, mandamuswill lie to compel
the officers of the corporation to transfer said stock in the
books of the corporation" (26, Cyc. 347, Hyer vs. Bryan, 19
Phil. 138; Fleisher vs. Botica Nolasco, 47 Phil. 583, 594).

The corporation's obligation to register is ministerial.

In transferring stock, the secretary of a corporation acts in


purely ministerial capacity, and does not try to decide the
question of ownership. (Fletcher, Sec. 5528, page 434).

The duty of the corporation to transfer is a ministerial one


and if it refuses to make such transaction without good
cause, it may be compelled to do so by mandamus. (See.
5518, 12 Fletcher 394)

For the petitioner Rural Bank of Salinas to refuse registration of the


transferred shares in its stock and transfer book, which duty is ministerial on
its part, is to render nugatory and ineffectual the spirit and intent of Section
63 of the Corporation Code. Thus, respondent Court of Appeals did not err in
upholding the Decision of respondent SEC affirming the Decision of its
Hearing Officer directing the registration of the 473 shares in the stock and
transfer book in the names of private respondents. At all events, the
registration is without prejudice to the proceedings in court to determine the
validity of the Deeds of Assignment of the shares of stock in
question.WHEREFORE, the petition is DISMISSED for lack of merit. SO
ORDERED.

192
G.R. No. 41570 September 6, 1934

RED LINE TRANSPORTATION CO., petitioner-appellant,


vs.
RURAL TRANSIT CO., LTD., respondent-appellee.

L. D. Lockwood for appellant.


Ohnick and Opisso for appellee.

BUTTE, J.:

193
This case is before us on a petition for review of an order of the Public corporation, Rural Transit Company, Ltd. Said motion for reconsideration was
Service Commission entered December 21, 1932, granting to the Rural set down for hearing on March 24, 1933. On March 23, 1933, the Rural
Transit Company, Ltd., a certificate of public convenience to operate a Transit Company, Ltd., the applicant, filed a motion for postponement. This
transportation service between Ilagan in the Province of Isabela and motion was verified by M. Olsen who swears "that he was the secretary of
Tuguegarao in the Province of Cagayan, and additional trips in its existing the Rural Transit Company, Ltd., in the above entitled case." Upon the
express service between Manila Tuguegarao. hearing of the motion for reconsideration, the commission admitted without
objection the following documents filed in said case No. 42343 in the Court of
On June 4, 1932, the Rural Transit Company, Ltd., a Philippine corporation, First Instance of Manila for the dissolution of the Rural Transit Company, Ltd.
filed with the Public Company Service Commission an application in which it the petition for dissolution dated July 6, 1932, the decision of the said Court
is stated in substance that it is the holder of a certificate or public of First Instance of Manila, dated February 28, 1933, decreeing the
convenience to operate a passenger bus service between Manila and dissolution of the Rural Transit Company, Ltd.
Tuguegarao; that it is the only operator of direct service between said points
and the present authorized schedule of only one trip daily is not sufficient; At the trial of this case before the Public Service Commission an issue was
that it will be also to the public convenience to grant the applicant a certificate raised as to who was the real party in interest making the application,
for a new service between Tuguegarao and Ilagan. whether the Rural Transit Company, Ltd., as appeared on the face of the
application, or the Bachrach Motor Company, Inc., using name of the Rural
On July 22, 1932, the appellant, Red Line Transportation Company, filed an Transit Company, Ltd., as a trade name. The evidence given by the
opposition to the said application alleging in substance that as to the service applicant's secretary, Olsen, is certainly very dubious and confusing, as may
between Tuguegarao and Ilagan, the oppositor already holds a certificate of be seen from the following:
public convenience and is rendering adequate and satisfactory service; that
the granting of the application of the Rural Transit Company, Ltd., would not Q. Will you please answer the question whether it is the
serve public convenience but would constitute a ruinous competition for the Bachrach Motor Company operating under the trade name of the
oppositor over said route. Rural Transit Company, Limited, or whether it is the Rural Transit
Company, Limited in its own name this application was filed?
After testimony was taken, the commission, on December 21, 1932,
approved the application of the Rural Transit Company, Ltd., and ordered A. The Bachrach Motor Company is the principal stockholder.
that the certificate of public convenience applied for be "issued to the
applicant Rural Transit Company, Ltd.," with the condition, among others, that Q. Please answer the question.
"all the other terms and conditions of the various certificates of public
convenience of the herein applicant and herein incorporated are made a part ESPELETA. Objecion porque la pregunta ya ha sido contestada.
hereof."
JUEZ. Puede contestar.
On January 14, 1933, the oppositor Red Line Transportation Company filed a
motion for rehearing and reconsideration in which it called the commission's
A. I do not know what the legal construction or relationship
attention to the fact that there was pending in the Court of First Instance of
existing between the two.
Manila case N. 42343, an application for the voluntary dissolution of the

194
JUDGE. I do not know what is in your mind by not telling the real JUDGE. My question was, when you filed this application you
applicant in this case? evidently made it for the operator?

