February 11, 1915 partnership itself and by the duly constituted officials of the partnership

exclusively.
From what has been said it is apparent that the plaintiff in this action is
G.R. No. 8576 acting contrary to its own contention by bringing the action in the name
VARGAS and COMPANY, plaintiff-appellee, of the company be served with process, then the action should be
vs. brought in the individual names of the partners and not in the name of
CHAN HANG CHIU, ET AL., defendants-appellants. the company itself.
Rohde and Wright for appellants. 
Escaler and Salas for appellee.
MORELAND, J.: Article 35 of the Civil Code provides:
This is an action brought to set aside a judgment of the justice's court
of Manila on the ground that the plaintiff here, the defendant in the
action in which the judgment was secured, was not served with The following are judicial persons:
summons and that, therefore, the justice's court acquired no
jurisdiction to render the judgment was that the same is null and void. 1. The corporation, associations, and institutions of public
Judgment was entered in favor of plaintiff declaring the judgment in interest recognized by law.
controversy void and setting it aside. This appeal is from that
judgment.
2. The associations of private interest, be they civil,
commercial, or industrial, to which the law grants proper
It appears from the record that the plaintiff is a merchantile association personality, independent of that of each member thereof.
duly organized under the laws of the Philippine Islands and
presumably registered as required by law. On the 19th day of August,
1911, an action was begun by Chan Hang Chiu against the plaintiff in Article 38 provides: "Judicial persons may acquire and possess
this case to recover a sum of money. The summons and complaint property of all kinds, as well as contract obligations and institute civil or
were placed in the hands of the sheriff, who certified that on the 19th criminal actions in accordance with the laws and rules of their
day of August, 1911, he served the same on Vargas & Co. by establishment."
delivering to and leaving with one Jose Macapinlac personally true
copies thereof, he being the managing agent of said Vargas & Co. at
Article 116 of the Code of Commerce provides in part: "After a
the time of such service. On July 2. 1912, the justice's court rendered
commercial association has been established, it shall have legal
judgment against Vargas & Co. for the sum of 372.28. Thereafter
representation in all its acts and contracts."
execution was duly issued and the property of Vargas & Co. levied on
for the payment thereof. Thereupon Vargas & Co. paid the amount of
the judgment and costs under protest, with notice that it would sue to These provisions have been the foundation of the practice followed
recover the amount paid. The execution was returned satisfied and without interruption for many years that association of the class to
there the matter rested until the present action was brought. which plaintiff belongs have an independent and separate legal entity
sufficient to permit them to sue and be sued in the company name and
to be served with process through the chief officer or managing agent
The contention of plaintiff is, and that contention is supported by the
thereof or any other official of the company specified by law.
decision of the court below, that Vargas & Co. being a partnership, it is
necessary, in bringing an action against it, to serve the summons on all
of the partners, delivering to each one of them personally a copy As to the second contention, we may say that the presumption is that a
thereof; and that the summons in this case having been served on the judgment rendered by a justice's court is a valid and enforceable
managing agent of the company only, the service was of no effect as judgment where the record discloses that all of the steps necessary to
against the company and the members thereof and the judgment confer jurisdiction on the court have been taken. In the case before us
entered by virtue of such a service was void. it affirmatively appears that the service of process was made on the
person the sheriff certified was the managing agent of the defendant
company. The sheriff's certificate serves as prima facie evidence of
Plaintiff also contends, and this contention is likewise supported by the
the existence of the facts stated therein. The record, therefore,
court below, that, even admitting that service on the managing agent of
discloses, so far as the fact of service is concerned, that it was duly
the plaintiff is sufficient service, as a matter of fact no service was
made on the managing agent of the company as required by section
really made on the managing agent of the company but, rather, on an
396, paragraph 1, of the Code of Civil Procedure. In attacking the
employee or salesman of the company, who had no powers of
judgement on the ground that service was not made on the managing
management or supervision and who was not competent to receive
agent of the company, it is incumbent on the plaintiff to overcome the
service on behalf of the company within the provisions of section 396
presumption arising from the sheriff's certificate before the attack will
of the Code of Civil Procedure .
succeed. Endeavoring to overcome the presumption referred to,
We are of the opinion that neither of these contentions can be
plaintiff offered as a witness one Tomas O. Segovia, an employee of
sustained. As to the first, we may say that it has been the universal
the plaintiff company. He testified that he was a bookkeeper and that
practice in the Philippine Islands since American occupation, and was
as such he was well acquainted with the business of the company and
the practice prior to that time, to treat companies of the class to which
that the person Macapinlac referred to in the sheriff's certificate as
the plaintiff belongs as legal or juridicial entities and to permit them to
managing agent of the plaintiff company was an agent for the sale of
sue and be sued in the name of the company, the summons being
plows, of which the plaintiff company was a manufacturer; and that he
served solely on the managing agent or other official of the company
had no other relations with the company than that stated. During the
specified by the section of theCode of Civil Procedure referred to. This
course of the examination this question was put to and answer elicited
very action is an illustration of the practice in vogue in the Philippine
from this witness:
Islands. The plaintiff brings this action in the company name and not in
How do you know that they were not summoned, or that they
the name of the members of the firm. Actions against companies of the
did not know of this case brought before the justice of the
class to which plaintiff belongs are brought, according to the
peace of the city of Manila?
uninterrupted practice, against such companies in their company
names and not against the individual partners constituting the firm. In
the States, in which the individual members of the firm must be I being the bookkeeper and the general attorney-in-fact to
separately served with process, the rule also prevails that they must be Vargas & Co., in Iloilo, ought to know whether they have
parties to the action, either plaintiffs or defendant, and that the action been notified or summoned, but I only knew about it when
cannot be brought in the name of or against the company itself. This the sheriff appeared in our office to make the levy.
follows naturally for the reason that, if it is necessary to serve the
partners individually, they are entitled to be heard individually in the
action and they must, therefore, be made parties thereto so that they This is the only witness who testified in the case. It does not appear
can be heard. It would be idle to serve process on individual members when he became the bookkeeper of the company, or that he was in
of a partnership if the litigation were to be conducted in the name of the such a position that he could know or did know personally the acts of
the company and its relations to Macapinlac. He does not testify of his
own knowledge to the essential facts necessary to controvert the
statements contained it the sheriff's certificate of service. His testimony
is rather negative than positive, it being at all times possible, in spite of
his evidence, indeed, in strict accord therewith, that Vargas & Co., of
which the witness was neither official nor manager, could have
appointed a managing agent for the company or could have removed
him without the personal knowledge of the witness. The witness had
no personal knowledge of the relation between the company and
Macapinlac. He never saw the contract existing between them. He did
not hear the agreement between them nor did he know of his own
knowledge what the relations between the company and Macapinlac
were. His testimony besides being negative in character has in it many
of the elements of hearsay and is not at all satisfactory. It would have
been very easy to present one of the members of the company, or all
of them, who engaged Macapinlac, who know the relations between
him and the company, to testify as to what those relations were and to
deny, if that were the fact, that Macapinlac was such an agent or
official of the company as is within the purview of section 396 above
referred to. The facts stated in the certificate of the sheriff will not be
considered as overcome and rebutted except on clear evidence
showing the contrary. The evidence of the bookkeeper, who is the only
witness for the company, is not satisfactory in any sense and is quite
insufficient to overcome the presumption established by the sheriff's
certificate.
In view of these considerations it is not necessary to consider the
question presented by the payment by the plaintiff company of the
judgment.
The judgment appealed from is reversed and the complaint dismissed
on the merits, without costs in this instance. So ordered.
G.R. No. L-48113             April 7, 1947
NGO TIAN TEK and NGO HAY, petitioner,  Modern Box Factory and in disregarding the fact that the contracts
vs.
PHILIPPINE EDUCATION CO., INC., respondent.
Tansinsin and Yatco for petitioner.
Marcial Esposo for respondent.
PARAS, J.:
The plaintiff, Philippine Education Co., Inc., instituted in the Court of
First Instance of Manila an action against the defendants, Vicente
Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay,
for the recovery of some P16,070.14, unpaid cost of merchandise
purchased by Lee Guan Box Factory from the plaintiff and five other
corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with attorney's
fees, interest and costs. /by agreement of the parties, the case was
heard before a referee, Attorney Francisco Dalupan, who in due time
submitted his report holding the defendants jointly and severally liable
to the plaintiff for the sum of P16,070.14 plus attorney's fees and
interest at the rates specified in the report. On March 6, 1939, the
Court of First Instance of Manila rendered judgment was affirmed by
the Court of Appeals in its decision of January 31, 1941, now the
subject of our review at the instance of the partnership Ngo Tian Tek
and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals
whose findings of fact are conclusive, "as far back as the year 1925,
the Modern Box Factory was established at 603 Magdalena Street,
Manila. It was at first owned by Ngo Hay, who three years later was
joined by Ngo Tian Tek as a junior partner. The modern Box Factory
dealt in pare and similar merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern Box Factory, Ngo
Hay and Co., Go Hay Box Factory, or Go Hay. Then about the year
1930, the Lee Guan Box Factory was established a few meters from
the Modern Box Factory, under the management of Vicente Tan. When
that concern, through Vicente Tan, sought credit with the plaintiff and
its assignors, Ngo Hay, in conversations and interviews with their
officers and employees, represented that he was the principal owner of
such factory, that the Lee Guan Box Factory and the Modern Box
Factory belonged to the same owner, and that the Lee Guan Box
Factory was a subsidiary of the Modern Box Factory. There is
evidence that many goods purchased in the name of the Lee Guan
Box Factory were delivered to the Modern Box Factory by the
employees of the plaintiff and its assignors upon the express direction
of Vicente Tan. There is also evidence that the collectors of the sellers
were requested by Vicente Tan to collect — and did collect — from the
Modern Box Factory the bills against the Lee Guan Box Factory. In the
fact the record shows many checks signed by Ngo Hay or Ngo Tian
Tek in payment of accounts of the Lee Guan Box Factory.
Furthermore, — and this seems to be conclusive-Ngo Hay, testifying
for the defense, admitted that 'he' was the owner of the Lee Guan Box
Factory in and before the year 1934, but that in January, 1935, 'he'
sold it, by the contract of sale Exhibit 7, to Vicente Tan, who had been
his manager of the business. Tan declared also that before January,
1935, the Lee Guan Box Factory pertained to Ngo Hay and Ngo Tian
Tek. The contract Exhibit 7 was found by the referee, to be untrue and
simulated, for various convincing reasons that need no repetition here.
And the quoted statements serve effectively to confirm the evidence for
the plaintiff that it was Ngo Hay's representations of ownership of, and
responsibility for, Lee Guan Box Factory that induced them to open
credit for that concern. It must be stated that in this connection — to
answer appellant's fitting observation — that the plaintiff and the
assignors have considered Ngo Hay, the Modern Box Factory and Ngo
Hay and Co. as one and the same, through the acts of the partners
themselves, and that the proof as to Ngo Hay's statements regarding
the ownership of Lee Guan Box Factory must be taken in that view.
Ngo Hay was wont to say 'he' owned the Modern Box Factory,
meaning that he was the principal owner, his other partner being Ngo
Tian Tek. Now, it needs no demonstration — for appellant does not
deny it — that the obligations of the Lee Guan Box Factory must rest
upon its known owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals
erred in holding that Lee Guan Box Factory was a subsidiary of the
evidencing the debts in question were signed by Vicente
Tan alias Chan Sy, without any indication that tended to involve the
Modern Box Factory or the petitioner. In the first place, we are
concluded by the finding of the Court of Appeals regarding the
ownership by the petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in his own name
cannot save the petitioner, in view of said ownership, and because
contracts entered into by a factor of a commercial establishment
known to belong to a well known enterprise or association, shall be
understood as made for the account of the owner of such enterprise or
association, even when the factor has not so stated at the time of
executing the same, provided that such contracts involve objects
comprised in the line and business of the establishment. (Article 286,
Code of Commerce.) The fact that Vicente Tan did not have any
recorded power of attorney executed by the petitioner will not operate
to prejudice third persons, like the respondent Philippine Education
Co., Inc., and its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions
which gave rise to this suit, Vicente Tan had purchased Lee Guan Box
Factory from Ngo Hay under the contract, Exhibit 7; and the petitioner
assails, under the second assignment of error, the conclusion of the
Court of Appeals that said contract is simulated. This contention is
purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine
Education Co., Inc., to sue for the credits assigned by the five entities
with which Lee Guan Box Factory originally contracted, it being argued
that the assignment, intended only for purposes of collection, did not
make said respondent the real party in interest. The petitioner has
cited 5 Corpus Juris, section 144, page 958, which points out that
"under statutes authorizing only a bona fideassignee of choses in
action to sue thereon in his own name, an assignee for collection
merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated in
the assignment," precludes us from ruling that respondent company is
not a bona fide assignee. Even assuming, however, that said
assignment was only for collection, we are not prepared to say that,
under section 114 of the Code of Civil Procedure, in force at the time
this action was instituted, ours is not one of those jurisdictions following
the rule that "when a choose, capable of legal assignment, is assigned
absolutely to one, but the assignment is made for purpose of
collection, the legal title thereto vests in the assignee, and it is no
concern of the debtor that the equitable title is in another, and payment
to the assignee discharges the debtor." (5 C. J., section 144, p. 958.)
No substantial right of the petitioner could indeed be prejudiced by
such assignment, because section 114 of the Code of Civil Procedure
reserves to it "'any set-off or other defense existing at the time of or
before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is personal
to the contracting parties and does not follow assignment," and that the
contracts assigned to the respondent company "are immoral and
against public policy and therefore void," constitute defenses on the
merits, but do not affect the efficacy of the assignment. It is obvious
that, apart from the fact that the petitioner can not invoke fraud of its
authorship to evade liability, the appealed decision is founded on an
obligation arising, not from fraud, but from the very contracts under
which merchandise had been purchased by Lee Guan Box Factory.
The fourth and fifth assignments of error relate to the refusal of the
Court of Appeals to hold that the writ of attachment is issued at the
commencement of this action by the Court of First Instance is illegal,
and to award in favor of the petitioner damages for such wrongful
attachment. For us to sustain petitioner's contention will amount to an
unauthorized reversal of the following conclusion of fact of the Court of
Appeals: "The stereotyped manner in which defendants obtained
goods on credit from the six companies, Vicente Tan's sudden
disappearance, the execution of the fake sale Exhibit 7 to throw the
whole responsibility upon the absent or otherwise insolvent Tan,
defendant's mercurial and unbelievable theories as to the ownership of
the Modern Box Factory and Lee Guan Box Factory — obviously
adopted in a vain effort to meet or explain away the evidentiary force of
plaintiff's documentary evidence — are much too significant to permit a
declaration that the attachment was not justified."
Regarding the suggestion in petitioner's memorandum that this case
should be dismissed because of the death of Ngo Hay, it is sufficient to
state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the partners.
The appealed decision is affirmed, with costs against the petitioner. So
ordered.
Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason,
JJ., concur.
Separate Opinions
FERIA, J., concurring and dissenting:
I concur in the majority except that portion thereof which deals with the
question whether an assignee for collection merely is entitled to sue in
his own name, which need not be discussed, in view of the finding of
the Court of Appeals that there is nothing "simulated in the
assignment" which according to the very opinion of the majority
"precludes us from ruling that the respondent company is not a bona
fide assignee;" because such being the conclusion of fact of the Court
of Appeals, this Supreme Court can not modify or reverse that
conclusion and find that respondent Philippine Education Co. was not
a bona fide assignee, and the assignment was not absolute, but made
merely for collection in order that said respondent may sue in its own
name.
But I dissent from the majority opinion when it further says:
Even assuming, however, that said assignment was only for
collection, we are not prepared to say that, under section
114 of the Code of Civil Procedure, in force at the time this
action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal
assignment, is assigned absolutely to one, but the
assignment is made for purpose of collection, the legal title
thereto vests in the assignee, and it is no concern of the
debtor that the equitable title is in another, and payment to
the assignee discharges the debtor." (5 C. J., section 114, p.
958.) No substantial right of the petitioner could indeed be
prejudiced by such assignment, because section 114 of the
Code of Civil Procedure reserves to it "any set-off or other
defense exiting at the time of or before notice of the
assignment."
The reason for my dissenting is that, after quoting the finding of the
Court of Appeals and stating that said conclusion precludes this Court
"from ruling that the respondent company is not a bona fide assignee,"
the majority should have stopped then and there. But having preferred
to adduce an additional ratio decidendi, and assume that the
assignment was for collection only and not an absolute and bona
fide one, in order to meet the latter's argument, because the Court of
Appeals' conclusion is that the assignment was not simulated, that is,
absolute and bona fide, the majority should have quoted and
discussed the second and third sentences of paragraph 144, page
958, of the Corpus Juris, quoted and relied on by the petitioner, which
refers to an assignment that is not absolutely and bona fide made.
However the majority opinion did not do so, and quotes and bases its
conclusion to the contrary on the first sentence of said paragraph, not
relied on by the petitioner, and which deals with absolute and bona
fide assignment, and to the provision of section 114 of the Code of
Civil Procedure on set-off and defenses which defendant may set up to
an action instituted by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958,
of Corpus Juris quoted and underlined by the petitioner in his brief:
144. G. Assignments for Collection. — When a chose,
capable of legal assignment, is assigned absolutely to one,
but the assignment is made for purpose of collection, the
legal title thereto vests in the assignee, and it is no concern
of the debtor that the equitable title is in another, and
payment to the assignee discharges the debtor. Under the
statutes of most jurisdictions, the assignee may prosecute
an action thereon in his own name as the real party in
interest or as a trustee of an express trust; but, under
statutes authorizing only a bona fide assignee of choses in
action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own name. An
assignment merely for collection does not transfer the
beneficial ownership to the assignee.
It is not only convenient but necessary to point this error in the present
concurring and dissenting opinion, for the conclusion set forth in the
above quoted portion of the majority decision is misleading; because it
apparently lays down the ruling that an assignee not bona fide to
whom a credit was assigned, not absolutely, but for collection merely
may sue in his own name (a debatable question which has not yet
been passed upon squarely by this Court [ Annotation; 64 L. R. A.,
585]), but the premise on which the majority's conclusion or ruling is
predicated in said portion of the Corpus Juris quoted in the opinion,
which is a wrong premise laid down, not by the petitioner, but by the
writer himself of the majority opinion.
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner, 
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-
INDEMNITY CORPORATION, respondents.
 

