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Felipe N. Aurea for petitioners.


Tañada, Teehankee and Carreon for respondent Imperial Insurance, Inc.

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Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an


establishment duly franchised by the Congress of the Philippines, to conduct a
messenger and delivery express service. On July 12, 1961, the respondent Imperial
Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520),
for sum of money against the petitioner corporation. After the defendants therein have
submitted their Answer, the parties entered into a Compromise Agreement, assisted by
their respective counsels, the pertinent portions of which recite:

1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary
indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE
THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32),
Philippine Currency, itemized as follows:

a) Principal P50,000.00
b) Interest at 12% per annum 5,706.14
c) Liquidated damages at 7% per annum 3,330.58
d) Costs of suit 135.60
e) Attorney's fees 2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and


hereby promise to pay their aforementioned obligation to the PLAINTIFF at its
business address at 301-305 Banquero St., (Ground Floor), Regina Building,
Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May
14, 1962;

3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total
amount of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO &
32/100 (P61,172.32), Philippine Currency, for any reason whatsoever, on May
14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the
execution of the decision to be rendered in the above-entitled case by this
Honorable Court based on this COMPROMISE AGREEMENT.

On March 17, 1962, the lower court rendered judgment embodying the contents of the
said compromise agreement, the dispositive portion of which reads ²

WHEREFORE, the Court hereby approves the above-quoted compromise


agreement and renders judgment in accordance therewith, enjoining the parties
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to comply faithfully and strictly with the terms and conditions thereof, without
special pronouncement as to costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. „ phï„.ñët

On May 15, 1962, one day after the date fixed in the compromise agreement, within
which the judgment debt would be paid, but was not, respondent Imperial Insurance
Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ
of Execution was issued by respondent Sheriff of Manila and on May 26, 1962, Notices
of Sale were sent out for the auction of the personal properties of the petitioner J.R.S.
Business 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 operation, the
whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of
accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the
petitioner, thru counsel, presented an "Urgent Petition for Postponement of Auction
Sale and for Release of Levy on the Business Name and Right to Operate of
Defendant JRS Business Corporation", stating that petitioners were busy negotiating
for a loan with which to pay the judgment debt; that the judgment was for money only
and, therefore, plaintiff (respondent Insurance Company) was not authorized to take
over and appropriate for its own use, the business name of the defendants; that the
right to operate under the franchise, was not transferable and could not be considered
a personal or immovable, property, subject to levy and sale. On June 10, 1962, a
Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS
Business Corporation, claiming that the capital stocks thereof, could not be levied upon
and sold under execution. Under date of June 20, 1962, petitioner's counsel presented
a pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale
and for Ruling on Motion for Release of Levy on 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 within the next ten (10) days, and they would be able to discharge the
judgment debt. Respondents opposed the said motion and on June 21, 1962, the lower
court denied the motion for postponement of the auction sale.

In the sale which was conducted in the premises of the JRS Business Corporation at
1341 Perez St., Paco, Manila, all the properties of said corporation contained in the
Notices of Sale dated May 26, 1962, and June 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 assets, furnitures and equipments, the total liabilities and
Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial
Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after
the sale, respondent Insurance Company took possession of the proper ties and
started running the affairs and operating the business of the JRS Business
Corporation. Hence, the present appeal.

It would seem that the matters which need determination are (1) whether the
respondent Judge acted without or in excess of his jurisdiction or with grave abuse of
discretion in promulgating the Order of June 21, 1962, denying the motion for
postponement of the scheduled sale at public auction, of the properties of petitioner;
and (2) whether the business name or trade name, franchise (right to operate) and
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capital stocks of the petitioner are properties or property rights which could be the
subject of levy, execution and sale.

The respondent Court's act of postponing the scheduled sale was within the discretion
of respondent Judge, the exercise of which, one way or the other, did not constitute
grave abuse of discretion and/or excess of jurisdiction. There was a decision rendered
and the corresponding writ of execution was issued. Respondent Judge had
jurisdiction over the matter and erroneous conclusions of law or fact, if any, committed
in the exercise of such jurisdiction are merely errors of judgment, not correctible by
certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963, and cases cited
therein.)

The corporation law, on forced sale of franchises, provides ²

Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use


public property or any portion of the public domain or any right of way over public
property or the public domain, and any rights and privileges acquired under such
franchise may be levied upon and sold under execution, together with the
property necessary for the enjoyment, the exercise of the powers, and the receipt
of the proceeds of such franchise or right of way, in the same manner and with
like effect as any other property to satisfy any judgment against the corporation:
Provided, That the sale of the franchise or right of way and the property
necessary for the enjoyment, the exercise of the powers, and the receipt of the
proceeds of said franchise or right of way is especially decreed and ordered in
the judgment: And provided, further, That the sale shall not become effective until
confirmed by the court after due notice. (Sec. 56, Corporation Law.)

In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held ²

The first question then for decision is the meaning of the word "franchise" in the
statute.

"A franchise is a special privilege conferred by governmental authority, and


which does not belong to citizens of the country generally as a matter of
common right. ... Its meaning depends more or less upon the connection in
which the word is employed and the property and corporation to which it is
applied. It may have different significations.

"For practical purposes, franchises, so far as relating to corporations, are


divisible into (1) corporate or general franchises; and (2) special or
secondary franchises. The former is the franchise to exist as a corporation,
while the latter are certain rights and privileges conferred upon existing
corporations, such as the right to use the streets of a municipality to lay
pipes or tracks, erect poles or string wires." 2 Fletcher's Cyclopedia Corp.
See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24 So. 200,
317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq.

The primary franchise of a corporation that is, the right to exist as such, is vested
"in the individuals ho compose the corporation and not in the corporation itself"
(14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp.
Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864), and
cannot be conveyed in the absence of a legislative authority so to do (14A CJ.
543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S.
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Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26
S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial
& Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the specify or
secondary franchises of a corporation are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general poer granted to a
corporation to dispose of its property (Adams v. Railroad, supra; 14A C.J. 542,
557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or
secondary franchises as are charged ith 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. Bank, supra; McAllister v. Plant, 54 Miss. 106).

The right to operate a messenger and express delivery service, by virtue of a


legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An
Act granting the JRS Business Corporation a franchise to conduct a messenger and
express service)" and, as such, under our corporation law, is subject to levy and sale
on execution together and including all the property necessary for the enjoyment
thereof. The law, however, indicates the procedure under which the same (secondary
franchise and the properties necessary for its enjoyment) may be sold under execution.
Said franchise can be sold under execution, when such sale is especially decreed and
ordered in the judgment and it becomes effective only when the sale is confirmed by
the Court after due notice (Sec. 56, Corp. Law). The compromise agreement and the
judgment based thereon, do not 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 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.
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Belo, Abiera & Associates for petitioners in 75875.

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

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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 earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6)
candidates and in 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 cumulative
voting to be allowed but without interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose
of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could help
in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in
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Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors 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 and sanitary wares. The parties
agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in


the form annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of


Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-
Standard, and the other six shall be designated by the other stockholders
of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a


minority group, including the grant of veto powers over a number of corporate acts and
the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition
that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to
the Filipino group, a basic disagreement was due to 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 in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was held. The
meeting was presided by Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. 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 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 F. Lee, and Baldwin Young. Mr.
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Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The 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 during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to the
body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and represented by proxy
equally for the 6 nominees of the Philippine Investors and the 3 nominees
of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative,
Mr. Jaqua protested the decision of the Chairman and announced that all
votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R.
SP No. 05617) were being cumulatively voted for the three ASI nominees
and Charles Chamsay, and instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that all the votes owned by
and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees, namely, Wolfgang
Aurbach, John Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then moved to recess
the meeting which was duly seconded. There was also a motion to adjourn
(p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted
by the Chairman, Baldwin Young, who announced that the motion was
carried and declared the meeting adjourned. Protests against the
adjournment were registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The
Chairman then threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes bodily thrown out. The
ASI Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to continue the
meeting at the elevator lobby of the American Standard Building. The
continued meeting was presided by Luciano E. Salazar, while Andres
Gatmaitan acted as Secretary. On the basis of the 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. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres Gatmaitan,
with the explanation that there was a tie among the other six (6) nominees
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for the four (4) remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417.
The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered
a decision upholding the election of the Lagdameo Group and dismissing the quo
warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED


ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS
NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM


EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS


PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE
NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-
75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding


contractual agreements entered into by stockholders and the replacement
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of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a
favored group of stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-
75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE


RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT


PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares 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) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
751, 128 P 2nd 668)

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" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a corporation
and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the


parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)
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They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the true
intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have


been reduced to writing, it is to be considered as containing all such terms,
and therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents
of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express


the true intent and agreement of the parties or the validity of the agreement
is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in 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:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with, and does not preclude,
the existence of two distinct groups of stockholders in Saniwares one of
which (the Philippine Investors) shall constitute the majority, and the other
ASI shall constitute the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering into the Agreement
is to enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New Civil 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. 1374, New Civil Code). Moreover, in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)

It has been ruled:

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


parties joined their efforts in furtherance of an enterprise for their joint profit,
the question whether they intended by their agreement to create a joint
adventure, or to 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 v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200
P 96 33 C.J. p. 871)
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In the instant cases, our examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that
the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated


the Agreement with ASI in behalf of the Philippine nationals. He testified
that ASI agreed to accept the role of minority vis-a-vis the Philippine
National group of investors, on the condition that the Agreement should
contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were


included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate acts
[Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the


amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b)
(iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy
of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)]
and that Saniwares should not export "Standard" products otherwise than
through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out


of 9 votes of the board of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement) an effective veto
power. Furthermore, the grant to ASI of the right to designate certain
officers of the corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most significantly to the
issues of tms case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine National stockholders who
own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.

Premises considered, we believe that under the Agreement there are two
groups of stockholders who established a corporation with provisions for a
special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)
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Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture.


Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein
contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to obviate the possibility
of the enterprise being treated as partnership for tax purposes and liabilities to third
parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine
firm enlarges its operations and becomes profitable, the foreign group undermines the
local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to
say the least. To the extent that such subversive actions can be lawfully prevented, the
courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of


stockholders to enter into agreements regarding the exercise of their voting
rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed


by the parties thereto, may provide that in exercising any voting rights, the
shares held by them shall be voted as therein provided, or as they may
agree, or as determined in accordance with a procedure agreed upon by
them.

Appellants contend that the above provision is included in the Corporation


Code's chapter on close corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly, although Saniwares
had 95 stockholders at the time of the disputed stockholders meeting,
these 95 stockholders are not separate from each other but are divisible
into groups representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family
for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7
stockholders, etc. If the members of one family and/or business or interest
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group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there
were as of 8 March 1983, practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close


corporation because it has more than 20 stockholders, the undeniable fact
is that it is a close-held corporation. Surely, appellants cannot honestly
claim that Saniwares is a public issue or a widely held corporation.

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 public issue corporations. These courts have
indicated that express arrangements between corporate joint ventures
should be construed with less emphasis on the ordinary rules of law usually
applied to corporate entities and with more consideration given to the
nature of the agreement between the joint venturers (Please see Wabash
Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P.
Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry
v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296
Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The
Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal questions as to the
extent to which the requirements arising from the corporate form of joint
venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement
rather than the litigants who relied on the orthodox principles of corporation
law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture


deviate from the traditional pattern of corporation management. A noted
authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do
one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to the
shareholders control over the selection and retention of employees; and (4)
set up a procedure for the settlement of disputes by arbitration (See I O'
Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not


necessarily imply that agreements regarding the exercise of voting rights
are allowed only in close corporations. As Campos and Lopez-Campos
explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does


this provision necessarily imply that these agreements can be valid only in
c    


close corporations as defined by the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot qualify as a close
corporation under section 96, can some of them enter into an agreement to
vote as a unit in the election of directors? It is submitted that there is no
reason for denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect their interests,
as long as they do not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course, voting or pooling
agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section
96, it is entirely possible that a corporation which is in fact a close
corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & Lopez-Campos,
op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual provision, as correctly
held by the SEC, is valid and binding upon the signatories thereto, which
include appellants. (Rollo No. 75951, pp. 90-94)

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 of Appeals correctly
stated:

As in other joint venture companies, the extent of ASI's participation in the


management of the corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance with
the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative


that the parties should honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the
extent that such may interfere with the stockholder's rights to cumulative
voting as provided in Section 24 of the Corporation Code. This Court
should not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not prejudice
those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in
the decision appealed from, that cumulative voting rights may be voluntarily
waived by stockholders who enter into special relationships with each other
to pursue and implement specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such agreements do not
adversely affect third parties.
c    


In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give life
and effect to the particular contractual rights and obligations which the
parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative voting should also be
protected.