A. It is the Rural Transit Company, Ltd. A. Yes, sir.

JUDGE. As an entity by itself and not by the Bachrach Motor JUDGE. Who was that operator you had in mind?
Company?
A. According to the status of the ownership of the certificates
A. I do not know. I have not given that phase of the matter of the former Rural Transit Company, the operator was the operator
much thought, as in previous occassion had not necessitated. authorized in case No. 23217 to whom all of the assets of the former
Rural Transit Company were sold.
JUDGE. In filing this application, you filed it for the operator on that
line? Is it not! JUDGE. Bachrach Motor Company?

A. Yes, sir. A. All actions have been prosecuted in the name of the Rural
Transit Company, Ltd.
JUDGE. Who is that operator?
JUDGE. You mean the Bachrach Motor Company, Inc., doing
A. The Rural Transit Company, Ltd. business under the name of the Rural Transit Company, Ltd.?

JUDGE. By itself, or as a commercial name of the Bachrach Motor A. Yes, sir.


Company?
LOCKWOOD. I move that this case be dismissed, your Honor, on
A. I cannot say. the ground that this application was made in the name of one party
but the real owner is another party.
ESPELETA. The Rural Transit Company, Ltd., is a corporation duly
established in accordance with the laws of the Philippine Islands. ESPELETA. We object to that petition.

JUDGE. According to the records of this commission the Bachrach JUDGE. I will have that in mind when I decide the case. If I agree
Motor Company is the owner of the certificates and the Rural Transit with you everything would be finished.
Company, Ltd., is operating without any certificate.
The Bachrach Motor Company, Inc., entered no appearance and ostensibly
JUDGE. If you filed this application for the Rural Transit Company, took no part in the hearing of the application of the Rural Transit Company,
Ltd., and afterwards it is found out that the Rural Transit Company, Ltd. It may be a matter of some surprise that the commission did not on its
Ltd., is not an operator, everything will be turned down. own motion order the amendment of the application by substituting the

195
Bachrach Motor Company, Inc., as the applicant. However, the hearing The order of the commission of November 26, 1932, authorizing the
proceeded on the application as filed and the decision of December 2, 1932, Bachrach Motor Co., Incorporated, to assume the name of the Rural Transit
was rendered in favor of the Rural Transit Company, Ltd., and the certificate Co., Ltd. likewise in corporated, as its trade name being void, and accepting
ordered to be issued in its name, in the face of the evidence that the said the order of December 21, 1932, at its face as granting a certificate of public
corporation was not the real party in interest. In its said decision, the convenience to the applicant Rural Transit Co., Ltd., the said order last
commission undertook to meet the objection by referring to its resolution of mentioned is set aside and vacated on the ground that the Rural Transit
November 26, 1932, entered in another case. This resolution in case No. Company, Ltd., is not the real party in interest and its application was
23217 concludes as follows: fictitious.

Premises considered we hereby authorize the Bachrach Motor Co., In view of the dissolution of the Rural Transit Company, Ltd. by judicial
Inc., to continue using the name of "Rural Transit Co., Ltd.," as its decree of February 28, 1933, we do not see how we can assess costs
trade name in all the applications, motions or other petitions to be against said respondent, Rural Transit Company, Ltd.
filed in this commission in connection with said business and that this
authority is given retroactive effect as of the date, of filing of the Malcolm, Villa-Real, Imperial and Goddard, JJ., concur.
application in this case, to wit, April 29, 1930.