GANCAYCO, J.:
F- I    
This petition for review on certiorari seeks the reversal of the decision 025 n
of the Insurance Commission in IC Case #367 1dismissing the 00 s
complaint 2 for recovery of the alleged unpaid balance of the proceeds u
of the Fire Insurance Policies issued by herein respondent insurance r
company in favor of petitioner-intervenor. a
n
c
The facts of the case as found by respondent Insurance Commission e
are as follows:
  C    
Complainants acquired from a certain Rolando o
Gonzales a parcel of land and a building located at r
San Rafael Village, Davao City. Complainants p
assumed the mortgage of the building in favor of .
S.S.S., which building was insured with
respondent S.S.S. Accredited Group of Insurers F- P H
for P25,000.00. 845 h o
90 il u
. s
On April 19, 1975, Azucena Palomo obtained a e
loan from Tai Tong Chuache Inc. in the amount of h
P100,000.00. To secure the payment of the loan, o
a mortgage was executed over the land and the l
building in favor of Tai Tong Chuache & Co. d
(Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache &
  B    
Co. insured the latter's interest with Travellers
ri
Multi-Indemnity Corporation for P100,000.00
ti
(P70,000.00 for the building and P30,000.00 for
s
the contents thereof) (Exhibit "A-a," contents
h
thereof) (Exhibit "A-a").
  A    
On June 11, 1975, Pedro Palomo secured a Fire s
Insurance Policy No. F- 02500 (Exhibit "A"), s
covering the building for P50,000.00 with c
respondent Zenith Insurance Corporation. On July o
16, 1975, another Fire Insurance Policy No. 8459 .
(Exhibit "B") was procured from respondent C
Philippine British Assurance Company, covering o
the same building for P50,000.00 and the contents .
thereof for P70,000.00.
  I F
On July 31, 1975, the building and the contents n F
were totally razed by fire. c F
.

Adjustment Standard Corporation submitted a &

report as follow
F
xxx xxx xxx 5

Poli C R
... Thus the apportioned share of each company is cy o i
as follows: No. m s
p k
a
Poli C R n
cy o i y
No. m s
. p k FIC S    
a - S
n 153 S
y 81 A
c
MI Z B c
RO e u r
n i e
it l
h d   d    
i it
n e
g
 d   B    
G ri
r ti
o s
u h
p
  A I
  o B s -
f u s B
I i c u
n l o il
s d . d
u i C i
r n o n
e g . g
r
s      

    T
o
t
a
l
s

    F
F
F

We are showing hereunder another apportionment

&
of the loss which includes the Travellers Multi-
Indemnity policy for reference purposes.
P
E
Poli C R
cy o i PV S A  
No. m s C- S c
p k 151 S c
a 81 r
n e
y d
i
MI Z     t
RO e e
/ n d
it
h   G    
r
F- I     o
025 n u
00 s p
u o
r f
a
n   I B
c n u
e s il
u d
  C B r i
o u e n
r il r g
p d s
. i
n F- I I
g 599 n -
DV s R
u e
r f
e
F- P     r
845 h s
90 il
.
  M I
 respondent Travellers is not liable to pay
u I complainants.
lt -
i B
u On May 31, 1977, Tai Tong Chuache & Co. filed a
il complaint in intervention claiming the proceeds of
d the fire Insurance Policy No. F-559 DV, issued by
i respondent Travellers Multi-Indemnity.
n
g
Travellers Insurance, in answer to the complaint in
intervention, alleged that the Intervenor is not
    T entitled to indemnity under its Fire Insurance
o Policy for lack of insurable interest before the loss
t of the insured premises and that the complainants,
a spouses Pedro and Azucena Palomo, had already
l paid in full their mortgage indebtedness to the
s intervenor. 3

As adverted to above respondent Insurance Commission dismissed

Based on the computation of the loss, including
the Travellers Multi- Indemnity, respondents,
Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their
corresponding shares of the loss. Complainants
were paid the following: P41,546.79 by Philippine
British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S.
Group of Accredited Insurers (Par. 6. Amended
Complaint). Demand was made from respondent
Travellers Multi-Indemnity for its share in the loss
but the same was refused. Hence, complainants
demanded from the other three (3) respondents
the balance of each share in the loss based on the
computation of the Adjustment Standards Report
excluding Travellers Multi-Indemnity in the amount
of P30,894.31 (P5,732.79-Zenith Insurance:
P22,294.62, Phil. British: and P2,866.90, SSS
Accredited) but the same was refused, hence, this
action.
spouses Palomos' complaint on the ground that the insurance policy
subject of the complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as mortgagee of
the insured property and thus complainant as mortgagors of the
insured property have no right of action against herein respondent. It
likewise dismissed petitioner's complaint in intervention in the following
words:
We move on the issue of liability of respondent
Travellers Multi-Indemnity to the Intervenor-
mortgagee. The complainant testified that she was
still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however,
been sufficiently proven by documentary evidence.
The certification (Exhibit 'E-e') issued by the Court
of First Instance of Davao, Branch 11, indicate that
the complainant was Antonio Lopez Chua and not
Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a
motion for reconsideration but it was likewise denied hence, the
present petition.