In our decision sought to be reconsidered, we opted to uphold the second


over the first. Upon further reflection, we feel that the proper and just
solution to give due consideration to both factors suggests itself quite
clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process of
determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get
a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI 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 to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in
partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities. (amendments
introduced by Presidential Decree 715, section 1, promulgated May 28,
1975)

The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
c    


The legal concept of ajoint venture is of common law origin. It has no
precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership,
since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts
v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395
111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the
Civil 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 that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil.
906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the election
of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the
three directors it is allowed to designate under the Agreement, and may
c    


even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
alloance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the
minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 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 the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of
the Agreement which uses the word "designate" meaning "nominate, delegate or
appoint."

They also stress the possibility that the ASI Group might take control of the enterprise
if the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of directors.
The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now
impugn its legality.
c    


The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being genuine
members of the Filipino group, not voters whose interest is to increase the ASI share in
the management of Saniwares. The joint venture character of the enterprise must
always be taken into account, 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 indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority status of the
Filipino investors as well as to maintain the minority status of the foreign investors
group as earlier discussed. They should be maintained.

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 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.
c    


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Paredes, Poblador, Cruz and Nazareno for petitioners.


Jose W. Diokno for and in his on behalf as respondent.
Office of the Solicitor General for the other respondents.

RESOLUTION

O 

Without prejudice to explaining the reasons for this order in the decision to be rendered
in the case, the writ of preliminary injunction issued by Us in this case against the use
of the papers, documents and things from the following premises: (1) The Office of the
U.S. Tobacco Corporation at the Ledesma Building, Arzobispo St., Manila; (2) 932
Gonzales, Ermita, Manila; (3) Office at Atlanta St., bounded by Chicago, 15th and 14th
Streets, Port Area, Manila; (4) 527 Rosario St., Manila; (5) Atlas Cement Corporation
and/or Atlas Development Corporation at Magsaysay Bldg., San Luis, Ermita, Manila;
(6) 205 13th St., Port Area, Manila; (7) No. 224 San Vicente St., Manila; (8)
Warehouse No. 2 at Chicago and 23rd Streets, Manila; (9) Warehouse at 23rd St.,
between Muelle de San Francisco and Boston, Port Area, Manila; (10) Investment
Incorporated, 24th St. and Boston; (11) IBMC Magsaysay Bldg., San Luis, Manila; (12)
General Agricultural Corporation, Magsaysay Bldg., San Luis, Manila; (13) American
Asiatic Oil Corporation, Magsaysay Bldg., San Luis, Manila; (14) Room 91, Carmen
Apartments, Dewey Boulevard, Manila; (15) Warehouse Railroad St., between 17 and
12 Streets, Port Area, Manila; (16) Room 304, Army and Navy Club, Manila, South
Blvd., Manila; (17) Warehouse Annex Bldg., 18th Street, Port Area, Manila; (18) Room
81, Carmen Apartments, Dewey Boulevard, Manila; (19) Holiday Hills, Inc., Trinity
Bldg., San Luis, Manila; (20) No. 2008 Dewey Boulevard; (21) Premises of 24th Street
and Boston, Port Area, Manila; (22) Republic Glass Corporation, Trinity Bldg., San
Luis, Manila; (23) IBMC, 2nd Floor, Trinity Bldg., San Luis, Manila; (24) IBMC, 2nd
Floor, Gochangco Bldg., 610 San Luis, Manila; (25) United Housing Corporation,
Trinity Bldg., San Luis St., Manila (26) Republic Real Estate Corporation, Trinity Bldg.,
San Luis, Manila; (27) 1436 Colorado St., Malate, Manila; (28) Philippine Tobacco
Flue-Curing, Magsaysay Bldg., San Luis, Manila and (29) 14 Baldwin St., Sta. Cruz,
Manila, in the hearing of Deportation Cases Nos. R-953 and R-955 against petitioners,
before the Deportation Board, is hereby lifted. The preliminary injunction shall continue
as to the papers, documents and things found in the other premises, namely, in those
of the residences of petitioners, as follows: (1) 13 Narra Road, Forbes Park, Makati,
Rizal; (2) 15 Narra Road, Forbes Park, Makati, Rizal; and (3) 8 Urdaneta Avenue,
Urdaneta Village, Makati, Rizal.„ phï„.ñët
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respondents.

Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David
for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P.
de Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason
and Solicitor C. Padua for respondents.

c O 

Upon application of the officers of the government named on the margin1 ² hereinafter
referred to as Respondents-Prosecutors ² several judges2 ² hereinafter referred to
as Respondents-Judges ² issued, on different dates,3 a total of 42 search warrants
against petitioners herein4 and/or the corporations of which they were officers,5
directed to the any peace officer, to search the persons above-named and/or the
premises of their offices, warehouses and/or residences, and to seize and take
possession of the following personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts,


ledgers, journals, portfolios, credit journals, typewriters, and other documents
and/or papers showing all business transactions including disbursements
receipts, balance sheets and profit and loss statements and Bobbins (cigarette
wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the
offense," or "used or intended to be used as the means of committing the offense,"
which is described in the applications adverted to above as "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal
Code."

Alleging that the aforementioned search warrants are null and void, as contravening
the Constitution and the Rules of Court ² because, inter alia: (1) they do not describe
with particularity the documents, books and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3) the warrants were issued to fish
evidence against the aforementioned petitioners in deportation cases filed against
them; (4) the searches and seizures were made in an illegal manner; and (5) the
documents, papers and cash money seized were not delivered to the courts that
issued the warrants, to be disposed of in accordance with law ² on March 20, 1962,
said petitioners filed with the Supreme Court this original action for certiorari,
prohibition, mandamus and injunction, and prayed that, pending final disposition of the
c    


present case, a writ of preliminary injunction be issued restraining Respondents-
Prosecutors, their agents and /or representatives from using the effects seized as
aforementioned or any copies thereof, in the deportation cases already adverted to,
and that, in due course, thereafter, decision be rendered quashing the contested
search warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in
accordance with Section 3, Rule 67, of the Rules of Court, the documents, papers,
things and cash moneys seized or confiscated under the search warrants in question.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search


warrants are valid and have been issued in accordance with law; (2) that the defects of
said warrants, if any, were cured by petitioners' consent; and (3) that, in any event, the
effects seized are admissible in evidence against herein petitioners, regardless of the
alleged illegality of the 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 partially lifted or
dissolved, insofar as the papers, documents and things seized from the offices of the
corporations above mentioned are concerned; but, the injunction was maintained as
regards the papers, documents and things found and seized in the residences of
petitioners herein.7

Thus, the documents, papers, and things seized under the alleged authority of the
warrants in question may be split into two (2) major groups, namely: (a) those found
and seized in the offices of the aforementioned corporations, and (b) those found and
seized in the residences of petitioners herein.

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 made in pursuance
thereof, for the simple reason that said corporations have their respective personalities,
separate and distinct from the personality of herein petitioners, regardless of the
amount of shares of stock or of the interest of each of them in said corporations, and
whatever the offices they 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
thereby,9 and that the objection to an unlawful search and seizure is purely personal
and cannot be availed of by third parties. 10 Consequently, petitioners herein may not
validly object to the use in evidence against them of the documents, 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 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. 11 Indeed, it
has been held:

. . . that the Government's action in gaining possession of papers belonging to


the corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the
other defendants. Next, it is clear that a question of the lawfulness of a seizure
can be raised only by one hose rights have been invaded. Certainly, such a
seizure, if unlawful, could not affect the constitutional rights of defendants hose
property had not been seized or the privacy of hose homes had not been
disturbed; nor could they claim for themselves the benefits of the Fourth
c     

Amendment, when its violation, if any, was with reference to the 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 evidence based on an alleged unlawful search
and seizure does not extend to the personal defendants but embraces only the
corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs.
United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

With respect to the documents, papers and things seized in the residences of
petitioners herein, the aforementioned resolution of June 29, 1962, lifted the writ of
preliminary injunction previously issued by this Court, 12 thereby, in effect, restraining
herein Respondents-Prosecutors from using them in evidence against petitioners
herein.

In connection with said documents, papers and things, two (2) important questions
need be settled, namely: (1) whether the search warrants in question, and the
searches and seizures made under the authority thereof, are valid or not, and (2) if the
answer to the preceding question is in the negative, whether said documents, papers
and things may be used in evidence against petitioners herein.„ phï„.ñët

Petitioners maintain that the aforementioned search warrants are in the nature of
general warrants and that accordingly, the seizures effected upon the authority there of
are null and void. In this connection, the Constitution 13 provides:

The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no
warrants shall issue but upon probable cause, to be determined by the judge
after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the
persons or things to be seized.

Two points must be stressed in connection with this constitutional mandate, namely:
(1) that no warrant shall issue but upon probable cause, to be determined by the judge
in the manner set forth in said provision; and (2) that the warrant shall particularly
describe the things to be seized.

None of these requirements has been complied with in the contested warrants. Indeed,
the same were issued upon applications stating that the natural and juridical person
therein named had committed a "violation of Central Ban Laws, Tariff and Customs
Laws, Internal Revenue (Code) and Revised Penal Code." In other words, no specific
offense had been alleged in said applications. The averments thereof with respect to
the offense committed were abstract. As a consequence, it was impossible for the
judges who issued the warrants to have found the existence of probable cause, for the
same presupposes the introduction of competent proof that the party against whom it is
sought has performed particular acts, or committed specific omissions, violating a
given provision of our criminal laws. As a matter of fact, the applications involved in this
case do not allege any specific acts performed by herein petitioners. It would be the
legal heresy, of the highest order, to convict anybody of a "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code,"
² as alleged in the aforementioned applications ² without reference to any
determinate provision of said laws or
c     

To uphold the validity of the warrants in question would be to wipe out completely one
of the most fundamental rights guaranteed in our Constitution, for it would place the
sanctity of the domicile and the privacy of communication and correspondence at the
mercy of the whims caprice or passion of peace officers. This is precisely the evil
sought to be remedied by the constitutional provision above quoted ² to outlaw the
so-called general warrants. It is not difficult to imagine what would happen, in times of
keen political strife, when the party in power feels that the minority is likely to wrest it,
even though by legal means.

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 Rule 122 of the
former Rules of Court 14 by providing in its counterpart, under the Revised Rules of
Court 15 that "a search warrant shall not issue but upon probable cause in connection
ith one specific offense." Not satisfied with this qualification, the Court added thereto
a paragraph, directing that "no search warrant shall issue for more than one specific
offense."

The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be
searched for and seized, to wit:

Books of accounts, financial records, vouchers, journals, correspondence,


receipts, ledgers, portfolios, credit journals, typewriters, and other documents
and/or papers showing all business transactions including disbursement receipts,
balance sheets and related profit and loss statements.

Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights ² that the things to be seized
be particularly described ² as well as tending to defeat its major objective: the
elimination of general warrants.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors
maintain that, even if the searches and seizures under consideration were
unconstitutional, the documents, papers and things thus seized are admissible in
evidence against petitioners herein. Upon mature deliberation, however, we are
unanimously of the opinion that the position taken in the Moncado case must be
abandoned. Said position was in line with the American common law rule, that the
criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against unreasonable
searches and seizures is protected by means other than the exclusion of evidence
unlawfully obtained, 17 such as the common-law action for damages against the
searching officer, against the party who procured the issuance of the search warrant
and against those assisting in the execution of an illegal search, their criminal
punishment, resistance, without liability to an unlawful seizure, and such other legal
remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and
eventually adopted the exclusionary rule, realizing that this is the only practical means
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of enforcing the constitutional injunction against unreasonable searches and seizures.
In the language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass
against the offending official may have been protection enough; but that is true
no longer. Only in case the prosecution which itself controls the seizing officials,
knows that it cannot profit by their rong ill that rong be repressed.18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

If letters and private documents can thus be seized and held and used in
evidence against a citizen accused of an offense, the protection of the 4th
Amendment, declaring his rights to be secure against such searches and
seizures, is of no value, and, so far as those thus placed are concerned, might as
well be stricken from the Constitution. The efforts of the courts and their officials
to bring the guilty to punishment, praiseorthy as they are, are not to be aided by
the sacrifice of those great principles established by years of endeavor and
suffering hich have resulted in their embodiment in the fundamental la of the
land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the
same Federal Court. 20 After reviewing previous decisions thereon, said Court held, in
Mapp vs. Ohio (supra.):

. . . Today we once again examine the Wolf's constitutional documentation of the


right of privacy free from unreasonable state intrusion, and after its dozen years
on our books, are led by it to close the only courtroom door remaining open to
evidence secured by official lawlessness in flagrant abuse of that basic right,
reserved to all persons as a specific guarantee against that very same unlawful
conduct. We hold that all evidence obtained by searches and seizures in violation
of the Constitution is, by that same authority, inadmissible in a State.