We know of no law that empowers the Public Service Commission or any


court in this jurisdiction to authorize one corporation to assume the name of
another corporation as a trade name. Both the Rural Transit Company, Ltd.,
and the Bachrach Motor Co., Inc., are Philippine corporations and the very
law of their creation and continued existence requires each to adopt and
certify a distinctive name. The incorporators "constitute a body politic and
corporate under the name stated in the certificate." (Section 11, Act No.
1459, as amended.) A corporation has the power "of succession by its
corporate name." (Section 13, ibid.) The name of a corporation is therefore
essential to its existence. It cannot change its name except in the manner
provided by the statute. By that name alone is it authorized to transact
business. The law gives a corporation no express or implied authority to
assume another name that is unappropriated: still less that of another
corporation, which is expressly set apart for it and protected by the law. If any
corporation could assume at pleasure as an unregistered trade name the
name of another corporation, this practice would result in confusion and open
the door to frauds and evasions and difficulties of administration and
supervision. The policy of the law expressed in our corporation statute and
the Code of Commerce is clearly against such a practice. (Cf. Scarsdale
Pub. Co. Colonial Press vs. Carter, 116 New York Supplement, 731; Svenska
Nat. F. i. C. vs. Swedish Nat. Assn., 205 Illinois [Appellate Courts], 428, 434.)

196
197
G.R. No. L-26370 July 31, 1970

PHILIPPINE FIRST INSURANCE COMPANY, INC., plaintiff-appellant,


vs.
MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE, defendants-
appellees.

198
Bausa, Ampil & Suarez for plaintiff-appellant. Banking Corporation payable within 30 days after the date of
the promissory note with the usual banking interest; that the
Nicasio E. Martin for defendants-appellees. plaintiff agreed to act as such co-maker of the promissory
note upon the application of the defendant Maria Carmen
Hartigan, CGH, who together with Antonio F. Chua and
Chang Ka Fu, signed an indemnity agreement in favor of the
plaintiff, undertaking jointly and severally, to pay the plaintiff
BARREDO, J.:
damages, losses or expenses of whatever kind or nature,
including attorney's fees and legal costs, which the plaintiff
Appeal from the decision dated 6 October 1962 of the Court of First Instance may sustain as a result of the execution by the plaintiff and
of Manila dismissing the action in its Civil Case No. 48925 brought by co-maker of Maria Carmen Hartigan, CGH, of the promissory
the herein plaintiff-appellant Philippine First Insurance Co., Inc. to the Court note above-referred to; that as a result of the execution of
of Appeals which could, upon finding that the said appeal raises purely the promissory note by the plaintiff and Maria Carmen
questions of law, declared itself without jurisdiction to entertain the same and, Hartigan, CGH, the China Banking Corporation delivered to
in its resolution dated 15 July 1966, certified the records thereof to this Court the defendant Maria Carmen Hartigan, CGH, the sum of
for proper determination. P5,000.00 which said defendant failed to pay in full, such
that on August 31, 1961 the same was. renewed and as of
The antecedent facts are set forth in the pertinent portions of the resolution of November 27, 1961 there was due on account of the
the Court of Appeals referred to as follows: promissory note the sum of P4,559.50 including interest. The
complaint ends with a prayer for judgment against the
According to the complaint, plaintiff was originally organized defendants, jointly and severally, for the sum of P4,559.50
as an insurance corporation under the name of 'The Yek with interest at the rate of 12% per annum from November
Tong Lin Fire and Marine Insurance Co., Ltd.' The articles of 23, 1961 plus P911.90 by way of attorney's fees and costs.
incorporation originally presented before the Security and
Exchange Commissioner and acknowledged before Notary Although O. Engkee was made as party defendant in the
Public Mr. E. D. Ignacio on June 1, 1953 state that the name caption of the complaint, his name is not mentioned in the
of the corporation was 'The Yek Tong Lin Fire and Marine body of said complaint. However, his name Appears in the
Insurance Co., Ltd.' On May 26, 1961 the articles of Annex A attached to the complaint which is the counter
incorporation were amended pursuant to a certificate of the indemnity agreement supposed to have been signed
Board of Directors dated March 8, 1961 changing the name according to the complaint by Maria Carmen Hartigan, CGH,
of the corporation to 'Philippine First Insurance Co., Inc.'. Antonio F. Chua and Chang Ka Fu.

The complaint alleges that the plaintiff Philippine First In their answer the defendants deny the allegation that the
Insurance Co., Inc., doing business under the name of 'The plaintiff formerly conducted business under the name and
Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as style of 'The Yek Tong Lin Fire and Marine Insurance Co.,
co-maker together with defendant Maria Carmen Hartigan, Ltd.' They admit the execution of the indemnity agreement
CGH, a promissory note for P5,000.00 in favor of the China but they claim that they signed said agreement in favor of