In their answers, Philippine British Assurance and
Zenith Insurance Corporation admitted the
material allegations in the complaint, but denied
liability on the ground that the claim of the
complainants had already been waived,
extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group
of Insurers informed the Commission in its letter of
July 22, 1977 that the herein claim of
complainants for the balance had been paid in the
amount of P 5,938.57 in full, based on the
Adjustment Standards Corporation Report of
September 22, 1975.
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged as
its special and affirmative defenses the following,
to wit: that Fire Policy No. 599 DV, covering the
furniture and building of complainants was
secured by a certain Arsenio Chua, mortgage
creditor, for the purpose of protecting his mortgage
credit against the complainants; that the said
policy was issued in the name of Azucena
Palomo, only to indicate that she owns the insured
premises; that the policy contains an endorsement
in favor of Arsenio Chua as his mortgage interest
may appear to indicate that insured was Arsenio
Chua and the complainants; that the premium due
on said fire policy was paid by Arsenio Chua; that
It is the contention of the petitioner that respondent Insurance
Commission decided an issue not raised in the pleadings of the parties
in that it ruled that a certain Arsenio Lopez Chua is the one entitled to
the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation
of the decision appealed from considering the manner it was
written. 5 As correctly pointed out by respondent insurance commission
in their comment, the decision did not pronounce that it was Arsenio
Lopez Chua who has insurable interest over the insured property.
Perusal of the decision reveals however that it readily absolved
respondent insurance company from liability on the basis of the
commissioner's conclusion that at the time of the occurrence of the
peril insured against petitioner as mortgagee had no more insurable
interest over the insured property. It was based on the inference that
the credit secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the certification
issued by the then Court of First Instance of Davao, Branch II that in a
certain civil action against the Palomos, Antonio Lopez Chua stands as
the complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known
postulate that the case of a party is constituted by his own affirmative
allegations. Under Section 1, Rule 131  6 each party must prove his own
affirmative allegations by the amount of evidence required by law
which in civil cases as in the present case is preponderance of
evidence. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable
judgment. 7 Thus, petitioner who is claiming a right over the insurance
must prove its case. Likewise, respondent insurance company to avoid
liability under the policy by setting up an affirmative defense of lack of
insurable interest on the part of the petitioner must prove its own
affirmative allegations.
It will be recalled that respondent insurance company did not assail the
validity of the insurance policy taken out by petitioner over the
mortgaged property. Neither did it deny that the said property was
totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense of
lack of insurable interest on the part of the petitioner that before the
occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the material
allegations in the complaint, has the burden of proof to show that
petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of
the certification issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the insured
property must have been paid. Such is a glaring error which this Court
cannot sanction. Respondent Commission's findings are based upon a
mere inference.
The record of the case shows that the petitioner to support its claim for
the insurance proceeds offered as evidence the contract of mortgage
(Exh. 1) which has not been cancelled nor released. It has been held in
a long line of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was
not assailed by private respondent. Moreover, petitioner's claim that
the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still
indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same
should have been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above premise respondent
concluded that the obligation secured by the insured property must
have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
2 10 respondent pointed out that the action must be brought in the
name of the real party in interest. We agree. However, it should be
borne in mind that petitioner being a partnership may sue and be sued
in its name or by its duly authorized representative. The fact that
Arsenio Lopez Chua is the representative of petitioner is not
questioned. Petitioner's declaration that Arsenio Lopez Chua acts as
the managing partner of the partnership was corroborated by
respondent insurance company. 11 Thus Chua as the managing partner
of the partnership may execute all acts of administration 12 including
the right to sue debtors of the partnership in case of their failure to pay
their obligations when it became due and demandable. Or at the very
least, Chua being a partner of petitioner Tai Tong Chuache &
Company is an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the firm.  13 Public
respondent's allegation that the civil case flied by Arsenio Chua was in
his capacity as personal creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force and effect at the time
of the fire, it is bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby
SET ASIDE and ANOTHER judgment is rendered order private
respondent Travellers Multi-Indemnity Corporation to pay petitioner the
face value of Insurance Policy No. 599-DV in the amount of
P100,000.00. Costs against said private respondent.
SO ORDERED.
G.R. No. L-18703             August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en
C., appellee, 
vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and
INTERNATIONAL BANKING CORPORATION,petitioners-appellants.
Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.
Antonio Sanz for appellee.
ROMUALDEZ, J.:
The record of this proceeding having been transmitted to this court by
virtue of an appeal taken herein, a motion was presented by the
appellants praying this court that this case be considered purely a
moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily filed
an application for a judicial decree adjudging itself insolvent, which is
just what the herein petitioners and appellants tried to obtain from the
lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under
the facts stated by the appellants in their motion aforesaid. The
question raised in this case is not purely moot one; the fact that a man
was insolvent on a certain day does not justify an inference that he
was some time prior thereto.
Proof that a man was insolvent on a certain day does not
justify an inference that he was on a day some time prior
thereto. Many contingencies, such as unwise investments,
losing contracts, misfortune, or accident, might happen to
reduce a person from a state of solvency within a short
space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl.
Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is
one thing to adjudge Campos Rueda & Co. insolvent in December,
1921, as prayed for in this case, and another to declare it insolvent in
July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership
was, and is, indebted to the appellants in various sums amounting to
not less than P1,000, payable in the Philippines, which were not paid
more than thirty days prior to the date of the filing by the petitioners of
the application for involuntary insolvency now before us. These facts
were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven,
nor alleged, that the members of the aforesaid firm were insolvent at
the time the application was filed; and that was said partners are
personally and solidarily liable for the consequence of the transactions
of the partnership, it cannot be adjudged insolvent so long as the
partners are not alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the ground that this
finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether or
not a limited partnership, such as the appellee, which has failed to pay
its obligation with three creditors for more than thirty days, may be held
to have committed an act of insolvency, and thereby be adjudged
insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited
partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on general
principle, answer for, and suffer, the consequence of its acts as such
an entity capable of being the subject of rights and obligations. If, as in
the instant case, the limited partnership of Campos Rueda & Co.
Failed to pay its obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our Insolvency Law,
one of the acts of bankruptcy upon which an adjudication of involuntary
insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent. We
are not unmindful of the fact that some courts of the United States
have held that a partnership may not be adjudged insolvent in an
involuntary insolvency proceeding unless all of its members are
insolvent, while others have maintained a contrary view. But it must be
borne in mind that under the American common law, partnerships have
no juridical personality independent from that of its members; and if
now they have such personality for the purpose of the insolvency law,
it is only by virtue of general law enacted by the Congress of the
United States on July 1, 1898, section 5, paragraph (h), of which reads
thus:
In the event of one or more but not all of the members of a
partnership being adjudged bankrupt, the partnership
property shall not be administered in bankruptcy, unless by
consent of the partner or partners not adjudged bankrupt;
but such partner or partners not adjudged bankrupt shall
settle the partnership business as expeditiously as its nature
will permit, and account for the interest of the partner or
partners adjudged bankrupt.
The general consideration that these partnership had no juridical
personality and the limitations prescribed in subsection (h) above set
forth gave rise to the conflict noted in American decisions, as stated in
the case of In reSamuels (215 Fed., 845), which mentions the two
apparently conflicting doctrines, citing one from In reBertenshaw (157
Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that
contained in section 5 of said Act of Congress of July 1, 1898, nor any
rule similar thereto, and the juridical personality of limited partnership
being recognized by our statutes from their formation in all their acts
and contracts the decision of American courts on this point can have
no application in this jurisdiction, nor we see any reason why these
partnerships cannot be adjudged bankrupt irrespective of the solvency
or insolvency of their members, provided the partnership has, as such,
committed some of the acts of insolvency provided in our law. Under
this view it is unnecessary to discuss the other points raised by the
parties, although in the particular case under consideration it can be
added that the liability of the limited partners for the obligations and
losses of the partnership is limited to the amounts paid or promised to
be paid into the common fund except when a limited partner should
have included his name or consented to its inclusion in the firm name
(arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda
& Co. failed for more than thirty days to pay its obligations to the
petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and
the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the
petitioners have the right to a judicial decree declaring the involuntary
insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged
that the limited partnership Campos Rueda & Co. is and was on
December 28, 1921, insolvent and liable for having failed for more than
thirty days to meet its obligations with the three petitioners herein, and
it is ordered that this proceeding be remanded to the Court of First
Instance of Manila with instruction to said court to issue the proper
decrees under section 24 of Act No. 1956, and proceed therewith until
its final disposition.
It is so ordered without special finding as to costs.
[G.R. No. 108734. May 29, 1996]
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION, (First Division); and
Norberto Marabe, Rodolfo Raquel, Cristobal Riego,
Manuel Gillego, Palcronio Giducos, Pedro Aboigar,
Norberto Comendador, Rogello Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Aifredo Albera, Paquito
Salut, Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of
another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come
to naught. The law in these instances will regard the corporation as a
mere association of persons and, in case of two corporations, merge
them into one.
Thus, where a sister corporation is used as a shield to evade a
corporations subsidiary liability for damages, the corporation may not
be heard to say that it has a personality separate and distinct from the
other corporation.The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether
the National Labor Relations Commission committed grave abuse of
discretion when it issued a break-open order to the sheriff to be
enforced against personal property found in the premises of petitioners
sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with
principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual
written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they
were hired had been completed.
Public respondent found it to be, the fact, however, that at the
time of the termination of private respondents employment, the project
in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practice and non-payment of their legal holiday
pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered
judgment1 ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working HPPI P6,999,500.00
days.

On November 27, 1985, the National Labor Relations Antonio W. Lim 2,900,000.00

Commission (NLRC) dismissed the motion for reconsideration filed by
petitioner on the ground that the said decision had already become Dennis S. Cuyegkeng 300.00
final and executory.2

On October 16, 1986, the NLRC Research and Information Elisa C. Lim 100,000.00
Department made the finding that private respondents backwages
amounted to P199,800.00.3
Teodulo R. Dino 100.00
On October 29, 1986, the Labor Arbiter issued a writ of
execution directing the sheriff to execute the Decision, Virgilio O. Casino 100.00
dated December 19, 1984. The writ was partially satisfied through
garnishment of sums from petitioners debtor, the Metropolitan
Waterworks and Sewerage Authority, in the amount of 2. Board of Directors
P81,385.34. Said amount was turned over to the cashier of the NLRC.
Antonio W. Lim Chairman
On February 1, 1989, an Alias Writ of Execution was issued by
the Labor Arbiter directing the sheriff to collect from herein petitioner
the sum of P117,414.76, representing the balance of the judgment Dennis S. Cuyegkeng Member
award, and to reinstate private respondents to their former positions.

On July 13, 1989, the sheriff issued a report stating that he tried Elisa C. Lim Member
to serve the alias writ of execution on petitioner through the security
guard on duty but the service was refused on the ground that petitioner Teodulo R. Dino Member
no longer occupied the premises.

On September 26, 1986, upon motion of private respondents, Virgilio O. Casino Member

the Labor Arbiter issued a second alias writ of execution.