Since the Fourth Amendment's right of privacy has been declared enforceable
against the States through the Due Process Clause of the Fourteenth, it is
enforceable against them by the same sanction of exclusion as it used against
the Federal Government. Were it otherwise, then just as without the Weeks rule
the assurance against unreasonable federal searches and seizures would be "a
form of words," valueless and underserving of mention in a perpetual charter of
inestimable human liberties, so too, ithout that rule the freedom from state
invasions of privacy ould be so ephemeral and so neatly severed from its
conceptual nexus ith 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 that the Court held in Wolf that the amendment was
applicable to the States through the Due Process Clause, the cases of this Court
as we have seen, had steadfastly held that as to federal officers the Fourth
Amendment included the exclusion of the evidence seized in violation of its
provisions. Even Wolf "stoutly adhered" to that proposition. The right to when
conceded operatively enforceable against the States, was not susceptible of
destruction by avulsion of the sanction upon which its protection and enjoyment
had always been deemed dependent under the Boyd, Weeks and Silverthorne
c     

Cases. Therefore, in extending the substantive protections of due process to all
constitutionally unreasonable searches ² state or federal ² it was logically and
constitutionally necessarily that the exclusion doctrine ² an essential part of the
right to privacy ² be also insisted upon as an essential ingredient of the right
newly recognized by the Wolf Case. In short, the admission of the ne
constitutional Right by Wolf could not tolerate denial of its most important
constitutional privilege, namely, the exclusion of the evidence hich an accused
had been forced to give by reason of the unlaful seizure. To hold otherise is to
grant the right but in reality to ithhold its privilege and enjoyment. Only last year
the Court itself recognized that the purpose of the exclusionary rule to "is to deter
² to compel respect for the constitutional guaranty in the only effectively
available ay ² by removing the incentive to disregard it" . . . .

The ignoble shortcut to conviction left open to the State tends to destroy the
entire system of constitutional restraints on which the liberties of the people rest.
Having once recognized that the right to privacy embodied in the Fourth
Amendment is enforceable against the States, and that the right to be secure
against rude invasions of privacy by state officers is, therefore constitutional in
origin, e can no longer permit that right to remain an empty promise. Because it
is enforceable in the same manner and to like effect as other basic rights secured
by its Due Process Clause, e can no longer permit it to be revocable at the
him of any police officer ho, in the name of la enforcement itself, chooses to
suspend its enjoyment. Our decision, founded on reason and truth, gives to the
individual no more than that hich the Constitution guarantees him to the police
officer no less than that to hich honest la enforcement is entitled, and, to the
courts, that judicial integrity so necessary in the true administration of justice.
(emphasis ours.)

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit
of the constitutional injunction against unreasonable searches and seizures. To be
sure, if the applicant for a search warrant has competent evidence to establish
probable cause of the commission of a given crime by the party against whom the
warrant is intended, then there is no reason why the applicant should not comply with
the requirements of the fundamental law. Upon the other hand, if he has no such
competent evidence, then it is not possible for the Judge to find that there is probable
cause, and, hence, no justification for the issuance of the warrant. The only possible
explanation (not justification) for its issuance is the necessity of fishing evidence of the
commission of a crime. But, then, this fishing expedition is indicative of the absence of
evidence to establish a probable cause.

Moreover, the theory that the criminal prosecution of those who secure an illegal
search warrant and/or make unreasonable searches or seizures would suffice to
protect the constitutional guarantee under consideration, overlooks the fact that
violations thereof are, in general, committed By agents of the party in power, for,
certainly, those belonging to the minority could not possibly abuse a power they do not
have. Regardless of the handicap under which the minority usually ² but,
understandably ² finds itself in prosecuting agents of the majority, one must not lose
sight of the fact that the psychological and moral effect of the possibility 21 of securing
their conviction, is watered down by the pardoning power of the party for whose benefit
the illegality had been committed.
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In their Motion for Reconsideration and Amendment of the Resolution of this Court
dated June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen
Apartments, House No. 2008, Dewey Boulevard, House No. 1436, Colorado Street,
and Room No. 304 of the Army-Navy Club, should be included among the premises
considered in said Resolution as residences of herein petitioners, Harry S. Stonehill,
Robert P. Brook, John J. Brooks and Karl Beck, respectively, and that, furthermore, the
records, papers and other effects seized in the offices of the corporations above
referred to include personal belongings of said petitioners and other effects under their
exclusive possession and control, for the exclusion of which they have a standing
under the latest rulings of the federal courts of federal courts of the United States. 22

We note, however, that petitioners' theory, regarding their alleged possession of and
control over the aforementioned records, papers and effects, and the alleged
"personal" nature thereof, has Been Advanced, not in their petition or amended petition
herein, but in the Motion for Reconsideration and Amendment of the Resolution of
June 29, 1962. In other words, said theory would appear to be readjustment of that
followed in said petitions, to suit the approach intimated in the Resolution sought to be
reconsidered and amended. Then, too, some of the affidavits or copies of alleged
affidavits attached to said motion for reconsideration, or submitted in support thereof,
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.


c     

à   -. .! 6- -

(1<àà  =>petitioner,


vs.
!!àà!(!

à!!!1!!
!3!! 3!!2 
! 
à $* respondents.

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

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

O 

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 accordance with said executive orders by the
Presidential Commission on Good Government and/or its Commissioners and agents,
affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, 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 Commission, hereafter simply referred to
as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good


Government, by authority of the President of the Philippines, you are
hereby directed to sequester the following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering


Island Shipyard and Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management


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8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of


these companies' business activities.

2. To ensure the continuity of these companies as going concerns, the care


and maintenance of these assets until such time that the Office of the
President through the Commission on Good Government should decide
otherwise.

3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the
Military/Police authorities, and such other acts essential to the achievement
of this sequestration order. 

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting 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 production of certain documents, to
wit:

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to


1986

2.4. Minutes of the Regular and Special Meetings of the Board


of Directors from 1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to


1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings


from 1973 to 1986 duly certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and
others from 1973 to December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.
c     

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized
signatories for withdrawals thereof.

10. Schedule of company investments and placements. 6

The letter closed with the warning that if the documents were not submitted within five
days, the officers would be cited for "contempt in pursuance with Presidential
Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as


BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member
of the task force assigned to carry out the basic sequestration order. He sent a letter to
BASECO's Vice-President for Finance,  terminating the contract for security services
within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS"
and "other civilian security agencies," CAPCOM military personnel having already been
assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck
Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine
Corporation," advising of the amendment in part of their 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." 

d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf
of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the
BASECO wharf at Engineer Island, allegedly then in poor condition, avowedly to
"optimize its utilization and in return maximize the revenue which would flow into the
government coffers," in consideration of Deltamarine's being granted "priority in using
the improved portion of the wharf ahead of anybody" and exemption "from the payment
of any charges for the use of wharf including the area where it may install its bagging
equipments" "until the improvement remains in a condition suitable for port operations."
.
It seems however that this contract was never consummated. Capt. Jorge B.
Siacunco, "Head- (PCGG) BASECO Management Team," advised Deltamarine by
letter dated July 30, 1986 that "the new management is not in a position to honor the
said contract" and thus "whatever improvements * * (may be introduced) shall be
deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 
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e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG
agent, Mayor Melba O. Buenaventura, "to plan and implement progress towards
maximizing the continuous operation of the BASECO 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 agreement to this effect having been executed by them on
September 17, 1986. -

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound,"
and in this connection, to dispose of or sell "metal scraps" and other materials,
equipment and machineries no longer usable, subject to specified guidelines and
safeguards including audit and verification.

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional
takeover by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their
affiliated companies."  Diaz invoked the provisions of Section 3 (c) of Executive Order
No. 1, empowering the Commission ²

* * To provisionally takeover in the public interest or to prevent its disposal


or dissipation, business enterprises and properties taken over by the
government of the Marcos Administration or by entities or persons close to
former President Marcos, until the transactions leading to such acquisition
by the latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt.


Siacunco, and was given the following powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the


companies;

4. Ensures that the assets of the companies are not dissipated and used
effectively and efficiently; revenues are duly accounted for; and disburses
funds only as may be necessary;

5. Does actions including among others, seeking of military support as may


be necessary, that will ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good


Government on all aspects related to this take-over order.

h. Termination of Services of BASECO Officers


c    


Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises
M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of
their services by the PCGG. 5

2. Petitioner's Plea and Postulates

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. More particularly,
BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders
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 BASECO executives.


a. Re Executive Orders No. „ and 2, and the Sequestration and Takeover


Orders

While BASECO concedes that "sequestration ithout resorting to judicial action, might
be made ithin the context of Executive Orders Nos. „ and 2 before March 25, „86
when the Freedom Constitution was promulgated, 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 the same ruler opted to promulgate the Freedom Constitution
on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the
1973 Constitution was adopted providing, among others, that "No person shall be
deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec.
1)." 6

It declares that its objection to the constitutionality of the Executive Orders "as well as
the Sequestration Order * * and Takeover Order * * issued purportedly under the
authority of said Executive Orders, rests on four fundamental considerations: First, no
notice and hearing was accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency and therefore
not competent to act as prosecutor and judge in the same cause; Third, there is
nothing in the 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 persons, and in disregard
of the constitutional presumption of innocence and general rules and procedures, they
constitute a Bill of Attainder." 

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 

c. Re PCGG's Exercise of Right of Onership and Management

BASECO further contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs by ²
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1) terminating its contract for security services with Fairways & Anchor, without the
consent and against the will of the contracting parties; and amending the mode of
payment of entry fees stipulated in its Lease Contract with National Stevedoring &
Lighterage Corporation, these acts being in violation of the non-impairment clause of
the constitution; .

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO
premises; 

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its
rock quarry at Sesiman, Mariveles; -

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment,
machinery and other materials; 

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their
affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP


Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal
Dept. Mgr. Benito R. Cuesta I; 

7) planning to elect its own Board of Directors; 65

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 on May
11, 1986; 6

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed


to have been buried therein. 66

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and
freeze orders have been engendered by misapprehension, or incomplete
comprehension if not indeed downright ignorance of the law governing these remedies.
It is needful that these misconceptions and doubts be dispelled so that uninformed and
useless debates about them may be avoided, and arguments tainted b sophistry or
intellectual dishonesty be quickly exposed and discarded. Towards this end, this
opinion will essay an exposition of the law on the matter. In the process many of the
objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command
of the Provisional Constitution, ordained by Proclamation No. 3, 6 that the President-in
the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" ² "shall give priority to
measures to achieve the mandate of the people," among others to [r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect
c     

the interest of the people through orders of sequestration or freezing of assets or
accounts." 6

b. Executive Order No. „

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten 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." 6. Upon these premises, the Presidential Commission on Good
Government was created, 6 "charged with the task of assisting the President in regard
to (certain specified) matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President


Ferdinand E. Marcos, his immediate family, relatives, subordinates and
close associates, whether located in the Philippines or abroad, including
the takeover or sequestration of all business enterprises and entities owned
or controlled by them, during his administration, directly or through
nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, connections or relationship. 6-

In relation to the takeover or sequestration that it was authorized to undertake in the


fulfillment of its mission, the PCGG was granted "power and authority" to do the
following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or


possession any building or office wherein any ill-gotten wealth or properties
may be found, and any records pertaining thereto, in order to prevent their
destruction, concealment or disappearance which would frustrate or
hamper the investigation or otherwise prevent the Commission from
accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal


or dissipation, business enterprises and properties taken over by the
government of the Marcos Administration or by entities or persons close to
former President Marcos, until the transactions leading to such acquisition
by the latter can be disposed of by the appropriate authorities.

3. To enjoin or restrain any actual or threatened commission of acts by any


person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual the efforts of the Commission to carry out its
task under this order. 6

So that it might ascertain the facts germane to its objectives, it was granted power to
conduct investigations; require submission of evidence by subpoenae ad testificandum
and duces tecum; administer oaths; punish for contempt. 6 It was given power also to
promulgate such rules and regulations as may be necessary to carry out the purposes
of * * (its creation). 5

c. Executive Order No. 2

Executive Order No. 2 gives additional and more specific data and directions
respecting "the recovery of ill-gotten properties amassed by the leaders and supporters
of the previous regime." It declares that:
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1) * * the Government of the Philippines is in possession of evidence
shoing that there are assets and properties purportedly pertaining to
former Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies,
agents or nominees which had been or were acquired by them directly or
indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of their office, authority, influence, connections
or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the
Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits,
trust accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and
personal properties in the Philippines and in various countries of the world."


Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former


President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their
close relatives, subordinates, business associates, dummies, agents, or
nominees have any interest or participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their


close relatives, subordinates, business associates, duties, agents, or
nominees from transferring, conveying, encumbering, concealing or
dissipating said assets or properties in the Philippines and abroad, pending
the outcome of appropriate proceedings in the Philippines to determine
whether any such assets or properties were acquired by them through or
as a result of improper or illegal use of or the conversion of funds belonging
to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority, relationship, connection
or influence to unjustly enrich themselves at the expense and to the grave
damage and prejudice of the Filipino people and the Republic of the
Philippines;

3) prohibited "any person from transferring, conveying, encumbering or


otherise depleting or concealing such assets and properties or from
assisting or taking part in their transfer, encumbrance, concealment or
dissipation under pain of such penalties as are prescribed by law;" and

4) required "all persons in the Philippines holding such assets or properties,


whether located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same to the Commission
on Good Government within thirty (30) days from publication of * (the)
Executive Order, * *. 6

d. Executive Order No. „


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A third executive order is relevant: Executive Order No. 14,  by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other
government agencies, * * to file and prosecute all cases investigated by it * * as may
be warranted by its findings."  All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayan which shall have exclusive and original jurisdiction thereof." .
Executive Order No. 14 also pertinently provides that civil suits for restitution,
reparation of damages, or indemnification for consequential damages, forfeiture
proceedings provided for under Republic Act No. 1379, or any other civil actions under
the Civil Code or other existing laws, in connection with * * (said Executive Orders
Numbered 1 and 2) may be filed separately from and proceed independently of any
criminal proceedings and may be proved by a preponderance of evidence;" and that,
moreover, the "technical rules of procedure and evidence shall not be strictly applied
to* * (said)civil cases." 

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and


supporters of the previous regime"; -

a) more particularly, that ill-gotten wealth (was) accumulated by former


President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, * * located in the Philippines or abroad,
* * (and) business enterprises and entities (came to be) owned or controlled
by them, during * * (the Marcos) administration, directly or through
nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, Connections or relationship; 

b) otherwise stated, that "there are assets and properties purportedly


pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the Government of
the Philippines or any of its branches, instrumentalities, enterprises, banks
or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people
and the Republic of the Philippines"; 

c) that "said assets and properties are in the form of bank accounts.
deposits, trust. accounts, shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates, and other kinds of real and
personal properties in the Philippines and in various countries of the world;"
5
and

2) that certain "business enterprises and properties (were) taken over by


the government of the Marcos Administration or by entities or persons
close to former President Marcos. 

6. Government's Right and Duty to Recover All Ill-gotten Wealth


c     

There can be no debate about the validity and eminent propriety of the Government's
plan "to recover all ill-gotten wealth."

Neither can there be any debate about the proposition that assuming the above
described factual premises of the Executive Orders and Proclamation No. 3 to be true,
to be demonstrable by competent evidence, the recovery from Marcos, his family and
his dominions of the assets and properties involved, is not only a right but a duty on the
part of Government.

But however plain and valid that right and duty may be, still a balance must be sought
with the equally compelling necessity that a proper respect be accorded and adequate
protection assured, the fundamental rights of private property and free enterprise which
are deemed pillars of a free society such as ours, and to which all members of that
society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as


its necessary components freedom of conscience, freedom of expression,
and freedom in the pursuit of happiness. Along ith these freedoms are
included economic freedom and freedom of enterprise within reasonable
bounds and under proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly recognizes the preferred
position which real estate has occupied in law for ages. Property is bound
up ith every aspect of social life in a democracy as democracy is
conceived in the Constitution. The Constitution realizes the indispensable
role which property, owned in reasonable quantities and used legitimately,
plays in the stimulation to economic effort and the formation and growth of
a solid social middle class that is said to be the bulwark of democracy and
the backbone of every progressive and happy country. 6

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be


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 wealth may be validly
and properly adjudged and consummated; although there are some who maintain that
the fact-that an immense fortune, and "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," 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 proof
thereof, Be this as it may, the requirement of evidentiary substantiation has been
expressly acknowledged, and the procedure to be followed explicitly laid down, in
Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending


Suits

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 is an obvious and
imperative need for preliminary, provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of the assets and properties subject of
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the suits, or to restrain or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are:
(1) sequestration; (2) freeze orders; and (3) provisional takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances


of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where
"business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos." 

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to
be "ill-gotten" means to place or cause to be placed under its possession or control
said property, or any building or office wherein any such property and any records
pertaining thereto may be found, including "business enterprises and entities,"-for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise
conserving and preserving, the same-until it can be determined, through appropriate
judicial proceedings, whether the property was in truth will- gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds belonging
to the Government or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of official position, authority
relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State.  And this, too, is the sense in
which the term is commonly understood in other jurisdictions. .

b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property alleged
to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise
depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation."  In other words, it commands the
possessor to hold the 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 the possessor or ostensible owner of property is enjoined not to deliver, transfer,
or otherwise dispose of any effects or credits in his possession or control, and thus
becomes in a sense an involuntary depositary thereof. -

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill gotten" "business enterprises and entities" (going
concerns, businesses in actual operation), generally, as to which the remedy of
sequestration applies, it being necessarily inferred that the remedy entails no
interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the
government government of the Marcos Administration or by entities or persons close to
him," in particular, as to which a "provisional takeover" is authorized, "in the public
interest or to prevent disposal or dissipation of the enterprises."  Such a "provisional
takeover" imports something more than sequestration or freezing, more than the
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placing of the business under physical possession and control, albeit without or with
the least possible interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in
fine the assumption of control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is allowed only as regards
"business enterprises * * taken over by the government of the Marcos Administration or
by entities or persons close to former President Marcos."

d. No Divestment of Title Over Property Seized

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 qualifies the remedy of
take-over by the adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings
of the primary 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 remedies is
meant to deprive the owner or possessor of his title or any right to the property
sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person. This can be done only for the causes and by the
processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally 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 sequestration of property the
acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities."  Executive Order
No. 2 declares that the assets or properties therein mentioned shall remain frozen
"pending the outcome of appropriate proceedings in the Philippines to determine
hether any such assets or properties ere acquired" by illegal means. Executive
Order No. 14 makes clear that judicial proceedings are essential for the resolution of
the basic issue of whether or not particular assets are "ill-gotten," and resultant
recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional


Command

There is thus no cause for the apprehension voiced by BASECO .5 that sequestration,
freezing or provisional takeover is designed to be an end in 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 permanent, rather than a passing, transitional state of
affairs. That this is not so is quite explicitly declared by the governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the
duration of these provisional remedies. Section 26 of its Transitory Provisions, . lays
down the relevant rule in plain terms, apart from extending ratification or confirmation
(although not really necessary) to the institution by presidential fiat of the remedy of
sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under


Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-
c     

gotten wealth shag remain operative for not more than eighteen months
after the ratification of this Constitution. However, in the national interest,
as certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a


prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For orders
issued before the ratification of this Constitution, the corresponding judicial
action or proceeding shall be filed within six months from its ratification. For
those issued after such ratification, the judicial action or proceeding shall
be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no


judicial action or proceeding is commenced as herein provided. .6

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the
provisional remedy of preliminary attachment, or receivership. . By attachment, a
sheriff seizes property of a defendant in a civil suit so that it may stand as security for
the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally or otherwise, pending the action. . By receivership,
property, real or personal, which is subject of litigation, is placed in the possession and
control of a receiver appointed by the Court, who shall conserve it pending final
determination of the title or right of possession over it. .. All these remedies ²
sequestration, freezing, provisional, takeover, attachment and receivership ² are
provisional, temporary, designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are 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 Internal Revenue has been by law
authorized to issue against property of a delinquent taxpayer. . BASECO itself
declares that it has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) 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, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the
Constitution." .- It is, to be sure, a proposition on which there can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of


personal property in replevin suits, sequestration and provisional takeover writs may
issue ex parte. . And as in preliminary attachment, receivership, and delivery of
personality, no objection of any significance may be raised to the ex parte issuance of
an order of sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the constitutionally
expressed "mandate of the people to recover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people;"
.
as well as the obvious need to avoid alerting suspected possessors of "ill-gotten
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wealth" and thereby cause that disappearance or loss of property precisely sought to
be prevented, and the fact, just as self-evident, that "any transfer, disposition,
concealment or disappearance of said assets and properties would frustrate, obstruct
or hamper the efforts of the Government" at the just recovery thereof. 5

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership,


there exist a prima facie factual foundation, at least, for the sequestration, freeze or
takeover order, and adequate and fair opportunity to contest it and endeavor to cause
its negation or nullification. 

Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of
fairness and due process." 6 Executive Order No. 2 declares that with respect to
claims on allegedly "ill-gotten" assets and properties, "it is the position of the new
democratic government that President Marcos * * (and other parties affected) be
afforded fair opportunity to contest these claims before appropriate Philippine
authorities."  Section 7 of the Commission's Rules and Regulations provides that
sequestration or freeze (and takeover) orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe that the issuance
thereof is warranted.  A similar requirement is now found in Section 26, Art. XVIII of
the 1987 Constitution, which requires that a "sequestration or freeze order shall be
issued only upon showing of a prima facie case." .

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by
which a party may seek to set aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of


sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5) days
from receipt of the writ or order, or in the case of a hold order, from date of
knowledge thereof.

SECTION 6. Procedure for revie of rit or order.-After due hearing or


motu proprio for good cause shown, the Commission may lift the writ or
order unconditionally or subject to such conditions as it may deem
necessary, taking into consideration the evidence and the circumstance of
the case. The resolution of the commission may be appealed by the party
concerned to the Office of the President of the Philippines within fifteen (15)
days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or regulation as a condition to warrant the
sequestration or freezing of property contemplated in the executive orders in question,
it would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails
c    


and official acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the
validity and propriety of sequestration, freeze and takeover orders, it should be
dispelled by the fact that these particular remedies and the authority of the PCGG to
issue them have received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of
the President to enact "measures to achieve the mandate of the people to * * * (recover
ill- gotten properties amassed by the leaders and supporters of the previous 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 26, Article XVIII of the
1987 Constitution - treats of, and ratifies the "authority to issue sequestration or freeze
orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the 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,"  and as "the most essential, insistent
and illimitable of powers * * in the promotion of general welfare and the public interest,"

and said to be co-extensive with self-protection and * * not inaptly termed (also)
the'law of overruling necessity." "-5

10. PCGG not a "Judge"; General Functions

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 function is to
conduct investigations in order to collect evidence establishing instances of "ill-gotten
wealth;" issue sequestration, and such orders as may be warranted by the evidence
thus collected and as may be necessary to preserve and conserve the assets of which
it takes custody and control and prevent their disappearance, loss or dissipation; and
eventually file and prosecute in the proper court of competent jurisdiction all cases
investigated 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, 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 designated court, in this case, the
Sandiganbayan. - There can therefore be no serious regard accorded to the
accusation, leveled by BASECO, -6 that the PCGG plays the perfidious role of
prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

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.

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 BASECO had taken over the
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business and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.

12. Organization and Stock Distribution of BASECO

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 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." - 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 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.
-
The same articles Identify the incorporators, numbering fifteen (15), as follows: (1)
Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5)
Generoso Tanseco, (6) Emilio T. Yap, (7) 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.