199
the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and defendants and the Yek Tong Lin Fire & Marine Insurance
not in favor of the plaintiff. They likewise admit that they Co., Ltd. (Annex A to plaintiff's complaint ); and
failed to pay the promissory note when it fell due but they
allege that since their obligation with the China Banking (b) Whether or not a suit for indemnity or reimbursement
Corporation based on the promissory note still subsists, the may under said indemnity agreement prosper without plaintiff
surety who co-signed the promissory note is not entitled to having yet paid the amount due under said promissory note.
collect the value thereof from the defendants otherwise they
will be liable for double amount of their obligation, there In the first place, the change of name of the Yek Tong Lin
being no allegation that the surety has paid the obligation to Fire & Marine Insurance Co., Ltd. to the Philippines First
the creditor. Insurance Co., Inc. is of dubious validity. Such change of
name in effect dissolved the original corporation by a
By way of special defense, defendants claim that there is no process of dissolution not authorized by our corporation law
privity of contract between the plaintiff and the defendants (see Secs. 62 and 67, inclusive, of our Corporation Law).
and consequently, the plaintiff has no cause of action against Moreover, said change of name, amounting to a dissolution
them, considering that the complaint does not allege that the of the Yek Tong Lin Fire & Marine Insurance Co., Ltd., does
plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., not appear to have been effected with the written note or
Ltd.' are one and the same or that the plaintiff has acquired assent of stockholders representing at least two-thirds of the
the rights of the latter. The parties after the admission of subscribed capital stock of the corporation, a voting
Exhibit A which is the amended articles of incorporation and proportion required not only for the dissolution of a
Exhibit 1 which is a demand letter dated August 16, 1962 corporation but also for any amendment of its articles of
signed by the manager of the loans and discount department incorporation (Secs. 18 and 62, Corporation Law).
of the China Banking Corporation showing that the Furthermore, such change of corporate name appears to be
promissory note up to said date in the sum of P4,500.00 was against public policy and may be effected only by express
still unpaid, submitted the case for decision based on the authority of law (Red Line Transportation Co. v. Rural Transit
pleadings. Co., Ltd., 60 Phil. 549, 555; Cincinnati Cooperage Co., Ltd.
vs. Vate, 26 SW 538, 539; Pilsen Brewing Co. vs. Wallace,
Under date of 6 October 1962, the Court of First Instance of Manila rendered 125 NE 714), but there is nothing in our corporation law
the decision appealed. It dismissed the action with costs against the plaintiff authorizing the change of corporate name in this jurisdiction.
Philippine First Insurance Co., Inc., reasoning as follows:
In the second place, assuming that the change of name of
... With these undisputed facts in mind, the parties correctly the Yek Tong Lin Fire & Marine Insurance Co. Ltd., to
concluded that the issues for resolution by this Court are as Philippines pine First Insurance Co., Inc., as accomplished
follows: on March 8, 1961, is valid, that would mean that the original
corporation, the Yek Tong Lin Fire & Marine Insurance Co.,
(a) Whether or not the plaintiff is the real party in interest that Ltd., became dissolved and of no further existence since
may validly sue on the indemnity agreement signed by the March 8, 1961, so that on May 15, 1961, the date the
indemnity agreement, Annex A, was executed, said original

200
corporation bad no more power to enter into any agreement In due time, the Philippine First Insurance Company, Inc. moved for
with the defendants, and the agreement entered into by it reconsideration of the decision aforesaid, but said motion was denied on
was ineffective for lack of capacity of said dissolved December 3, 1962 in an order worded thus:
corporation to enter into said agreement. At any rate, even if
we hold that said change of name is valid, the fact remains The motion for reconsideration, dated November 8, 1962,
that there is no evidence showing that the new entity, the raises no new issue that we failed to consider in rendering
Philippine First Insurance Co., Inc. has with the consent of our decision of October 6, 1962. However, it gives us an
the original parties, assumed the obligations or was opportunity to amplify our decision as regards the question
assigned the rights of action in the original corporation, the of change of name of a corporation in this jurisdiction.
Yek Tong Lin Fire & Marine Insurance Co., Ltd. In other
words, there is no evidence of conventional subrogation of We find nothing in our Corporation Law authorizing a change
the Plaintiffs in the rights of the Yek Tong Lin Fire & Marine of name of a corporation organized pursuant to its
Insurance Co., Ltd. under said indemnity agreement (Arts. provisions. Sec. 18 of the Corporation Law authorizes, in our
1300, 1301, New Civil Code). without such subrogation opinion, amendment to the Articles of Incorporation of a
assignment of rights, the herein plaintiff has no cause of corporation only as to matters other than its corporate name.
action against the defendants, and is, therefore, not the right Once a corporation is organized in this jurisdiction by the
party in interest as plaintiff. execution and registration of its Articles of Incorpora