The said writ had not been enforced by the special sheriff 3. Corporate Officers
because, as stated in his progress report, datedNovember 2, 1989:
Antonio W. Lim President
1. All the employees inside petitioners premises at 355 Maysan Road,
Valenzuela, Metro Manila, claimed that they were employees of Hydro Dennis S. Cuyegkeng Assistant to the President
Pipes Philippines, Inc. (HPPI) and not by respondent;

Elisa 0. Lim Treasurer
2. Levy was made upon personal properties he found in the premises;

Virgilio O. Casino Corporate Secretary

3. Security guards with high-powered guns prevented him from
removing the properties he had levied upon. 4
4. Principal Office
The said special sheriff recommended that a break-open order
be issued to enable him to enter petitioners premises so that he could 355 Maysan Road
proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989. Valenzuela, Metro Manila.5
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-
party claim with the Labor Arbiter alleging that the properties sought to On the other hand, the General Information Sheet of HPPI
be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) revealed the following:
of which he is the Vice-President.

On November 23, 1989, private respondents filed a Motion for 1. Breakdown of Subscribed Capital
Issuance of a Break-Open Order, alleging that HPPI and petitioner
corporation were owned by the same incorporator! stockholders. They Name of Stockholder Amount Subscribed
also alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer Antonio W. Lim P400,000.00
for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order. Elisa C. Lim 57,700.00
In support of their claim against HPPI, private respondents
presented duly certified copies of the General Informations Sheet, AWL Trading 455,000.00
dated May 15, 1987, submitted by petitioner to the Securities and
Exchange Commission (SEC) and the General Information Sheet,
dated May 15, 1987, submitted by HPPI to the Securities and Dennis S. Cuyegkeng 40,100.00
Exchange Commission.
Teodulo R. Dino 100.00
The General Information Sheet submitted by the petitioner1
revealed the following:
Virgilio O. Casino 100.00
1. Breakdown of Subscribed Capital
2. Board of Directors
Name of Stockholder Amount Subscribed
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6
On February 1, 1990, HPPI filed an Opposition to private
respondents motion for issuance of a break-open order, contending
that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in
two different kinds of businesses, i.e., HPPI is a manufacturing firm
while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which
denied private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23,
1992, the NLRC set aside the order of the Labor Arbiter, issued a
break-open order and directed private respondents to file a
bond. Thereafter, it directed the sheriff to proceed with the auction sale
of the properties already levied upon. It dismissed the third-party claim
for lack of merit.
Petitioner moved for reconsideration but the motion was denied
by the NLRC in a Resolution, datedDecember 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of
discretion when it ordered the execution of its decision despite a third-
party claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in
this case, in the absence of any showing that it created HPPI in order
to evade its liability to private respondents. It also contends that HPPI
is engaged in the manufacture and sale of steel, concrete and iron
pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner
and HPPI shared the same premises, the same President and the
same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation
is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice.9 So, when the notion of
separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to
defeat the labor laws,10 this separate personality of the corporation may
be disregarded or the veil of corporate fiction pierced. 11 This is true
likewise when the corporation is merely an adjunct, a business conduit
or an alter ego of another corporation. 12
The conditions under which the juridical entity may be
disregarded vary according to the peculiar facts and circumstances of
each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the
courts have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled and its affairs
are conducted so that it is, in fact, a mere instrumentality or adjunct of
the other, the fiction of the corporate entity of the instrumentality may
be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so
to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of
its own;
2. Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the
corporate veil. in applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to that
operation.  14
Thus, the question of whether a corporation is a mere alter ego,
a mere sheet or paper corporation, a sham or a subterfuge is purely
one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an Information
Sheet with the Securities and Exchange Commission on May 15, 1987,
stating that its office address is at 355 Maysan Road, Valenzuela,
Metro Manila. On the other hand, HPPI, the third-party claimant,
submitted on the same day, a similar information sheet stating that its
office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as
the corporate secretary of both corporations. It would also not be
amiss to note that both corporations had the same president, the
same board of directors, the same corporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things, the
respondent (herein petitioner) and the third-party claimant shared the
same address and/or premises. Under this circumstances, (sic) it
cannot be said that the property levied upon by the sheriff were not of
respondents.16
Clearly, petitioner ceased its business operations in order to
evade the payment to private respondents of backwages and to bar
their reinstatement to their former positions. HPPI is obviously a
business conduit of petitioner corporation and its emergence was
skillfully orchestrated to avoid the financial liability that already
attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of
Industrial Relations 17 where we had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail
Plant, which ceased operation of June 30, 1957, was SUCCEEDED by
the Claparols Steel Corporation effective the next day, July 1, 1957, up
to December 7, 1962, when the latter finally ceased to operate, were
not disputed by petitioner. it is very clear that the latter corporation was
a continuation and successor of the first entity x x x. Both
predecessors and successor were owned and controlled by petitioner
Eduardo Claparols and there was no break in the succession and
continuity of the same business. This avoiding-the-liability scheme is
very patent, considering that 90% of the subscribed shares of stock of
the Claparols Steel Corporation (the second corporation) was owned
by respondent x x x Claparols himself, and all the assets of the
dissolved Claparols Steel and Nail Plant were turned over to the
emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the present case
could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a
levy upon the property subject of the execution, private respondents
had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC.
This is in consonance with Section 3, Rule VII of the NLRC Manual of
Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit
the Sheriff or his representative entry to the place where the property
subject of execution is located or kept, the judgment creditor may
apply to the Commission or Labor Arbiter concerned for a break-open
order.
Furthermore, our perusal of the records shows that the twin
requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit
evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion
when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual
findings of quasi-judicial agencies supported by substantial evidence
are binding on this Court and are entitled to great respect, in the
absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed
resolutions of the NLRC, dated April 23, 1992and December 3, 1992,
are AFFIRMED.
SO ORDERED.
G.R. No. L-25532             February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
WILLIAM J. SUTER and THE COURT OF TAX
APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr.
and T. Temprosa Jr. for petitioner. 
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by herein respondent William J. Suter
as the general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the
limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the
importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, their
parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills
and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the
Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson
sold his share in the partnership to Suter and his wife. The sale was
duly recorded with the Securities and Exchange Commission on 20
December 1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner
of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed
to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner of
Internal Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of
the partners, respondent William J. Suter and Julia Spirig Suter and
the subsequent sale to them by the remaining partner, Gustav Carlson,
of his participation of P2,000.00 in the partnership for a nominal
amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that
the marriage of Suter and Spirig and their subsequent acquisition of
the interests of remaining partner Carlson in the partnership dissolved
the limited partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for income tax
purposes because the spouses have exclusive ownership and control
of the business; consequently the income tax return of respondent
Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance
with Section 45 (d) of the National Internal Revenue Code, which
provides as follows:
(d) Husband and wife. — In the case of married persons,
whether citizens, residents or non-residents, only one
consolidated return for the taxable year shall be filed by
either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court
of Tax Appeals held, that his marriage with limited partner Spirig and
their acquisition of Carlson's interests in the partnership in 1948 is not
a ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership,
as contra distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was not bound
to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
Ltd., has been dissolved by operation of law because of the marriage
of the only general partner, William J. Suter to the originally limited
partner, Julia Spirig one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the
Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the
dissolution of a pre-existing partnership. (1 Guy de Montella
58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of
the partners, as contributed by them to the common fund, or else
"all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the partners
were fixed sums of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose
Casan, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546,
footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el
contrato de sociedad universal, pero o podran constituir
sociedad particular? Aunque el punto ha sido muy debatido,
nos inclinamos a la tesis permisiva de los contratos de
sociedad particular entre esposos, ya que ningun precepto
de nuestro Codigo los prohibe, y hay que estar a la norma
general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La
jurisprudencia de la Direccion de los Registros fue favorable
a esta misma tesis en su resolution de 3 de febrero de 1936,
mas parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve
it, such marriage not being one of the causes provided for that purpose
either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous. The
capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her
own; ....
Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both after their
marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compañias colectivas) with the personality of
the individual partners for income tax purposes. But this rule is
exceptional in its disregard of a cardinal tenet of our partnership laws,
and can not be extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964,
and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved
therein are not applicable to the present case. In the cited cases, the
corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so
would exempt the limited partnership from income taxation but would
throw the tax burden upon the partners-spouses in their individual
capacities. The corporations, in the cases cited, merely served as
business conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax purposes.
This is not true in the present case. Here, the limited partnership is not
a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own
income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax
code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests
of the remaining partner with the premeditated scheme or design to
use the partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income,
to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In
fact, it would even conflict with what it specifically provides in its
Section 24: for the appellant Commissioner's stand results in equal
treatment, tax wise, of a general copartnership (compañia colectiva)
and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former,
because it is in the case of compañias colectivas that the members,
and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the
conjugal partnership of gains. This is not wholly correct. As pointed out
in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of
Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna
become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of the
wife. Then again, the appellant's argument erroneously confines itself
to the question of the legal personality of the limited partnership, which
is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of
their own. 1Appellant is, likewise, mistaken in that it assumes that the
conjugal partnership of gains is a taxable unit, which it is not. What is
taxable is the "income of both spouses" (Section 45 [d] in their
individual capacities. Though the amount of income (income of the
conjugal partnership vis-a-vis the joint income of husband and wife)
may be the same for a given taxable year, their consequences would
be different, as their contributions in the business partnership are not
the same.
The difference in tax rates between the income of the limited
partnership being consolidated with, and when split from the income of
the spouses, is not a justification for requiring consolidation; the
revenue code, as it presently stands, does not authorize it, and even
bars it by requiring the limited partnership to pay tax on its own
income.
FOR THE FOREGOING REASONS, the decision under review is
hereby affirmed. No costs.
[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF
APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the
Court of Appeals, dated November 29, 1990, which reversed the
decision of the Regional Trial Court, Branch 273, Marikina, Metro
Manila, dated April 11, 1995. The trial court dismissed the petition for
declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent and her
late husband, Ruben M. Abrogar, were the registered owners of a
house and lot, covered by Transfer Certificate of Title No. 195101, in
Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented
by petitioner, entered into a Memorandum of Agreement, which
provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the
above-described property from the FIRST PARTY [Felicidad S. Vda.
de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the
SECOND PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the
option to repurchase the said property within a period of ninety (90)
days from the execution of this memorandum of agreement effective
April 18, 1991, for the amount of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the
expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not
to file any lis pendens or whatever claims on the property nor shall be
cause the annotation of say claim at the back of the title to the said
property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of
the SECOND PARTY against any party whom may have any interests
over the property;
(6) All expenses for documentation and other incidental expenses shall
be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day
grace period given in paragraph 3 above, the FIRST PARTY shall pay
an amount equivalent to Five Percent of the principal amount of TWO
HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as
and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase
the property within ninety (90) days period above-mentioned, this
memorandum of agreement shall be deemed cancelled and the Deed
of Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY
shall proceed to transfer ownership of the property above described to
its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a
deed of absolute sale, [3] dated June 11, 1991, wherein private
respondent, with the consent of her late husband, sold the subject
property to A.C. Aguila & Sons, Co., represented by petitioner, for
P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new certificate
of title in the name of A.C. Aguila and Sons, Co., in the event she failed
to redeem the subject property as provided in the Memorandum of
Agreement.[4]
Private respondent failed to redeem the property within the 90-
day period as provided in the Memorandum of Agreement. Hence,
pursuant to the special power of attorney mentioned above, petitioner
caused the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991
from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co.,
demanding that she vacate the premises within 15 days after receipt of
the letter and surrender its possession peacefully to A.C. Aguila &
Sons, Co. Otherwise, the latter would bring the appropriate action in
court.[6]
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case against her
in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a
decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor
of A.C. Aguila & Sons, Co. on the ground that private respondent did
not redeem the subject property before the expiration of the 90-day
period provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro
Manila, then to the Court of Appeals, and later to this Court, but she
lost in all the cases.
Private respondent then filed a petition for declaration of nullity of
a deed of sale with the Regional Trial Court, Branch 273, Marikina,
Metro Manila on December 4, 1993. She alleged that the signature of
her husband on the deed of sale was a forgery because he was
already dead when the deed was supposed to have been executed on
June 11, 1991.
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its
decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public
Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the
execution of the Deed of Absolute Sale, while the plaintiff was still in
the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be
sustained. The Court is convinced that the three required documents,