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 BASECO's Stock and
Transfer Book. -. Their names and the number of shares respectively held by them are
as follows:

1. Jose A. Rojas 1,248 shares


2. Severino G. de la Cruz 1,248 shares
3. Emilio T. Yap 2,508 shares
4. Jose Fernandez 1,248 shares
5. Jose Francisco 128 shares
6. Manuel S. Mendoza 96 shares
7. Anthony P. Lee 1,248 shares
8. Hilario M. Ruiz 32 shares
9. Constante L. Fariñas 8 shares
10. Fidelity Management, 65,882 shares
Inc.
11. Trident Management 7,412 shares
12. United Phil. Lines 1,240 shares
13. Renato M. Tanseco 8 shares
14. Fidel Ventura 8 shares
15. Metro Bay Drydock 136,370 shares
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16. Manuel Jacela 1 share
17. Jonathan G. Lu 1 share
18. Jose J. Tanchanco 1 share
19. Dioscoro Papa 128 shares
20. Edward T. Marcelo 4 shares
TOTAL 218,819 shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard &
Steel Corporation, or NASSCO, a government-owned or controlled corporation, the
latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS),
and ² except for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation ² all its structures, buildings, shops, quarters,
houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a
"Contract of Purchase and Sale with Chattel Mortgage" executed on February 13,
1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered
to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four
(24) hours from completion of the inventory undertaken pursuant to the contract. The
balance of P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semi-annual
installments over a term of nine (9) years, payment to commence after a grace period
of two (2) years from date of turnover of the shipyard to BASECO. -

14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to


P24,311,550.00, about eight (8) months later. A document to this effect was executed
on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO
by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines,
as General Manager. -- This agreement bore, at the top right corner of the first page,
the word "APPROVED" in the handwriting of President Marcos, followed by his usual
full signature. The document recited that a down payment of P5,862,310.00 had been
made by BASECO, and the balance of P19,449,240.00 was payable in equal semi-
annual installments over nine (9) years after a grace period of two (2) years, with
interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in


Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of
which, as set out in the document of sale, P2,000.000.00 was paid upon its execution,
and the balance stipulated to be payable in installments. -

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with
the intervention of President Marcos, acquired ownership of the rest of the assets of
NASSCO which had not been included in the first two (2) purchase documents. This
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was accomplished by a deed entitled "Contract of Purchase and Sale," - which, like
the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper
right-hand corner of its first page, the handwritten notation of President Marcos
reading, "APPROVED, July 29, 1973," and underneath it, his usual full signature.
Transferred to BASECO were NASSCO's "ownership and all its titles, rights and
interests over all equipment and facilities including structures, buildings, shops,
quarters, houses, plants and expendable or semi-expendable assets, located at the
Engineer Island, known as the Engineer Island Shops, including all the equipment of
the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to
BASECO but retained by BASECO and all other selected equipment and machineries
of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed
itself to cooperate with BASECO for the acquisition from the National Government or
other appropriate Government entity of Engineer Island. Consideration for the sale was
set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been made,
and the balance was stipulated to be paid at 7% interest per annum in equal semi
annual installments over a term of nine (9) years, to commence after a grace period of
two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the
general manager, Mr. David R. Ines.

17. Loans Obtained

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 $19,000,000.00," to pay for
"Japanese made heavy equipment (brand new)." 5 On September 3, 1975, it got
another loan also from the NDC in the amount of P30,000,000.00 [id.). And on January
28, 1976, it got still another loan, this time from the GSIS, in the sum of
P12,400,000.00.  The claim has been made that not a single centavo has been paid
on these loans. 6

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding
BASECO. The first was contained in a letter dated September 5, 1977 of Hilario M.
Ruiz, BASECO president.  The second was embodied in a confidential memorandum
dated September 16, 1977 of Capt. A.T. Romualdez.  They further disclose the fine
hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by
affinity.

a. BASECO President's Report

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 some time and
expressed the fear that if that state of affairs persisted, BASECO would not be able to
pay its debts to the Government, which at the time stood at the not inconsiderable
amount of P165,854,000.00. . He suggested that, to "save the situation," there be a
"spin-off (of their) shipbuilding activities which shall be handled exclusively by an
entirely new corporation to be created;" and towards this end, he informed Marcos that
BASECO was ²

* * inviting NDC and LUSTEVECO to participate by converting the NDC


shipbuilding loan to BASECO amounting to P341.165M and assuming and
converting a portion of BASECO's shipbuilding loans from REPACOM
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amounting to P52.2M or a total of P83.365M as NDC's equity contribution
in the new corporation. LUSTEVECO will participate by absorbing and
converting a portion of the REPACOM loan of Bay Shipyard and Drydock,
Inc., amounting to P32.538M. 

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a


Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."

He advised that five stockholders had "aived and/or assigned their holdings inblank,"
these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw
Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already
dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite
revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in


the stock book prior to the implementation of your instructions to pass a
board resolution to legalize the transfers under SEC regulations;

2. By getting their replacements, the families cannot question us later on;


and

3. We ill oe no further favors from them. -

He also transmitted to Marcos, together with the report, the following documents:

1. Stock certificates indorsed and assigned in blank ith assignments and


aivers; u 

2. The articles of incorporation, the amended articles, and the by-laws of


BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of


land in "Engineer Island", Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO,


covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-


structure and equipment at Mariveles, Bataan;
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6. Contract dated July 16, 1975, between NASSCO and BASECO re-
structure and equipment at Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300


hectares of land at Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC


of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for
the housing facilities for BASECO's rank-and-file employees. 5

Capt. Romualdez also recommended that BASECO's loans be restructured "until such
period when BASECO will have enough orders for ships in order for the company to
meet loan obligations," and that ²

An LOI may be issued to government agencies using floating equipment,


that a linkage scheme be applied to a certain percent of BASECO's net
profit as part of BASECO's amortization payments to make it justifiable for
you, Sir. 

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or


officer of BASECO, yet he has presented a report on BASECO to President Marcos,
and his report demonstrates intimate familiarity with the firm's affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations,


particularly as regards the "spin-off" and the "linkage scheme" relative to "BASECO's
amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary


Geronimo Velasco of the Philippine National Oil Company and Chairman Constante
Fariñas of the National Development Company, 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:

a. Equity participation of government shall be through LUSTEVECO and


NDC in the amount of P115,903,000 consisting of the following obligations
of BASECO hich are hereby authorized to be converted to equity of the
said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting


shares.
c     

For immediate compliance. 6

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two
(22) days after receiving their president's memorandum, Messrs. Hilario M. Ruiz,
Constante L. Fariñas and Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20,
1977.  In it, they undertook to form a shipbuilding corporation to be known as "PHIL-
ASIA SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed was actually
named "Philippine Dockyard Corporation (PDC)." 

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions.
On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the
Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the
Luzon Stevedoring Company (LUSTEVECO), and the National Development Company
(NDC). What is commanded therein is summarized by the Solicitor General, with pithy
and not inaccurate observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations


be transferred to NDC subject to reimbursement by NDC to BASECO (of)
the amount of s allegedly representing the handling and incidental
expenses incurred by BASECO in the installation of said equipment [so
instead of NDC getting paid on its loan to BASECO, it as made to pay
BASECO instead the amount of P„8.285M); 2) the shipbuilding equipment
procured from reparations through EPZA, now in the possession of
BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus)
transferred be invested by LUSTEVECO, acting through PNOC and NDC,
as the government's equity participation in a shipbuilding corporation to be
established in partnership with the private sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's


loan obligation to NDC and REPACOM * * in the total amount of P83.365M
and BSD's REPACOM loan of P32.438M were wiped out and converted
into non-voting preferred shares. .

20. Evidence of Marcos'

Onership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President
Marcos not only exercised control over BASECO, but also that he actually ons well
nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were
218,819 shares of stock outstanding, ostensibly owned by twenty (20) stockholders. 
c     

Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding
136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three
corporations, among themselves, own an aggregate of 209,664 shares of BASECO
stock, or 95.82% of the outstanding stock.

Now, the Solicitor General has drawn the Court's attention to the intriguing
circumstance that found in Malacanang shortly after the sudden flight of President
Marcos, were certificates corresponding to more than ninety-five percent [5%) of all
the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of
assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 5.82% of all BASECO stock), signed by
the owners thereof although not notarized. -

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity


Management Inc. ² which supposedly owns as aforesaid 65,882 shares of
BASECO stock;

2) the deeds of assignment of 2,,5 of the 2,500,000 outstanding


shares of Metro Bay Drydock Corporation ² which allegedly owns 136,370
shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident


Management Co., Inc. ² which allegedly owns 7,412 shares of BASECO
stock, assigned in blank;  and

4) stock certificates corresponding to 207,725 out of the 2„8,8„


outstanding shares of BASECO stock; that is, all but 5 % ² all endorsed in
blank. 

While the petitioner's counsel was quick to dispute this asserted fact, assuring this
Court that the BASECO stockholders were still in possession of their respective stock
certificates and had "never endorsed * * them in blank or to anyone else," 55 that
denial is exposed by his own prior and subsequent recorded statements as a mere
gesture of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a
period of 10 days "to SUBMIT, as undertaken by him, * * the certificates of stock issued
to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 5 Counsel thereafter moved for extension; and in his motion dated October
2, 1986, he declared inter alia that "said certificates of stock are in the possession of
third parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 56On the same day he 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 Certificates, of Stock of
petitioner's stockholders in possession of respondents." 5

In a Manifestation dated October 10, 1986,, 5 the Solicitor General not unreasonably
argued that counsel's aforestated motion to secure copies of the stock certificates
"confirms the fact that stockholders of petitioner corporation are not in possession of * *
(their) certificates of stock," and the reason, according to him, was "that 95% of said
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shares * * have been endorsed in blank and found in Malacañang after the former
President and 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. 5.

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 of the stock certificates alleged to be in
its possession or accessible to it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from notice." 5 In a motion filed on
December 5, 1986, 5- BASECO's counsel made the statement, quite surprising in the
premises, that "it will negotiate with the owners (of the BASECO stock in question) to
allow petitioner to borrow from them, if available, the certificates referred to" but that "it
needs a more sufficient time therefor" (sic). BASECO's counsel however eventually
had to confess inability to produce the originals of the stock certificates, putting up the
feeble excuse that while he had "requested the stockholders to allow * * (him) to
borrow said certificates, * * some of * * (them) claimed that they had delivered the
certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of last
national emergency." 5 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 impressed
on the supposed stockholders the primordial importance of convincing this Court of
their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of
their certificates might at the very least be exhibited to the Court. Under the
circumstances, the Court can only conclude that he could not get the originals from the
stockholders for the simple reason that, as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession, these having already
been assigned in blank to then President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 5 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, 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 basis and no standing whatever to cause
the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as
prayed for in the petition, would in effect be to restore the assets, properties and
business sequestered and taken over by the PCGG to persons who are "dummies,"
nominees or alter egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed
show that the private corporation known as BASECO was "owned or controlled by
former President Ferdinand E. Marcos * * during his administration, * * through
nominees, by taking advantage of * * (his) public office and/or using * * (his) powers,
authority, influence * *," and that NASSCO and other property of the government had
been taken over by BASECO; and the situation justified the sequestration as well as
the provisional takeover of the corporation in the public interest, in accordance with the
terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with
the Sandiganbayan to cause divestment of title thereto from Marcos, and its
adjudication in favor of the Republic pursuant to Executive Order No. 14.
c    

As already earlier stated, this Court agrees that this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration and takeover by the PCGG as being
in accord with the law, and, in view of what has thus far been set out in this opinion,
pronounces to be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not according to the parties
affected prior notice and hearing, or an adequate remedy to impugn, set aside or
otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge
at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill
of attainder. 5 "A bill of attainder is a legislative act which inflicts punishment without
judicial trial."  "Its essence is the substitution of a legislative for a judicial
determination of guilt." 6

In the first place, nothing in the executive orders can be reasonably construed as a
determination or declaration of guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the
amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial
tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the
PCGG. In the second place, no punishment is inflicted by the executive orders, as the
merest glance at their provisions will immediately make apparent. In no sense,
therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and


Seizures

BASECO also contends that its right against self incrimination and unreasonable
searches and seizures had been transgressed by the Order of April 18, 1986 which
required it "to produce corporate records from 1973 to 1986 under pain of contempt of
the Commission if it fails to do so." The order was issued upon the authority of Section
3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring * * the production of such books, papers, contracts, records, statements of
accounts and other documents as may be material to the investigation conducted by
the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to
"require all persons in the Philippines holding * * (alleged "ill-gotten") assets or
properties, whether located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same * *." The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical


persons.

While an individual may lawfully refuse to answer incriminating questions


unless protected by an immunity 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 ofsuchprivileges * * 

Relevant jurisprudence is also cited by the Solicitor General. 

* * corporations are not entitled to all of the constitutional protections which


private individuals have. * * They are not at all ithin the privilege against
self-incrimination, although this court more than once has said that the
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privilege runs very closely with the 4th Amendment's Search and Seizure
provisions. It is also settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that they ill either
incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v.
Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * 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 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 employed, and whether they had been abused, and
demand the production of the corporate books and papers for that purpose.
The defense amounts to this, that an officer of the corporation which is
charged with a criminal violation of the statute may plead the criminality of
such corporation as a refusal to produce its books. To state this proposition
is to answer it. While an individual may lafully refuse to anser
incriminating questions unless protected by an immunity statute, it does not
follo that a corporation, vested ith special privileges and franchises may
refuse to sho its hand hen charged ith an abuse of such privileges.
(Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor
General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14
assures protection to individuals required to produce evidence before the PCGG
against any possible violation of his right against self-incrimination. It gives them
immunity from prosecution on the basis of testimony or information he is compelled to
present. As amended, said Section 4 now provides that ²

xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his
privilege against self-incrimination; but no testimony or other information
compelled under the order (or any information directly or indirectly derived
from such testimony, or other information) may be used against the witness
in any criminal case, except a prosecution for perjury, giving a false
statement, or otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no


application to the case at bar either. There has been no search undertaken by any
agent or representative of the PCGG, and of course no seizure on the occasion
thereof.