to wit: the Memorandum of Agreement, the Special Power of Attorney,
and the Deed of Absolute Sale were all signed by the parties on the
same date on April 18, 1991. It is a common and accepted business
practice of those engaged in money lending to prepare an undated
absolute deed of sale in loans of money secured by real estate for
various reasons, foremost of which is the evasion of taxes and
surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common
sense dictates that an established lending and realty firm like the
Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar
spouses, who are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more
particularly the Deed of Absolute Sale, to protect its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is
hereby ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-
appellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong application
in the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is
unusually inadequate. The property is a two hundred forty (240) sq. m.
lot. On said lot, the residential house of plaintiff-appellant stands. The
property is inside a subdivision/village. The property is situated in
Marikina which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00
or P833.33 per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically
provides that plaintiff-appellant is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen (15)
days after the expiration of the said ninety (90) day grace
period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if
they were still the absolute owners. There was no provision for
maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay
taxes on the property sold. It is well-known that payment of taxes
accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under
whose name the real taxes were declared has a claim of right over the
land.
It is well-settled that the presence of even one of the circumstances in
Article 1602 of the New Civil Code is sufficient to declare a contract of
sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which
is unusually inadequate, has retained possession of the subject
property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article
1602 of the New Civil Code), it must be conclusively presumed that the
transaction the parties actually entered into is an equitable mortgage,
not a sale with right to repurchase. The factors cited are in support to
the finding that the Deed of Sale/Memorandum of Agreement with right
to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase
was executed by reason of the loan extended by defendant-appellee to
plaintiff-appellant. The amount of loan being the same with the amount
of the purchase price.
....
Since the real intention of the party is to secure the payment of debt,
now deemed to be repurchase price: the transaction shall then be
considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the
nature of a pactum commissorium which is clearly prohibited by Article
2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary
is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00
loan to plaintiff-appellant secured by a mortgage on the property of
plaintiff-appellant. The loan was payable within ninety (90) days, the
period within which plaintiff-appellant can repurchase the
property. Plaintiff-appellant will pay P230,000.00 and not P200,000.00,
the P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000,00 within the ninety (90) days
period, the property shall automatically belong to defendant-appellee
by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the
nature of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being violative
of law.
....
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant
and the issuance of TCT No. 267073 issued in favor of defendant-
appellee pursuant to the questioned Deed of Sale is hereby declared
VOID and is hereby ANNULLED. Transfer Certificate of Title No.
195101 of the Registry of Marikina is hereby ordered
REINSTATED. The loan in the amount of P230,000.00 shall be paid
within ninety (90) days from the finality of this decision. In case of
failure to pay the amount of P230,000.00 from the period therein
stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be
given to the owner.
Petitioner now contends that: (1) he is not the real party in
interest but A.C. Aguila & Co., against which this case should have
been brought; (2) the judgment in the ejectment case is a bar to the
filing of the complaint for declaration of nullity of a deed of sale in this
case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable
mortgage as held by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that every action must be
prosecuted and defended in the name of the real party in interest. A
real party in interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit. [7] This ruling is now
embodied in Rule 3, 2 of the 1997 Revised Rules of Civil
Procedure. Any decision rendered against a person who is not a real
party in interest in the case cannot be executed. [8] Hence, a complaint
filed against such a person should be dismissed for failure to state a
cause of action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The
partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical personality
is being used for fraudulent, unfair, or illegal purposes. [10] In this case,
private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of
A.C. Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of her late
husband, and A. C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or agents, which
should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the
complaint.[11] We cannot understand why both the Regional Trial Court
and the Court of Appeals sidestepped this issue when it was squarely
raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest
against whom this action should be prosecuted makes it unnecessary
to discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby
REVERSED and the complaint against petitioner is DISMISSED.
SO ORDERED.
G.R. No. 15574           September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner, 
vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of
Cebu, respondent.
Ross and Lawrence for petitioner. 
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against
Joaquin Natividad, Collector of Customs of the port of Cebu, Philippine
Islands, to compel him to issue a certificate of Philippine registry to the
petitioner for its motor vessel Bato. The Attorney-General, acting as
counsel for respondent, demurs to the petition on the general ground
that it does not state facts sufficient to constitute a cause of action.
While the facts are thus admitted, and while, moreover, the pertinent
provisions of law are clear and understandable, and interpretative
American jurisprudence is found in abundance, yet the issue submitted
is not lightly to be resolved. The question, flatly presented, is, whether
Act. No. 2761 of the Philippine Legislature is valid — or, more directly
stated, whether the Government of the Philippine Islands, through its
Legislature, can deny the registry of vessels in its coastwise trade to
corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under
the laws of the Philippine Islands. A majority of its stockholders are
British subjects. It is the owner of a motor vessel known as
the Bato built for it in the Philippine Islands in 1916, of more than
fifteen tons gross The Bato was brought to Cebu in the present year for
the purpose of transporting plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the home port of the vessel, to
the Collector of Customs for a certificate of Philippine registry. The
Collector refused to issue the certificate, giving as his reason that all
the stockholders of Smith, Bell & Co., Ltd., were not citizens either of
the United States or of the Philippine Islands. The instant action is the
result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of
April 30, 1906 but reenacting a portion of section 3 of this Law, and still
in force, provides in its section 1:
That until Congress shall have authorized the registry as
vessels of the United States of vessels owned in the
Philippine Islands, the Government of the Philippine Islands
is hereby authorized to adopt, from time to time, and enforce
regulations governing the transportation of merchandise and
passengers between ports or places in the Philippine
Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp
Stat. [1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the
Jones Law, still in force, provides in section 3, (first paragraph, first
sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which
shall deprive any person of life, liberty, or property without
due process of law, or deny to any person therein the equal
protection of the laws. . . .
 SEC. 6. That the laws now in force in the Philippines shall
continue in force and effect, except as altered, amended, or
modified herein, until altered, amended, or repealed by the
legislative authority herein provided or by Act of Congress of
the United States.
SEC. 7. That the legislative authority herein provided shall
have power, when not inconsistent with this Act, by due
enactment to amend, alter modify, or repeal any law, civil or
criminal, continued in force by this Act as it may from time to
time see fit
This power shall specifically extend with the limitation herein
provided as to the tariff to all laws relating to revenue
provided as to the tariff to all laws relating to revenue and
taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise
herein provided, is hereby granted to the Philippine
Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the Philippine
government shall have the authority to enact a tariff law the
trade relations between the islands and the United States
shall continue to be governed exclusively by laws of the
Congress of the United States: Provided, That tariff acts or
acts amendatory to the tariff of the Philippine Islands shall
not become law until they shall receive the approval of the
President of the United States, nor shall any act of the
Philippine Legislature affecting immigration or the currency
or coinage laws of the Philippines become a law until it has
been approved by the President of the United
States: Provided further, That the President shall approve or
disapprove any act mentioned in the foregoing proviso within
six months from and after its enactment and submission for
his approval, and if not disapproved within such time it shall
become a law the same as if it had been specifically
approved.
SEC. 31. That all laws or parts of laws applicable to the
Philippines not in conflict with any of the provisions of this
Act are hereby continued in force and effect." (39 Stat at L.,
546.)
On February 23, 1918, the Philippine Legislature enacted Act No.
2761. The first section of this law amended section 1172 of the
Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. — Upon
registration of a vessel of domestic ownership, and of more
than fifteen tons gross, a certificate of Philippine register
shall be issued for it. If the vessel is of domestic ownership
and of fifteen tons gross or less, the taking of the certificate
of Philippine register shall be optional with the owner.
"Domestic ownership," as used in this section, means
ownership vested in some one or more of the following
classes of persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States residing
in the Philippine Islands; (c) any corporation or company
composed wholly of citizens of the Philippine Islands or of
the United States or of both, created under the laws of the
United States, or of any State thereof, or of thereof, or the
managing agent or master of the vessel resides in the
Philippine Islands
Any vessel of more than fifteen gross tons which on
February eighth, nineteen hundred and eighteen, had a
certificate of Philippine register under existing law, shall
likewise be deemed a vessel of domestic ownership so long
as there shall not be any change in the ownership thereof
nor any transfer of stock of the companies or corporations
owning such vessel to person not included under the last
preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of
the Administrative Code to read as follows:
SEC. 1176. Investigation into character of vessel. — No
application for a certificate of Philippine register shall be
approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be
engaged in legitimate trade and that it is of domestic
ownership as such ownership is defined in section eleven
hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or
examine its owner, master, crew, or passengers in order to
ascertain whether the vessel is engaged in legitimate trade
and is entitled to have or retain the certificate of Philippine
register.
SEC. 1202. Limiting number of foreign officers and
engineers on board vessels. — No Philippine vessel
operating in the coastwise trade or on the high seas shall be
permitted to have on board more than one master or one
mate and one engineer who are not citizens of the United
States or of the Philippine Islands, even if they hold licenses
under section one thousand one hundred and ninety-nine
hereof. No other person who is not a citizen of the United
States or of the Philippine Islands shall be an officer or a
member of the crew of such vessel. Any such vessel which
fails to comply with the terms of this section shall be required
to pay an additional tonnage tax of fifty centavos per net ton
per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above
stated recur, namely, whether Act No 2761 of the Philippine
Legislature is valid in whole or in part — whether the Government of
the Philippine Islands, through its Legislature, can deny the registry of
vessel in its coastwise trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure
of doubt as to the power of the Philippine Legislature to enact Act No.
2761. The Act of Congress of April 29, 1908, with its specific
delegation of authority to the Government of the Philippine Islands to
regulate the transportation of merchandise and passengers between
ports or places therein, the liberal construction given to the provisions
of the Philippine Bill, the Act of Congress of July 1, 1902, by the courts,
and the grant by the Act of Congress of August 29, 1916, of general
legislative power to the Philippine Legislature, are certainly
superabundant authority for such a law. While the Act of the local
legislature may in a way be inconsistent with the Act of Congress
regulating the coasting trade of the Continental United States, yet the
general rule that only such laws of the United States have force in the
Philippines as are expressly extended thereto, and the abnegation of
power by Congress in favor of the Philippine Islands would leave no
starting point for convincing argument. As a matter of fact, counsel for
petitioner does not assail legislative action from this direction (See U.
S. vs. Bull [1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How.,
227.)
2. It is from the negative, prohibitory standpoint that counsel argues
against the constitutionality of Act No. 2761. The first paragraph of the
Philippine Bill of Rights of the Philippine Bill, repeated again in the first
paragraph of the Philippine Bill of Rights as set forth in the Jones Law,
provides "That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due process of
law, or deny to any person therein the equal protection of the laws."
Counsel says that Act No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because classification of develop its resources and add to its wealth and prosperity. From the
corporations based on the citizenship of one or more of their very necessities of society, legislation of a special character, having
stockholders is capricious, and that Act No. 2761 deprives the these objects in view, must often be had in certain districts."
corporation of its properly without due process of law because by the (Barbier vs. Connolly [1884], 113 U.S., 27; New Orleans Gas
passage of the law company was automatically deprived of every Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the same
beneficial attribute of ownership in the Bato and left with the naked title police power which the United States Supreme Court say "extends to
to a boat it could not use . so dealing with the conditions which exist in the state as to bring out of
them the greatest welfare in of its people." (Bacon vs. Walker [1907],
204 U.S., 311.) For quite similar reasons, none of the provision of the
The guaranties extended by the Congress of the United States to the
Philippine Organic Law could could have had the effect of denying to
Philippine Islands have been used in the same sense as like provisions
the Government of the Philippine Islands, acting through its
found in the United States Constitution. While the "due process of law
Legislature, the right to exercise that most essential, insistent, and
and equal protection of the laws" clause of the Philippine Bill of Rights
illimitable of powers, the sovereign police power, in the promotion of
is couched in slightly different words than the corresponding clause of
the general welfare and the public interest. (U. S. vs. Toribio [1910], 15
the Fourteenth Amendment to the United States Constitution, the first
Phil., 85; Churchill and Tait vs. Rafferty [1915], 32 Phil., 580;
should be interpreted and given the same force and effect as the latter.
Rubi vs. Provincial Board of Mindoro [1919], 39 Phil., 660.) Another
(Kepner vs. U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga [1907], 204
notable exception permits of the regulation or distribution of the public
U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of the
domain or the common property or resources of the people of the
Fourteenth Amendment has been announced in classic decisions of
State, so that use may be limited to its citizens. (Ex parte Gilleti [1915],
the United States Supreme Court. Even at the expense of restating
70 Fla., 442; McCready vs. Virginia [1876], 94 U. S., 391;
what is so well known, these basic principles must again be set down
Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.)
in order to serve as the basis of this decision.
Still another exception permits of the limitation of employment in the
construction of public works by, or for, the State or a municipality to
The guaranties of the Fourteenth Amendment and so of the first citizens of the United States or of the State. (Atkin vs. Kansas
paragraph of the Philippine Bill of Rights, are universal in their [1903],191 U. S., 207; Heim vs. McCall [1915], 239 U.S., 175;
application to all person within the territorial jurisdiction, without regard Crane vs. New York [1915], 239 U. S., 195.) Even as to classification,
to any differences of race, color, or nationality. The word "person" it is admitted that a State may classify with reference to the evil to be
includes aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truaxvs. prevented; the question is a practical one, dependent upon experience.
Raich [1915], 239 U. S., 33.) Private corporations, likewise, are (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S., 138.)
"persons" within the scope of the guaranties in so far as their property
is concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886],
To justify that portion of Act no. 2761 which permits corporations or
118.U. S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U.