24. Scope and Extent of Poers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of
the powers that may be wielded by the PCGG with regard to the properties or
c     

businesses placed under sequestration or provisionally taken over. Obviously, it is not
a question to which an answer can be easily given, much less one which will suffice for
every conceivable situation.

a. PCGG May Not Exercise Acts of Onership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise
acts of dominion over property sequestered, frozen or provisionally taken over. AS
already earlier stressed with no little insistence, the act of 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 the owner thereof. In relation to the
property sequestered, frozen or provisionally taken over, the PCGG is a conservator,
not an oner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike
cases of receivership, for example, no court exercises effective supervision or can
upon due application and hearing, grant authority for the performance of acts of
dominion.

Equally evident is that the resort to the provisional remedies in question should entail
the least possible interference with business operations or activities so that, in the
event that the accusation of the business enterprise being "ill gotten" be not proven, it
may be returned to its rightful owner as far as possible in the same condition as it was
at the time of sequestration.

b. PCGG Has Only Poers of Administration

The PCGG may thus exercise only powers of administration over the property or
business sequestered or provisionally taken over, much like a court-appointed
receiver, . such as to bring and defend actions in its own name; receive rents;
collect debts due; pay outstanding debts; and generally 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 restrain any actual or threatened commission of
acts by any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and secure the assistance
of any office, agency or instrumentality of the government. In the case of
sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already
discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of
manager, or innovator, much less an owner.

c. Poers over Business Enterprises Taken Over by Marcos or Entities or


Persons Close to him; Limitations Thereon

Now, in the special instance of a business enterprise shown by evidence to have been
"taken over by the government of the Marcos Administration or by entities or persons
close to former President Marcos," - the PCGG is given power and authority, as
already adverted to, to "provisionally take (it) over in the public interest or to prevent * *
(its) disposal or dissipation;" and since the term is obviously employed in reference to
going concerns, or business enterprises in operation, something more than mere
physical custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself. But even in this
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special situation, the intrusion into management should be restricted to the minimum
degree necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty, indiscriminate,
unreasoned replacement or substitution of management officials or change of policies,
particularly in respect of viable establishments. In fact, such a replacement or
substitution should be avoided if at all possible, and undertaken only when justified by
demonstrably tenable grounds and in line with the stated objectives of the PCGG. And
it goes without saying that where replacement of management officers may be called
for, the greatest prudence, circumspection, care and attention - should accompany that
undertaking to the end that truly 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 wen meaning. The road to hell, it has been said, is paved with good
intentions. The business is not to be experimented or played around with, not run into
the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost
sight of the ultimate objective of the whole exercise, 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 circumstances that the supervision, administration and
control of business enterprises provisionally taken over may legitimately be exercised.

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the
PCGG may properly exercise the prerogative to vote sequestered stock of
corporations, granted to it by the President of the Philippines through a Memorandum
dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome
of proceedings to determine the ownership of * * (sequestered) shares of stock," "to
vote such shares of stock as it may have sequestered in corporations at all
stockholders' meetings called for the election of directors, declaration of dividends,
amendment of the Articles of Incorporation, etc." The Memorandum should be
construed in such a manner as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same matter. There should be no
exercise of the right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate voting
power. The stock is not to be voted to replace directors, or revise the articles or by-
laws, or otherwise bring about substantial changes in policy, program or practice of the
corporation except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional takeover, i.e., to
prevent the dispersion or undue disposal of the corporate assets. Directors are not to
be voted out simply because the power to do so exists. Substitution of directors is not
to be done without reason or rhyme, should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance or wastage of corporate
property, and always under such circumstances as assure that the replacements are
truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out
of office and elect others in their stead because the evidence showed prima facie that
the former were just tools of President Marcos and were no longer owners of any stock
in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986;
 this Court declared that ²

Petitioner has failed to make out a case of grave abuse or excess of


jurisdiction in respondents' calling and holding of a stockholders' meeting
c     

for the election of directors as authorized by the Memorandum of the
President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly
exercise control and management over what appear to be properties and
assets owned and belonging to the government itself and over which the
persons who appear in this case on behalf of BASECO have failed to show
any right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the
BASECO Board in the management of the company's affairs should henceforth be
guided and governed by the norms herein laid down. They should never for a moment
allow themselves to forget that they are conservators, not owners of the business; they
are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in
the premises, required.

25. No Sufficient Shoing 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,  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.

ap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.


c    

à   66$,$/0$%66

!1 plaintiff-appellee,
vs.
(" defendant-appellant.

Attorney-General Villa-Real for appellant.


Perfecto J. Salas Rodriguez for appellee.

(O 

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 corporation created by Act No. 2705 of the
Philippine Legislature for the purpose of developing the coal industry in the Philippine
Islands and is actually engaged in coal mining on reserved lands belonging to the
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 to refund to the
plaintiff said sum of P12,044.68, with legal interest from the date of the presentation of
the complaint, and costs against the defendant.

The defendant answered denying generally and specifically all the material allegations
of the complaint, except the legal existence and personality of the plaintiff. As a special
defense, the defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff
without protests, and (b) that said sum was due and owing from the plaintiff to the
Government of the Philippine Islands under the provisions of section 1496 of the
Administrative Code and prayed that the complaint be dismissed, with costs against
the plaintiff.

Upon the issue thus presented, the case was brought on for trial. After a consideration
of the evidence adduced by both parties, the Honorable Pedro Conception, judge, held
that the words "lands oned by any person, etc.," in section 15 of Act No. 2719 should
be understood to mean "lands held in lease or usufruct," in harmony with the other
provision of said Act; that the coal lands possessed by the plaintiff, belonging to the
Government, fell within the provisions of section 15 of Act No. 2719; and that a tax of
P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in
said section, was the only tax which should be collected from the plaintiff; and
sentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the
difference between the amount collected under section 1496 of the Administrative
Code and the amount which should have been collected under the provisions of said
section 15 of Act No. 2719. From that sentence the defendant appealed, and now
makes the following assignments of error:

I. The court below erred in holding that section 15 of Act No. 2719 does not refer to
coal lands owned by persons and corporations.

II. The court below erred in holding that the plaintiff was not subject to the tax
prescribed in section 1496 of the Administrative Code.
c    

The question confronting us in this appeal is whether the plaintiff is subject to the taxes
under section 15 of Act No. 2719, or to the specific taxes under section 1496 of the
Administrative Code.

The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705,
for the purpose of developing the coal industry in the Philippine 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 therefor. By said Act, the company
was granted the general powers of a corporation "and such other powers as may be
necessary to enable it to prosecute the business of developing coal deposits in the
Philippine Island and of mining, extracting, transporting and selling the coal contained
in said deposits." (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the
Government of the Philippine Islands is made the majority stockholder, evidently in
order to insure proper government supervision and control, and thus to place the
Government in a position to render all possible encouragement, assistance and help in
the prosecution and furtherance of the company's business.

On May 14, 1917, two months after the passage of Act No. 2705, creating the National
Coal Company, the Philippine Legislature passed Act No. 2719 "to provide for the
leasing and development of coal lands in the Philippine Islands." On October 18, 1917,
upon petition of the National Coal Company, the Governor-General, by Proclamation
No. 39, withdrew "from settlement, entry, sale or other disposition, all coal-bearing
public lands within the Province of Zamboanga, Department of Mindanao and Sulu,
and the Island of Polillo, Province of Tayabas." Almost immediately after the issuance
of said proclamation the National Coal Company took possession of the coal lands
within the said reservation, with an area of about 400 hectares, without 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 29,809 shares, that is, of 99 1/3
per centum of the whole capital stock.

If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner
of the land from which it has mined the coal in question and is 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 contention of the plaintiff leads us to an examination
of the evidence upon the question of the ownership of the land from which the coal in
question was mined. Was the plaintiff the owner of the land from which the coal in
question was mined? If the evidence shows the affirmative, then the judgment should
be affirmed. If the evidence shows that the land does not belong to the plaintiff, then
the judgment should be reversed, unless the plaintiff's rights fall under section 3 of said
Act.

The only witness presented by the plaintiff upon the question of the ownership of the
land in question was Mr. Dalmacio Costas, who stated that he was a member of the
board of directors of the plaintiff corporation; that the plaintiff corporation took
possession of the land in question by virtue of the 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 corporation; that said corporation had received no
permission from the Secretary of Agriculture and Natural Resources; that it took
possession of said lands covering an area of about 400 hectares, from which the coal
in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39).
c    

Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-
General, on the 18th day of October, 1917, and provided: "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 within the Province of Zamboanga,
Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas." It
will be noted that said proclamation only provided that all coal-bearing public lands
within said province and island should be withdrawn from settlement, entry, sale, or
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, 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 proclamation without first obtaining
permission therefor.

The plaintiff is a private corporation. The mere fact that the Government 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 said Act (No. 2705). No provisions of
Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law.
As a private corporation, it has no greater rights, powers or privileges than any other
corporation which might be organized for the same purpose under the Corporation
Law, and certainly it was not the intention of the Legislature to give it a preference or
right or privilege over other legitimate private 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 public lands within the Province of Zamboanga . . . and the
Island of Polillo," it made no provision for the occupation and operation by the plaintiff,
to the exclusion of other persons or corporations who might, under proper permission,
enter upon the operate coal mines.

On the 14th day of May, 1917, and before the issuance of said proclamation, the
Legislature of the Philippine Island in "an Act for the leasing and development of coal
lands in the Philippine Islands" (Act No. 2719), made liberal provision. Section 1 of said
Act provides: "Coal-bearing lands of the 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-bearing lands of the public domain" had been disposed of by
virtue of said proclamation.

Neither is there any provision in Act No. 2705 creating the National Coal Company, nor
in the amendments thereof found in Act No. 2822, which authorizes the National Coal
Company to enter upon any of the reserved coal lands without first having obtained
permission from the Secretary of Agriculture and Natural Resources.laphi„.net

The following propositions are fully sustained by the facts and the law:

(1) The National Coal Company is an ordinary private corporation organized under Act
No. 2705, and has no greater powers nor privileges than the ordinary private
corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and they
do not change the situation here.

(2) It mined on public lands between the month of July, 1920, and the months of
March, 1922, 24,089.3 tons of coal.
c    

(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 on the 15th day of
December, 1922.

(4) It is admitted that it is neither the owner nor the lessee of the lands upon which said
coal was mined.

(5) The proclamation of Francis Burton Harrison, Governor-General, of the 18th day of
October, 1917, by authority of section 1 of Act No. 926, withdrawing from settlement,
entry, sale, or other dispositon all coal-bearing public lands within the Province of
Zamboanga and the Island of Polillo, was not a reservation for the benefit of the
National Coal Company, but for any person or corporation of the Philippine Islands or
of the United States.

(6) That the National Coal Company entered upon said land and mined said coal, so
far as the record shows, without any lease or other authority from either the Secretary
of Agriculture and Natural Resources or any person having the power to grant a leave
or authority.

From all of the foregoing facts we find that the issue is well defined between the
plaintiff and the defendant. The plaintiff contends that it was liable only to pay the
internal revenue and other fees and taxes provided for under section 15 of Act No.
2719; while the defendant contends, under the facts of record, the plaintiff is obliged to
pay the internal revenue duty provided for in section 1496 of the Administrative Code.
That being the issue, an examination of the provisions of Act No. 2719 becomes
necessary.

An examination of said Act (No. 2719) discloses the following facts important for
consideration here:

First. All "coal-bearing lands of the public domain in the Philippine Islands shall not be
disposed of in any manner except as provided in this Act." Second. Provisions for
leasing by the Secretary of Agriculture and Natural Resources of "unreserved,
unappropriated coal-bearing public lands," and the obligation to the Government which
shall be imposed by said Secretary upon the lessee.laphi„.net

Third. The internal revenue duty and tax which must be paid upon coal-bearing lands
owned by any person, firm, association or corporation.

To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty
and tax upon unreserved, unappropriated coal-bearing public lands which may be
leased by the Secretary of Agriculture and Natural Resources; and, second, that said
Act (No. 2719) provides an internal revenue duty and tax imposed upon any person,
firm, association or corporation, who may be the owner of "coal-bearing lands." A
reading of said Act clearly shows that the tax imposed thereby is imposed upon two
classes of persons only ² lessees and owners.

The lower court had some trouble in determining what was the correct interpretation of
section 15 of said Act, by reason of what he believed to be some difference in the
interpretation of the language used in Spanish and English. While there is some
ground for confusion in the use of the language in Spanish and English, we are
persuaded, considering all the provisions of said Act, that said section 15 has
reference only to persons, firms, associations or corporations which had already, prior
c    

to the existence of said Act, become the owners of coal lands. Section 15 cannot
certainty refer to "holders or lessees of coal lands' for the reason that practically all of
the other provisions of said Act has reference to lessees or holders. If section 15
means that the persons, firms, associations, or corporation mentioned therein are
holders or lessees of coal lands only, it is difficult to understand 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.

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 any other
provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section 1496
of the Administrative Code?

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.
c    

c    


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Rodolfo S. De Jesus for petitioners.

Evalyn H. Itaas-Fetalino, Rogelio C. Limare and Daisy B. Garcia-Tingzon for CSC.

!O ?

Whether or not the Local Water Districts formed and created pursuant to the provisions
of Presidential Decree No. 198, as amended, are government-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 light on.

Petitioners are among the more than five hundred (500) water districts existing
throughout the country formed pursuant to the provisions of Presidential Decree No.
198, as amended by Presidential Decrees Nos. 768 and 1479, otherwise known as the
"Provincial Water Utilities Act of 1973."

Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by
virtue of his legislative power under Proclamation No. 1081. It authorized the different
local legislative bodies to form and create their 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 national agency attached to the National Economic and Development
Authority (NEDA), and granted with regulatory power necessary to optimize public
service from water utilities operations.

The respondents, on the other hand, are the Civil Service Commission (CSC) and the
Commission on Audit (COA), both government agencies and represented in this case
by the Solicitor General.

On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et
al. (G.R. No. 63742, 172 SCRA 253):

Significantly, Article IX (B), Section 2(1) of the 1987 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
c     

No. 198, 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 of the Civil Service Law, rules and
regulations. (Sec. 35, Art. VIII and Sec. 37, Art. IX of PD No. 807).

As an offshoot of the immediately cited ruling, the CSC. issued Resolution No. 90-575,
the dispositive portion of which reads:

NOW THEREFORE, in view of all the foregoing, the Commission resolved,


as it hereby resolves to rule that Local Water Districts, being quasi-public
corporations created by 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 regulations. Henceforth, all
appointments of personnel of the different local water districts in the
country shall be submitted to the Commission for appropriate action. (Rollo.
p. 22).

However, on May 16, 1990, in G.R. No. 85760, entitled "Metro Iloilo Water District v.
National Labor Relations Commission, et al.," the Third Division of this Court ruled in a
minute resolution:

xxx xxx xxx

Considering that PD 198 is a general legislation empowering and/or


authorizing government agencies and entities to create water districts, said
PD 198 cannot be considered as the charter itself creating the Water
District. Public respondent NLRC did not commit any grave abuse of
discretion in holding that the operative act, that created the Metro Iloilo
Water District was the resolution of the Sangguniang Panglunsod of Iloilo
City. Hence, the employees of Water Districts are not covered by Civil
Service Laws as the latter do (sic) not have original charters.

In adherence to the just cited ruling, the CSC suspended the implementation of
Resolution No. 90-575 by issuing Resolution No. 90-770 which reads:

xxx xxx xxx

NOW, THEREFORE, in view of all the foregoing, the Commission resolved


to rule, as it hereby rules, that the implementation of CSC. Resolution No.
575 dated June 27, 1990 be deferred in the meantime pending clarification
from the Supreme Court are regards its conflicting decisions in the cases of
Tanjay Water District v. Gabaton and Metro Iloilo Water District v. National
Labor Relations Commission. (p. 26, Rollo)

In the meanwhile, there exists a divergence of opinions between COA on one hand,
and the (LWUA), on the other hand, with respect to the authority of COA to audit the
different water districts.

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 dated August 13, 1985,
pp. 29-30, Rollo).
c     

On the other hand, LWUA maintained that only those water districts with subsidies
from the government fall within the COA's jurisdiction and only to the extent of the
amount of such subsidies, pursuant to the provision of the Government Auditing Code
of the Phils.

It is to be observed that just like the question of whether the employees of the water
districts falls under the coverage of the Civil Service Law, the conflict between the
water districts and the COA is also dependent on the final determination of whether or
not water districts are government-owned or controlled corporations with original
charter. The reason behind this is Sec. 2(1), Article IX-D of the 1987 constitution which
reads:

Sec. 2(1) The Commission on Audit 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, or any of its subdivisions,
agencies or instrumentalities, including government-oned or controlled
corporations ith original charters, and on a post audit basis. (emphasis
supplied)

Petitioners' main argument is that they are private corporations without original charter,
hence they are outside the jurisdiction of respondents CSC and COA. Reliance is
made on the Metro Iloilo case which declared petitioners as quasi-public corporations
created by virtue of PD 198, a general legislation which cannot be considered as the
charter itself creating the water districts. Holding on to this ruling, petitioners contend
that they are private corporations which are only regarded as quasi-public or semi-
public because they serve public interest and convenience and that since PD 198 is a
general legislation, the operative act which created a water district is not the said
decree but the resolution of the sanggunian concerned.

After a fair consideration of the parties' arguments coupled with a careful study of the
applicable laws as well as the constitutional provisions involved, We rule against the
petitioners and reiterate Our ruling in Tanjay case declaring water districts government-
owned or controlled corporations with original charter.

As early as Baguio Water District v. Trajano, et al., (G.R. No. 65428, February 20,
1984, 127 SCRA 730), We already ruled that a water district is a corporation created
pursuant to a special law ² P.D. No. 198, as amended, and as such its officers and
employees are covered by the Civil Service Law.

In another case (Hagonoy Water District v. NLRC, G.R. No. 81490, August 31, 1988,
165 SCRA 272), We ruled once again that local water districts are quasi-public
corporations whose employees belong to the Civil Service. The Court's pronoucement
in this case, as extensively quoted in the Tanjay case, supra, partly reads:

"The only question here is whether or not local water districts are
governmkent owned or controlled corporations whose employees are
subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private respondent
Villanueva by relying on Section 25 of Presidential decree No. 198, known
as the Provincial Water Utilities Act of 1973" which went onto effect in 25
May 1973, and which provides as follows:
c     

Exemption from Civil Service. ² The district and its employees,
being engaged in a proprietary function, are hereby exempt
from the provisions of the Civil Service Law. Collective
Bargaining shall be available only to personnel below
supervisory levels: Provided, hoever, That the total of all
salaries, wages emoluments, benefits or other compensation
paid to all employees in any month shall not exceed fifty
percent (50%) of average net monthy revenue. Said net
revenue representing income from water sales and sewerage
service charges, less pro-rata share of debt service and
expenses for fuel or energy for pumping during the preceding
fiscal year.

The Labor Arbiter failed to take into accout the provisions of Presidential
Decree No. 1479, which went into effect on 11 June 1978, P.D. No. 1479,
wiped away Section 25 of PD 198 quoted above, and Section 26 of PD 198
was renumbered as Section 25 in the following manner:

Section 26 of the same decree PD 198 is hereby amended to read as


Section 25 as follows:

Section 25. Authorization. ² The district may exercise all the powers which
are expressly granted by this Title or which are necessarily implied from or
incidental to the powers and purposes herein stated. For the purpose of
carrying out the objectives of this Act, a district is hereby granted the power
of eminent domain, the exercise thereof shall, however, be subject to
review by the Administration.

Thus, Section 25 of PD 198 exempting the employees of water districts


from the application of the Civil Service Law was removed from the statute
books:

xxx xxx xxx

We grant the petition for the following reasons:

1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479;


Section 26 of PD No. 198 was amended ro read as Sec. 25 by Sec. 4 of
PD No. 1479. The amendatory decree took effect on June 11, 1978.

xxx xxx xxx

3. The BWD is a corporation created pursuant to a special law ² PD No.


198, as amended. As such its officers and employees are part of the Civil
Service (Sec. 1, Art. XII-B, [1973] Constitution; PD No. 868).

Ascertained from a consideration of the whole statute, PD 198 is a special law


applicable only to the different water districts created pursuant thereto. In 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 fact that said decree
generally applies to all water districts throughout the country does not change the fact
that PD 198 is a special law. Accordingly, this Court's resolution in Metro Iloilo case
declaring PD 198 as a general legislation is hereby abandoned.
c    

By "government-owned or controlled corporation with original charter," We mean
government owned or controlled corporation created by a special law and not under
the Corporation Code of the Philippines. Thus, in the case of Lumanta v. NLRC (G.R.
No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:

The Court, in National Service Corporation [NASECO) v. National Labor


Relations Commission, G.R. No 69870, promulgated on 29 November
1988, quoting extensively from the deliberations of 1986 Constitutional
Commission in respect of the intent and meaning of the new phrase "with
original character," in effect held that government-oned and controlled
corporations ith original charter refer to corporations chartered by special
la as distinguished from corporations organized under our general
incorporation statute ² the Corporations Code. In NASECO, the company
involved had been organized under the general incorporation statute and
was a sbusidiary of the National Investment Development Corporation
(NIDC) which in turn was a subsidiary of the Philippine National Bank, a
bank chartered by a special statute. Thus, government-owned or controlled
corporations like NASECO are effectively, excluded from the scope of the
Civil Service. (emphasis supplied)

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 Corporation Code.
Significantly, petitioners are not created under the said code, but on the contrary, they
were created pursuant to a special law and are governed primarily by its provision.

No consideration may thus be given to petitioners' contention that the operative act
which created the water districts are the resolutions of the respective local
sanggunians and that consequently, PD 198, as amended, cannot be considered as
their charter.

It is to be noted that PD 198, as amended is the source of authorization and power to


form and maintain a district. Section 6 of said decree provides:

Sec. 6. Formation of District. ² This Act is the source of authorization and


power to form and maintain a district. Once formed, a district is subject to
the provisions of this Act and not under the jurisdiction of any political
subdivision, . . . .

Moreover, it must be observed that PD 198, contains all the essential terms necessary
to constitute a charter creating a juridical person. For example, Section 6(a) provides
for the name that will be used by a water district, thus:

Sec. 6. . . . To form a district, the legislative body of any city, municipality or


province shall enact a resolution containing the following:

a) The name of the local water district, which shall include the name of the
city, municipality, or province, or region thereof, served by said system,
followed by the words "Water District."

It also prescribes for the numbers and qualifications of the members of the Board of
Directors:
c    

Sec. 8. Number and Qualification. ² The Board of Directors of a district
shall be composed of five citizens of the Philippines who are of voting age
and residents within the district. One member shall be a representative of
civic-oriented service clubs, one member of representative of professional
associations, one member a representative of business, commercial or
financial organizations, one member a representative of educational
institutions and one member a representative of women's organization. No
public official shall serve as director. Provided, hoever, that if the district
has availed of the financial assistance of the Administration, the
Administration may appoint any of its personnel to sit in the board of
directors with all the rights and privileges appertaining to a regular member
for such period as the indebtedness remains unpaid in which case the
board shall be composed of six members; (as amended by PDs Nos. 768
and 1479).

the manner of their appointment and nominations;

Sec. 9. Appointment. ² Board members shall be appointed by the


appointing authority. Said appointments shall be made from a list of
nominees, if any, submitted pursuant to Section 10. If no nominations are
submitted, the appointing authority shall appoint any qualified person of the
category to the vacant position;

Sec.10. Nominations. ² On or before October 1 of each even numbered


year, the secretary of the district shall contact each known organization,
association, or institution being represented by the director whose term will
expire on December 31 and solicit nominations from these organizations to
fill the position for the ensuing term. One nomination may be submitted in
writing by each such organization to the Secretary of the district on or
before November 1 of such year: This list of nominees shall be transmitted
by the Secretary of the district to the office of the appointing authority on or
before November 15 of such year and he shall make his appointment from
the list submitted on or before December 15. In the event the appointing
authority fails to make his appointments on or before December 15,
selection shall be made from said list of nominees by majority vote of the
seated directors of the district constituting a quorum. Initial nominations for
all five seats of the board shall be solicited by the legislative body or bodies
at the time of adoption of the resolution forming the district. Thirty days
thereafter, a list of nominees shall be submitted to the provincial governor
in the event the resolution forming the district is by a provincial board, or
the mayor of the city or municipality in the event the resolution forming the
adoption of the district is by the city or municipal board of councilors, who
shall select the initial directors therefrom within 15 days after receipt of
such nominations;

their terms of office:

Sec. 11. Term of Office. ² Of the five initial directors of each newly formed
district, two shall be appointed for a maximum term of two years, two for a
maximum term of four years, and one for a maximum term of six years.
Terms of office of all directors in a given district shall be such that the term
of at least one director, but not more then two, shall expire on December 31
c    

of each even-numbered year. Regular terms of office after the initial terms
shall be for six years commencing on January 1 of odd-numbered years.
Directors may be removed for cause only, subject to review and approval of
the Administration; (as amended by PD 768).

the manner of filling up vacancies:

Sec. 12. Vacancies. ² In the event of a vacancy in the board of directors


occurring more than six months before expiration of any director's term, the
remaining directors shall within 30 days, serve notice to or request the
secretary of the district for nominations and within 30 days, thereafter a list
of nominees shall be submitted to the appointing authority for his
appointment of a replacement director from the list of nominees. In the
absence of such nominations, the appointing authority shall make such
appointment. If within 30 days after submission to him of a list of nominees
the appointing authority fails to make an appointment, the vacancy shall be
filled from such list by a majority vote of the remaining members of the
Board of Directors constituting a quorum. Vacancies occurring within the
last six months of an unexpired term shall also be filled by the Board in the
above manner. The director thus appointed shall serve the unexpired term
only; (as amended by PD 768).

and the compensation and personal liability of the members of the Board of Directors:

Sec. 13. Compensation. ² Each director shall receive a per diem, to be


determined by the board, for each meeting of the board actually attended
by him, but no director shag receive per diems in any given month in
excess of the equivalent of the total per diems of four meetings in any given
month. No director shall receive other compensation for services to the
district.