companies to obtain a certificate of Philippine registry only on condition
S., 181 Covington & L. Turnpike Road Co. vs. Sandford [1896], 164 U.
that they be composed wholly of citizens of the Philippine Islands or of
S., 578.) Classification with the end in view of providing diversity of
the United States or both, as not infringing Philippine Organic Law, it
treatment may be made among corporations, but must be based upon
must be done under some one of the exceptions here mentioned This
some reasonable ground and not be a mere arbitrary selection (Gulf,
must be done, moreover, having particularly in mind what is so often of
Colorado & Santa Fe Railway Co. vs. Ellis [1897],.165 U. S., 150.)
controlling effect in this jurisdiction — our local experience and our
Examples of laws held unconstitutional because of unlawful
peculiar local conditions.
discrimination against aliens could be cited. Generally, these decisions
relate to statutes which had attempted arbitrarily to forbid aliens to
engage in ordinary kinds of business to earn their living. To recall a few facts in geography, within the confines of Philippine
(Statevs. Montgomery [1900], 94 Maine, 192, peddling — but see. jurisdictional limits are found more than three thousand islands.
Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Literally, and absolutely, steamship lines are, for an Insular territory
Examiners of Barbers [1902], 131 Mich., 254, barbers; Yick thus situated, the arteries of commerce. If one be severed, the life-
Wo vs. Hopkins [1886], 118 U. S.,.356, discrimination against Chinese; blood of the nation is lost. If on the other hand these arteries are
Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1 Fed , 481; protected, then the security of the country and the promotion of the
Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata general welfare is sustained. Time and again, with such conditions
Limestone Co. vs. Fagley [1898], 187 Penn., 193, all relating to the confronting it, has the executive branch of the Government of the
employment of aliens by private corporations.) Philippine Islands, always later with the sanction of the judicial branch,
taken a firm stand with reference to the presence of undesirable
foreigners. The Government has thus assumed to act for the all-
A literal application of general principles to the facts before us would,
sufficient and primitive reason of the benefit and protection of its own
of course, cause the inevitable deduction that Act No. 2761 is
citizens and of the self-preservation and integrity of its dominion. (In
unconstitutional by reason of its denial to a corporation, some of whole
re Patterson [1902], 1 Phil., 93; Forbes vs. Chuoco, Tiaco and
members are foreigners, of the equal protection of the laws. Like all
Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch Dick
beneficient propositions, deeper research discloses provisos.
[1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such
Examples of a denial of rights to aliens notwithstanding the provisions
solid and reputable firms as the instant claimant, might indeed traverse
of the Fourteenth Amendment could be cited. (Tragesser vs. Gray
the waters of the Philippines for ages without doing any particular
[1890], 73 Md., 250, licenses to sell spirituous liquors denied to
harm. Again, some evilminded foreigner might very easily take
persons not citizens of the United States; Commonwealth vs. Hana
advantage of such lavish hospitality to chart Philippine waters, to
[1907], 195 Mass , 262, excluding aliens from the right to peddle;
obtain valuable information for unfriendly foreign powers, to stir up
Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S. , 138,
insurrection, or to prejudice Filipino or American commerce. Moreover,
prohibiting the killing of any wild bird or animal by any unnaturalized
under the Spanish portion of Philippine law, the waters within the
foreign-born resident; Ex parte Gilleti [1915], 70 Fla., 442,
domestic jurisdiction are deemed part of the national domain, open to
discriminating in favor of citizens with reference to the taking for private
public use. (Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of
use of the common property in fish and oysters found in the public
August 3, 1866, arts 1, 2, 3.) Common carriers which in the Philippines
waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and
as in the United States and other countries are, as Lord Hale said,
Crane vs. New York [1915], 239 U. S., 195, limiting employment on
"affected with a public interest," can only be permitted to use these
public works by, or for, the State or a municipality to citizens of the
public waters as a privilege and under such conditions as to the
United States.)
representatives of the people may seem wise. (See De
Villata vs. Stanley [1915], 32 Phil., 541.)
One of the exceptions to the general rule, most persistent and far
reaching in influence is, that neither the Fourteenth Amendment to the
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S.,
United States Constitution, broad and comprehensive as it is, nor any
138), a case herein before mentioned, Justice Holmes delivering the
other amendment, "was designed to interfere with the power of the
opinion of the United States Supreme Court said:
State, sometimes termed its `police power,' to prescribe regulations to
promote the health, peace, morals, education, and good order of the
people, and legislate so as to increase the industries of the State,
 This statute makes it unlawful for any unnaturalized foreign-
born resident to kill any wild bird or animal except in defense
of person or property, and `to that end' makes it unlawful for
such foreign-born person to own or be possessed of a
shotgun or rifle; with a penalty of $25 and a forfeiture of the
gun or guns. The plaintiff in error was found guilty and was
sentenced to pay the abovementioned fine. The judgment
was affirmed on successive appeals. (231 Pa., 46; 79 Atl.,
928.) He brings the case to this court on the ground that the
statute is contrary to the 14th Amendment and also is in
contravention of the treaty between the United States and
Italy, to which latter country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold;
unjustifiably depriving the alien of property, and
discrimination against such aliens as a class. But the former
really depends upon the latter, since it hardly can be
disputed that if the lawful object, the protection of wild life
(Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16
Sup. Ct. Rep., 600), warrants the discrimination, the, means
adopted for making it effective also might be adopted. . . .
The discrimination undoubtedly presents a more difficult
question. But we start with reference to the evil to be
prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom
the evil mainly is to be feared, it properly may be picked out.
A lack of abstract symmetry does not matter. The question is
a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court
can say that the legislature of Pennsylvania was not
warranted in assuming as its premise for the law that
resident unnaturalized aliens were the peculiar source of the
evil that it desired to prevent. (Barrett vs. Indiana,. 229 U.S.,
26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct. Rep., 692.)
Obviously the question, so stated, is one of local experience,
on which this court ought to be very slow to declare that the
state legislature was wrong in its facts
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed.,
971,.977; 33 Sup. Ct. Rep., 610.) If we might trust popular
speech in some states it was right; but it is enough that this
court has no such knowledge of local conditions as to be
able to say that it was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a
corporation having alien stockholders, is entitled to the protection
afforded by the due-process of law and equal protection of the laws
clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of the
Philippine Legislature, in denying to corporations such as Smith, Bell
&. Co. Ltd., the right to register vessels in the Philippines coastwise
trade, does not belong to that vicious species of class legislation which
must always be condemned, but does fall within authorized exceptions,
notably, within the purview of the police power, and so does not offend
against the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to
us, however, that the legislative history of the United States and the
Philippine Islands, and, probably, the legislative history of other
countries, if we were to take the time to search it out, might disclose
similar attempts at restriction on the right to enter the coastwise trade,
and might thus furnish valuable aid by which to ascertain and, if
possible, effectuate legislative intention.
3. The power to regulate commerce, expressly delegated to
the Congress by the Constitution, includes the power to
nationalize ships built and owned in the United States by
registries and enrollments, and the recording of the
muniments of title of American vessels. The Congress "may
encourage or it may entirely prohibit such commerce, and it
may regulate in any way it may see fit between these two
extremes." (U.S.vs. Craig [1886], 28 Fed., 795;
Gibbons vs. Ogden [1824], 9 Wheat., 1; The Passenger
Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the
United States had not been long convened before it enacted on
September 1, 1789, "An Act for Registering and Clearing Vessels,
Regulating the Coasting Trade, and for other purposes." Section 1 of
this law provided that for any ship or vessel to obtain the benefits of
American registry, it must belong wholly to a citizen or citizens of the
United States "and no other." (1 Stat. at L., 55.) That Act was shortly
after repealed, but the same idea was carried into the Acts of
Congress of December 31, 1792 and February 18, 1793. (1 Stat. at L.,
287, 305.).Section 4 of the Act of 1792 provided that in order to obtain
the registry of any vessel, an oath shall be taken and subscribed by the
owner, or by one of the owners thereof, before the officer authorized to
make such registry, declaring, "that there is no subject or citizen of any
foreign prince or state, directly or indirectly, by way of trust, confidence,
or otherwise, interested in such vessel, or in the profits or issues
thereof." Section 32 of the Act of 1793 even went so far as to say "that
if any licensed ship or vessel shall be transferred to any person who is
not at the time of such transfer a citizen of and resident within the
United States, ... every such vessel with her tackle, apparel, and
furniture, and the cargo found on board her, shall be forefeited." In
case of alienation to a foreigner, Chief Justice Marshall said that all the
privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis [1807], 4 Cranch, 48.)
Even as late as 1873, the Attorney-General of the United States was of
the opinion that under the provisions of the Act of December 31, 1792,
no vessel in which a foreigner is directly or indirectly interested can
lawfully be registered as a vessel of the United. States. (14 Op. Atty.-
Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the
Act of March 3, 1825, may have affected them, until amended by the
Act of May 28, 1896 (29 Stat. at L., 188) which extended the privileges
of registry from vessels wholly owned by a citizen or citizens of the
United States to corporations created under the laws of any of the
states thereof. The law, as amended, made possible the deduction that
a vessel belonging to a domestic corporation was entitled to registry or
enrollment even though some stock of the company be owned by
aliens. The right of ownership of stock in a corporation was thereafter
distinct from the right to hold the property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S., 304; Queen vs. Arnaud
[1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the new government found
a substantive law in operation in the Islands with a civil law history
which it wisely continued in force Article fifteen of the Spanish Code of
Commerce permitted any foreigner to engage in Philippine trade if he
had legal capacity to do so under the laws of his nation. When the
Philippine Commission came to enact the Customs Administrative Act
(No. 355) in 1902, it returned to the old American policy of limiting the
protection and flag of the United States to vessels owned by citizens of
the United States or by native inhabitants of the Philippine Islands
(Sec. 117.) Two years later, the same body reverted to the existing
Congressional law by permitting certification to be issued to a citizen of
the United States or to a corporation or company created under the
laws of the United States or of any state thereof or of the Philippine
Islands (Act No. 1235, sec. 3.) The two administration codes repeated
the same provisions with the necessary amplification of inclusion of
citizens or native inhabitants of the Philippine Islands (Adm. Code of
1916, sec. 1345; Adm. Code of 1917, sec. 1172). And now Act No.
2761 has returned to the restrictive idea of the original Customs
Administrative Act which in turn was merely a reflection of the statutory
language of the first American Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the
right to a certificate of Philippine registry, are thus found not to be as
radical as a first reading would make them appear.
Without any subterfuge, the apparent purpose of the Philippine
Legislature is seen to be to enact an anti-alien shipping act. The
ultimate purpose of the Legislature is to encourage Philippine ship-
building. This, without doubt, has, likewise, been the intention of the
United States Congress in passing navigation or tariff laws on different
occasions. The object of such a law, the United States Supreme Court
once said, was to encourage American trade, navigation, and ship-
building by giving American ship-owners exclusive privileges. (Old
Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's
Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden
([1824], 9 Wheat., 1) is found the following:
Licensing acts, in fact, in legislation, are universally
restraining acts; as, for example, acts licensing gaming
houses, retailers of spirituous liquors, etc. The act, in this
instance, is distinctly of that character, and forms part of an
extensive system, the object of which is to encourage
American shipping, and place them on an equal footing with
the shipping of other nations. Almost every commercial
nation reserves to its own subjects a monopoly of its
coasting trade; and a countervailing privilege in favor of
American shipping is contemplated, in the whole legislation
of the United States on this subject. It is not to give the
vessel an American character, that the license is granted;
that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as
contradistinguished from foreign; and to preserve the.
Government from fraud by foreigners, in surreptitiously
intruding themselves into the American commercial marine,
as well as frauds upon the revenue in the trade coastwise,
that this whole system is projected.
The United States Congress in assuming its grave responsibility of
legislating wisely for a new country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it decreed, could only be
carried on by citizens of the United States. If the representatives of the
American people acted in this patriotic manner to advance the national
policy, and if their action was accepted without protest in the courts,
who can say that they did not enact such beneficial laws under the all-
pervading police power, with the prime motive of safeguarding the
country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of
the Filipino people and the guardian of their rights, acting under
practically autonomous powers, and imbued with a strong sense of
Philippinism, has desired for these Islands safety from foreign
interlopers, the use of the common property exclusively by its citizens
and the citizens of the United States, and protection for the common
good of the people. Who can say, therefore, especially can a court,
that with all the facts and circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in the enactment of Act
No. 2761?
Surely, the members of the judiciary are not expected to live apart from
active life, in monastic seclusion amidst dusty tomes and ancient
records, but, as keen spectators of passing events and alive to the
dictates of the general — the national — welfare, can incline the scales
of their decisions in favor of that solution which will most effectively
promote the public policy. All the presumption is in favor of the
constitutionally of the law and without good and strong reasons, courts
should not attempt to nullify the action of the Legislature. "In construing
a statute enacted by the Philippine Commission (Legislature), we
deem it our duty not to give it a construction which would be repugnant
to an Act of Congress, if the language of the statute is fairly susceptible
of another construction not in conflict with the higher law." (In
re Guariña [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.)
That is the true construction which will best carry legislative intention
into effect.
With full consciousness of the importance of the question, we
nevertheless are clearly of the opinion that the limitation of domestic
ownership for purposes of obtaining a certificate of Philippine registry
in the coastwise trade to citizens of the Philippine Islands, and to
citizens of the United States, does not violate the provisions of
paragraph 1 of section 3 of the Act of Congress of August 29, 1916 No
treaty right relied upon Act No. 2761 of the Philippine Legislature is
held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the
petitioner. So ordered.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ,
MISAEL P. VERA, in his capacity as Commissioner of Internal
Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO
VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE,
JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General
Crispin V . Bautista, Solicitor Pedro A. Ramirez and Special
Attorney Jaime M. Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with
prayer for a writ of preliminary mandatory and prohibitory injunction. In
their petition Bache & Co. (Phil.), Inc., a corporation duly organized
and existing under the laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court to declare null and void
Search Warrant No. 2-M-70 issued by respondent Judge on February
25, 1970; to order respondents to desist from enforcing the same
and/or keeping the documents, papers and effects seized by virtue
thereof, as well as from enforcing the tax assessments on petitioner
corporation alleged by petitioners to have been made on the basis of
the said documents, papers and effects, and to order the return of the
latter to petitioners. We gave due course to the petition but did not
issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as
follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of
Internal Revenue, wrote a letter addressed to respondent Judge
Vivencio M. Ruiz requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National Internal
Revenue Code, in relation to all other pertinent provisions thereof,
particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon, one of herein respondents, to make and
file the application for search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent
De Leon and his witness, respondent Arturo Logronio, went to the