Any per diem in excess of P50.00 shall be subject to approval of the


Administration (as amended by PD 768).

Sec. 14. Personal Liability. ² No director may be held to be personally


liable for any action of the district.

Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those
which are actually contained in other corporate charters. The conclusion is inescapable
that the said decree is in truth and in fact the charter of the different water districts for it
clearly defines the latter's primary purpose and its basic organizational set-up. In other
words, PD 198, as 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 final creation of a district, this Court is of the opinion that said resolution cannot be
considered as its charter, the same being intended only to implement the provisions of
said decree. In passing a resolution forming a water district, the local sanggunian is
entrusted with no authority or discretion to grant a charter for the creation of a private
corporation. It is merely given the authority for the formation of a water district, on a
local option basis, to be exercised under and in pursuance of PD 198.

More than the aforequoted provisions, what is of important interest in the case at bar is
Section 3, par. (b) of the same decree which reads:
c    

Sec. 3(b). Appointing authority. ² The person empowered to appoint the
members of the Board of Directors of a local water district, depending upon
the geographic coverage and population make-up of the particular district.
In the event that more than seventy-five percent of the total active water
service connections of a local water districts are within the boundary of any
city or municipality, the appointing authority shall be the mayor of that city
or municipality, as the case may be; otherwise, the appointing authority
shall be the governor of the province within which the district is located:
Provided, That if the existing waterworks system in the city or municipality
established as a water district under this Decree is operated and managed
by the province, initial appointment shall be extended by the governor of
the province. Subsequent appointments shall be as specified herein.

If portions of more than one province are included within the boundary of
the district, and the appointing authority is to be the governors then the
power to appoint shall rotate between the governors involved with the initial
appointments made by the governor in whose province the greatest
number of service connections exists (as amended by PD 768).

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, Griño-Aquino,


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

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


c    

à   6.:$/0$%6

"(7 $,$+$  1à


ancillary administrator-appellee,
vs.
à  oppositor-appellant.

Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.


Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.

"O 

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the


County Trust Company of New York, United States of America, of the estate of the
deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to
surrender to the ancillary administrator in the Philippines the stock certificates owned
by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate
claims of local creditors, the lower court, then presided by the Honorable Arsenio
Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering
the motion of the ancillary administrator, dated February 11, 1964, as well as the
opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as
lost for all purposes in connection with the 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 certificates cancelled, and (3) directs said corporation to issue new
certificates in lieu thereof, the same to be delivered by said corporation to either the
incumbent ancillary administrator or to the Probate Division of this Court."1

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
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, 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 ample support from legal doctrines
of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated,
Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among
others, two stock certificates covering 33,002 shares of appellant, the certificates being
in the possession of the County 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 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 was substituted by
the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in
New York and the ancillary administrator in the Philippines as to which of them was
entitled to the possession of the stock certificates in question. On January 27, 1964,
the Court of First Instance of Manila ordered the domiciliary administrator, County Trust
Company, to "produce and deposit" them with the ancillary administrator or with the
Clerk of Court. The domiciliary administrator did not comply with the order, and on
February 11, 1964, the ancillary administrator petitioned the court to "issue an order
declaring the certificate or certificates of stocks covering the 33,002 shares issued in
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the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or]
considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the
stock certificates in question; appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New York,
U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be
declared or considered as lost. Moreover, it would allege that there was a failure to
observe certain requirements of its by-laws before new stock certificates could be
issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged
order constitutes an emphatic affirmation of judicial authority sought to be emasculated
by the wilful conduct of the domiciliary administrator in refusing to accord obedience to
a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was 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 without undue loss of judicial
prestige, be condoned or tolerated. For the law is not so lacking in flexibility and
resourcefulness as to preclude such a solution, the more so as deeper reflection would
make clear its being buttressed by indisputable principles and supported by the
strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the
judiciary no less than that of the country. Through this challenged order, there is thus
dispelled the atmosphere of contingent frustration brought about by the persistence of
the domiciliary administrator to hold on to the stock certificates after it had, as
admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its
appearance through counsel on June 27, 1963, and filing a petition for relief from a
previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness
to what was decreed. For without it, what it had been decided would be set at naught
and nullified. Unless such a blatant disregard by the domiciliary administrator, with
residence abroad, of what was previously ordained by a court order could be thus
remedied, it would have entailed, insofar as this matter was concerned, not a partial
but a well-nigh complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the 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 power is inherent in his
duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason
speaking for this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the assets of a
decedent found within the state 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 or country."6
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It is to be noted that the scope of the power of the ancillary administrator was, in an
earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more
than one administration of an estate. When a person dies intestate owning property in
the country of his domicile as well as in a foreign country, administration is had in both
countries. That which is granted in the jurisdiction of decedent's last domicile is termed
the principal administration, while any other administration is termed the ancillary
administration. The reason for the latter is because a grant of administration does not
ex proprio vigore have any effect beyond the limits of the country in which it is granted.
Hence, an administrator appointed in a foreign state has no authority in the
[Philippines]. The ancillary administration is proper, whenever a person dies, leaving in
a country other than that of his last domicile, property to be administered in the nature
of assets of the deceased liable for his individual debts or to be distributed among his
heirs."7

It would follow then that the authority of the probate court to require that ancillary
administrator's right to "the stock certificates covering the 33,002 shares ... standing in
her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is
equally beyond question. For appellant is a Philippine corporation owing full allegiance
and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from lawful court orders.

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 force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successfully do so even if it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive


fashion for the legality of the challenged order, how does appellant, Benguet
Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly
committed by the lower court its "considering as lost the stock certificates covering
33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More
specifically, appellant would stress that the "lower court could not "consider as lost" the
stock certificates in question when, as a matter of fact, his Honor the trial Judge knew,
and does know, and it is admitted by the appellee, that the said stock certificates are in
existence and are today in the possession of the domiciliary administrator in New
York."10

There may be an element of fiction in the above view of the lower court. That certainly
does not suffice to call for the reversal of the appealed order. Since there is a refusal,
persistently adhered to by the domiciliary administrator in New York, to deliver the
shares of stocks of appellant corporation owned by the decedent to the ancillary
administrator in the Philippines, there was nothing unreasonable or arbitrary in
considering them as lost and requiring the appellant to issue new certificates in lieu
thereof. Thereby, the task incumbent under the law on the ancillary administrator could
be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to
depend on the uncontrolled discretion of the party or entity, in this case domiciled
abroad, which thus far has shown the utmost persistence in refusing to yield
obedience. Certainly, appellant would not be heard to contend in all seriousness that a
c     

judicial decree could be treated as a mere scrap of paper, the court issuing it being
powerless to remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not
correspond exactly with the facts. To be more blunt, the quality of truth may be lacking
in such a conclusion arrived at. It is to be remembered however, again to borrow from
Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends
have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offensive."12
Some of them have persisted even to the present, that eminent jurist, noting "the quasi
contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the
empire of "as if" today."13 He likewise noted "a class of fictions of another order, the
fiction which is a working tool of thought, but which at times hides itself from view till
reflection and analysis have brought it to the light."14

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 appellant a further
refinement in the catholicity of its condemnation of such judicial technique. If ever an
occasion did call for the employment of a legal fiction to put an end to the anomalous
situation of a valid judicial order being disregarded with apparent impunity, this is it.
What is thus most obvious is that this particular alleged error does not carry
persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by
its invoking one of the provisions of its by-laws which would set 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 action regarding ownership of such
certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a
new certificate or certificates would await the "final decision by [a] court regarding the
ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to 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 express admission of appellant
that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the
stock certificates ..." Even if such were not the case, it would be a legal absurdity to
impart to such a provision conclusiveness and finality. Assuming that a contrariety
exists between the above by-law and the command of a court decree, the latter is to be
followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute,


to which, however, the judiciary must yield deference, when appropriately invoked and
deemed applicable. It would be most highly unorthodox, however, if a corporate by-law
would be accorded such a high estate in the jural order that a court must not only take
note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the
appealed order be set aside for its inconsistency with one of its by-laws does not
impress us. Its obedience to a lawful court order certainly constitutes a valid defense,
assuming that such apprehension of a possible court action against it could possibly
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materialize. Thus far, nothing in the circumstances as they have developed gives
substance to such a fear. Gossamer possibilities of a future prejudice to appellant do
not suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught
with implications at war with the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created
by operation of law...."16 It owes its life to the state, its birth being purely dependent on
its will. As Berle so aptly stated: "Classically, a corporation was conceived as an
artificial person, owing its existence through creation by a sovereign power."17 As a
matter of fact, the statutory language employed owes much to Chief Justice Marshall,
who in the Dartmouth College decision defined a corporation precisely as "an artificial
being, invisible, intangible, and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is
not in fact and in reality a person, but the law treats it as though it were a person by
process of fiction, or by regarding it as an artificial person distinct and separate from its
individual stockholders.... It owes its existence to law. It is an artificial person created
by law for certain specific purposes, the extent of whose existence, powers and
liberties is fixed by its 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 matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to
quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation 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 inconceivable therefore that it will
have rights and privileges of a higher priority than that of its creator. More than that, it
cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still
of persuasive authority in our jurisdiction, comes more 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 not immune from judicial control in those
instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to
confer upon it not autonomy which may be conceded but license which cannot be
tolerated. It is to argue that it may, when so minded, overrule the state, the source of
its very existence; it is to contend that what any of its governmental organs may
lawfully require could be ignored at will. So extravagant a claim cannot possibly merit
approval.

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 States Veterans
Administration filed a motion for the refund of a certain sum of money paid to the minor
under guardianship, alleging that the lower court had previously granted its petition to
consider the deceased father as not entitled to guerilla benefits according to a
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determination arrived at by its main office in the United States. The motion was denied.
In seeking a reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of law or
fact" precluding any other American official to examine the matter anew, "except a
judge or judges of the United States court."23 Reconsideration was denied, and the
Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of
the opinion that the appeal should be rejected. The provisions of the U.S. Code,
invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final
and conclusive when made on claims property submitted to him for resolution; but they
are not applicable to the present case, where the Administrator is not acting as a judge
but as a litigant. There is a great difference between actions against the Administrator
(which must be filed strictly in accordance with the conditions that are imposed by the
Veterans' Act, including the exclusive review by United States courts), and those
actions where the Veterans' Administrator seeks a remedy from our courts and submits
to their jurisdiction by filing actions therein. Our attention 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 deplorable consequences attendant on
appellant prevailing attest to the necessity of negative response from us. That is what
appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It
is always easy to conjure extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight and conviction is the result
arrived at, the just solution obtained, grounded in the soundest of legal doctrines and
distinguished by its correspondence with what a sense of realism requires. For through
the appealed order, the imperative requirement of justice according to law is satisfied
and national dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the
Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-
appelant Benguet Consolidated, Inc.

Makalintal, Zaldivar and Capistrano, JJ., concur.


Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.
c    

à   -6.
56

à<!1  plaintiffs-appellants,
vs.
1"!!1 defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.


Office of the Solicitor General for defendant-appellee.

3O 

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 ² prior to the expiration of the five-year term of the partnership Ang
Pue & Company, but after the enactment of the Republic Act 1180, the partners
already mentioned amended the original articles of part ownership (Exhibit B) so as to
extend the term of life of the partnership to another five years. When the amended
articles were presented for registration in the Office of the Securities & Exchange
Commission on April 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
c    

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.

WHEREFORE, the judgment appealed from is affirmed, with costs.