Court of First Instance of Rizal. They brought with them the following
papers: respondent Vera’s aforesaid letter-request; an application for
search warrant already filled up but still unsigned by respondent De
Leon; an affidavit of respondent Logronio subscribed before
respondent De Leon; a deposition in printed form of respondent
Logronio already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but still
unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by
means of a note, he instructed his Deputy Clerk of Court to take the
depositions of respondents De Leon and Logronio. After the session
had adjourned, respondent Judge was informed that the depositions
had already been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes; and thereafter,
respondent Judge asked respondent Logronio to take the oath and
warned him that if his deposition was found to be false and without
legal basis, he could be charged for perjury. Respondent Judge signed
respondent de Leon’s application for search warrant and respondent
Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by
respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the
BIR agents served the search warrant petitioners at the offices of
petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’
lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of
documents.
On March 3, 1970, petitioners filed a petition with the Court of First
Instance of Rizal praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and mandatory writs
of injunction be issued, that the search warrant be declared null and
void, and that the respondents be ordered to pay petitioners, jointly
and severally, damages and attorney’s fees. On March 18, 1970, the
respondents, thru the Solicitor General, filed an answer to the petition.
After hearing, the court, presided over by respondent Judge, issued on
July 29, 1970, an order dismissing the petition for dissolution of the
search warrant. In the meantime, or on April 16, 1970, the Bureau of
Internal Revenue made tax assessments on petitioner corporation in
the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es
virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and
his witness.
The pertinent provisions of the Constitution of the Philippines and of
the Revised Rules of Court are:jgc:chanrobles.com.ph
"(3) 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." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. — A search warrant
shall not issue but upon probable cause in connection with one specific
offense to be determined by the judge or justice of the peace 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.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. — The judge or justice of the
peace must, before issuing the warrant, personally examine on oath or
affirmation the complainant and any witnesses he may produce and
take their depositions in writing, and attach them to the record, in
addition to any affidavits presented to him." (Rule 126, Revised Rules
of Court.)
The examination of the complainant and the witnesses he may
produce, required by Art. III, Sec. 1, par. 3, of the Constitution, and by
Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be
conducted by the judge himself and not by others. The phrase "which
shall be determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce,"
appearing in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted by the
Sub-Committee of Seven. The following discussion in the
Constitutional Convention (Laurel, Proceedings of the Philippine
Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compañero los piropos y vamos al
grano.
En los casos de una necesidad de actuar inmediatamente para que no
se frusten los fines de la justicia mediante el registro inmediato y la
incautacion del cuerpo del delito, no cree Su Señoria que causaria
cierta demora el procedimiento apuntado en su enmienda en tal forma
que podria frustrar los fines de la justicia o si Su Señoria encuentra un
remedio para esto casos con el fin de compaginar los fines de la
justicia con los derechos del individuo en su persona, bienes etcetera,
etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que
Su Señoria pregunta por la siguiente razon: el que solicita un
mandamiento de registro tiene que hacerlo por escrito y ese escrito no
aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar
ese escrito o peticion de sucuestro. Esa persona que presenta el
registro puede ser el mismo denunciante o alguna persona que solicita
dicho mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se atendra
solamente a sea peticion sino que el juez examiner a ese denunciante
y si tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese
denunciante por escrito siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro
lado minimizamos en todo lo posible las vejaciones injustas con la
expedicion arbitraria de los mandamientos de registro. Creo que entre
dos males debemos escoger. el menor.
x       x       x
"MR. LAUREL. . . . The reason why we are in favor of this amendment
is because we are incorporating in our constitution something of a
fundamental character. Now, before a judge could issue a search
warrant, he must be under the obligation to examine personally under
oath the complainant and if he has any witness, the witnesses that he
may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126,
is more emphatic and candid, for it requires the judge, before issuing a
search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw
library
Personal examination by the judge of the complainant and his
witnesses is necessary to enable him to determine the existence or
non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3,
of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of
Court, both of which prohibit the issuance of warrants except "upon
probable cause." The determination of whether or not a probable
cause exists calls for the exercise of judgment after a judicial appraisal
of facts and should not be allowed to be delegated in the absence of
any rule to the contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant (respondent De Leon) and his
witness (respondent Logronio). While it is true that the complainant’s
application for search warrant and the witness’ printed-form deposition
were subscribed and sworn to before respondent Judge, the latter did
not ask either of the two any question the answer to which could
possibly be the basis for determining whether or not there was
probable cause against herein petitioners. Indeed, the participants
seem to have attached so little significance to the matter that notes of
the proceedings before respondent Judge were not even taken. At this
juncture it may be well to recall the salient facts. The transcript of
stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows that per
instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special
Deputy Clerk of Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by Mrs.
Gaspar. At that time respondent Judge was at the sala hearing a case.
After respondent Judge was through with the hearing, Deputy Clerk
Gonzales, stenographer Gaspar, complainant De Leon and witness
Logronio went to respondent Judge’s chamber and informed the Judge
that they had finished the depositions. Respondent Judge then
requested the stenographer to read to him her stenographic notes.
Special Deputy Clerk Gonzales testified as
follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable
Judge requested or instructed them, requested Mr. Logronio to raise
his hand and warned him if his deposition will be found to be false and
without legal basis, he can be charged criminally for perjury. The
Honorable Court told Mr. Logronio whether he affirms the facts
contained in his deposition and the affidavit executed before Mr.
Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to
the issuance of Search Warrant No. 2-M-70 was thus limited to
listening to the stenographer’s readings of her notes, to a few words of
warning against the commission of perjury, and to administering the
oath to the complainant and his witness. This cannot be consider a
personal examination. If there was an examination at all of the
complainant and his witness, it was the one conducted by the Deputy
Clerk of Court. But, as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on account of the
intention of the delegates to the Constitutional Convention to make it a
duty of the issuing judge to personally examine the complainant and
his witnesses that the question of how much time would be consumed
by the judge in examining them came up before the Convention, as
can be seen from the record of the proceedings quoted above. The
reading of the stenographic notes to respondent Judge did not
constitute sufficient compliance with the constitutional mandate and the
rule; for by that manner respondent Judge did not have the opportunity
to observe the demeanor of the complainant and his witness, and to
propound initial and follow-up questions which the judicial mind, on
account of its training, was in the best position to conceive. These
were important in arriving at a sound inference on the all-important
question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of
the National Internal Revenue Code in relation to all other pertinent
provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with
one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the
provisions of the Tax Code referred to above. Thus we find the
following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns
and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make
a return or to supply the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks,
compounds, or manufactures any article subject to a specific tax,
without having paid the privilege tax therefore, or who aids or abets in
the conduct of illicit distilling, rectifying, compounding, or illicit
manufacture of any article subject to specific tax . . .," and provides
that in the case of a corporation, partnership, or association, the official
and/or employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales,
business, or gross value of output removed, or to pay the tax due
thereon.
The search warrant in question was issued for at least four distinct
offenses under the Tax Code. The first is the violation of Sec. 46(a),
Sec. 72 and Sec. 73 (the filing of income tax returns), which are
interrelated. The second is the violation of Sec. 53 (withholding of
income taxes at source). The third is the violation of Sec. 208 (unlawful
pursuit of business or occupation); and the fourth is the violation of
Sec. 209 (failure to make a return of receipts, sales, business or gross
value of output actually removed or to pay the tax due thereon). Even
in their classification the six above-mentioned provisions are embraced
in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II
(Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax
on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550,
June 19, 1967 (20 SCRA 383), is not applicable, because there the
search warrants were issued for "violation of Central Bank Laws,
Internal Revenue (Code) and Revised Penal Code;" whereas, here
Search Warrant No 2-M-70 was issued for violation of only one code,
i.e., the National Internal Revenue Code. The distinction more
apparent than real, because it was precisely on account of the
Stonehill incident, which occurred sometime before the present Rules
of Court took effect on January 1, 1964, that this Court amended the
former rule by inserting therein the phrase "in connection with one
specific offense," and adding the sentence "No search warrant shall
issue for more than one specific offense," in what is now Sec. 3, Rule
126. Thus we said in Stonehill:jgc:chanrobles.com.ph
"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 that ‘a
search warrant shall not issue but upon probable cause in connection
with 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.’" 
3. The search warrant does not particularly describe the things to be
seized.
The documents, papers and effects sought to be seized are described
in Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals,
columnars, receipts and disbursements books, customers ledgers);
receipts for payments received; certificates of stocks and securities;
contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business
records; checks and check stubs; records of bank deposits and
withdrawals; and records of foreign remittances, covering the years
1966 to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court,
that the warrant should particularly describe the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto
Concepcion, said:jgc:chanrobles.com.ph
"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:chanrob1es
virtual 1aw library
‘Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper 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 — that the
things to be seized be particularly described — as well as tending to
defeat its major objective: the elimination of general warrants."cralaw
virtua1aw library
While the term "all business transactions" does not appear in Search
Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the
major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to
include all conceivable records of petitioner corporation, which, if
seized, could possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this
Court had occasion to explain the purpose of the requirement that the
warrant should particularly describe the place to be searched and the
things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
specifically require that a search warrant should particularly describe
the place to be searched and the things to be seized. The evident
purpose and intent of this requirement is to limit the things to be seized
to those, and only those, particularly described in the search warrant
— to leave the officers of the law with no discretion regarding what
articles they shall seize, to the end that ‘unreasonable searches and
seizures’ may not be made, — that abuses may not be committed.
That this is the correct interpretation of this constitutional provision is
borne out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be
defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances
will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact — not of law — by which the
warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited
to those which bear direct relation to the offense for which the warrant
is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein
search warrant does not conform to any of the foregoing tests. If the
articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject
of search and seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons,
and other pertinent data regarding the receipts of payments,
certificates of stocks and securities, contracts, promissory notes,
deeds of sale, messages and communications, checks, bank deposits
and withdrawals, records of foreign remittances, among others,
enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners
failed to file a motion for reconsideration of respondent Judge’s order
of July 29, 1970. The contention is without merit. In the first place,
when the questions raised before this Court are the same as those
which were squarely raised in and passed upon by the court below, the
filing of a motion for reconsideration in said court before certiorari can
be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al.
v. Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring
the filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied
without considering the circumstances. (Matutina v. Buslon, Et Al., 109
Phil., 140.) In the case at bar time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of the
Bureau of Internal Revenue against petitioner corporation, On account
of which immediate and more direct action becomes necessary.
(Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule
does not apply where, as in this case, the deprivation of petitioners’
fundamental right to due process taints the proceeding against them in
the court below not only with irregularity but also with nullity. (Matute v.
Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to
protection against unreasonable search and seizures. Again, we find
no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of
the state of its creation, or of an act of Congress passed in the
exercise of its constitutional powers, cannot refuse to produce the
books and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to immunity,
under the 4th Amendment, against unreasonable searches and
seizures. A corporation is, after all, but an association of individuals
under an assumed name and with a distinct legal entity. In organizing
itself as a collective body it waives no constitutional immunities
appropriate to such body. Its property cannot be taken without
compensation. It can only be proceeded against by due process of law,
and is protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was
thought that a different rule applied to a corporation, the ground that it
was not privileged from producing its books and papers. But the rights
of a corporation against unlawful search and seizure are to be
protected even if the same result might have been achieved in a lawful
way." (Silverthorne Lumber Company, Et. Al. v. United States of
America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against unreasonable
searches and seizures, thus:jgc:chanrobles.com.ph
"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 the interest of each of them in said
corporations, whatever, the offices they hold therein may be. Indeed, it
is well settled that the legality of a seizure can be contested only by the
party whose rights have been impaired thereby, and that the objection
to an unlawful search and seizure is purely personal and cannot be
availed of by third parties. 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 . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in
whose offices documents, papers and effects were searched and
seized were the petitioners. In the case at bar, the corporation to whom
the seized documents belong, and whose rights have thereby been
impaired, is itself a petitioner. On that score, petitioner corporation here
stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not
entirely — as claimed by petitioners — at least partly — as in effect
admitted by respondents — based on the documents seized by virtue
of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the
search and seizure on February 25, 1970, is a strong indication that
the documents thus seized served as basis for the assessments.
Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly,
Search Warrant No. 2-M-70 issued by respondent Judge is declared
null and void; respondents are permanently enjoined from enforcing
the said search warrant; the documents, papers and effects seized
thereunder are ordered to be returned to petitioners; and respondent
officials the Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments mentioned in
Annex "G" of the present petition, as well as other assessments based
on the documents, papers and effects seized under the search warrant
herein nullified, and from using the same against petitioners in any
criminal or other proceeding. No pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee
and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.

G.R. No. L-19550             June 19, 1967
HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS
and KARL BECK, petitioners,  regardless of the alleged illegality of the aforementioned searches and
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF
JUSTICE; JOSE LUKBAN, in his capacity as Acting Director,
National Bureau of Investigation; SPECIAL PROSECUTORS
PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL,
JR. and ASST. FISCAL MANASES G. REYES; JUDGE AMADO
ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO,
Municipal Court of Manila; JUDGE HERMOGENES CALUAG, Court
of First Instance of Rizal-Quezon City Branch, and JUDGE
DAMIAN JIMENEZ, Municipal Court of Quezon City, 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.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the
margin1 — hereinafter referred to as Respondents-Prosecutors —
several judges2 — hereinafter referred to as Respondents-Judges —
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 — 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 — 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 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,
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 belongsexclusively 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 whose rights have been invaded.
Certainly, such a seizure, if unlawful, could not affect the
constitutional rights of defendants whose property had not
been seized or the privacy of whose homes had not been
disturbed; nor could they claim for themselves the benefits of
the Fourth 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.1äwphï1.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
Constitution13 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,
nospecific 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," — as alleged in the
aforementioned applications — without reference to any determinate
provision of said laws or
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 —
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
with 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 — that the
things to be seized be particularly described — 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 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 wrong will that
wrong 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, praiseworthy as they are, are not to be aided by
the sacrifice of those great principles established by years of
endeavor and suffering which have resulted in their
embodiment in the fundamental law of the land.19
This view was, not only reiterated, but, also, broadened in subsequent
decisions on the same Federal Court. 20After 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, without that rule the
freedom from state invasions of privacy would be so
ephemeral and so neatly severed from its conceptual nexus
with the freedom from all brutish means of coercing
evidence as not to permit this Court's high regard as a
freedom "implicit in the concept of ordered liberty." At the
time 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 Cases.
Therefore, in extending the substantive protections of due
process to all constitutionally unreasonable searches —
state or federal — it was logically and constitutionally
necessarily that the exclusion doctrine — an essential part of
the right to privacy — be also insisted upon as an essential
ingredient of the right newly recognized by the Wolf Case. In
short, the admission of the new constitutional Right by Wolf
could not tolerate denial of its most important constitutional
privilege, namely, the exclusion of the evidence which an
accused had been forced to give by reason of the unlawful
seizure. To hold otherwise is to grant the right but in reality
to withhold its privilege and enjoyment. Only last year the
Court itself recognized that the purpose of the exclusionary
rule to "is to deter — to compel respect for the constitutional
guaranty in the only effectively available way — 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, we 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, we can no
longer permit it to be revocable at the whim of any police
officer who, in the name of law enforcement itself, chooses
to suspend its enjoyment. Our decision, founded on reason
and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than
that to which honest law 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 —
but, understandably — 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.
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, notin 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.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief Justice Roberto
Concepcion and from the import of the deliberations of the Court on
this case, I gather the following distinct conclusions:
1. All the search warrants served by the National Bureau of
Investigation in this case are general warrants and are
therefore proscribed by, and in violation of, paragraph 3 of
section 1 of Article III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the
authority of the said search warrants were consequently
illegal;
3. The non-exclusionary rule enunciated in Moncado vs.
People, 80 Phil. 1, should be, and is declared, abandoned;
4. The search warrants served at the three residences of the
petitioners are expressly declared null and void the searches
and seizures therein made are expressly declared illegal;
and the writ of preliminary injunction heretofore issued
against the use of the documents, papers and effect seized
in the said residences is made permanent; and
5. Reasoning that the petitioners have not in their pleadings
satisfactorily demonstrated that they have legal standing to
move for the suppression of the documents, papers and
effects seized in the places other than the three residences
adverted to above, the opinion written by the Chief
Justice refrains from expresslydeclaring as null and void the
such warrants served at such other places and as illegal the
searches and seizures made therein, and leaves "the matter
open for determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the
immediately preceding paragraph (numbered 5) with which I am not in
accord.
I do not share his reluctance or unwillingness to expressly declare, at
this time, the nullity of the search warrants served at places other than
the three residences, and the illegibility of the searches and seizures
conducted under the authority thereof. In my view even the
exacerbating passions and prejudices inordinately generated by the
environmental political and moral developments of this case should not
deter this Court from forthrightly laying down the law not only for this
case but as well for future cases and future generations. All the search
warrants, without exception, in this case are admittedly general,
blanket and roving warrants and are therefore admittedly and
indisputably outlawed by the Constitution; and the searches and
seizures made were therefore unlawful. That the petitioners, let us
assume in gratia argumente, have no legal standing to ask for the
suppression of the papers, things and effects seized from places other
than their residences, to my mind, cannot in any manner affect, alter or
otherwise modify the intrinsic nullity of the search warrants and the
intrinsic illegality of the searches and seizures made thereunder.
Whether or not the petitioners possess legal standing the said warrants
are void and remain void, and the searches and seizures were illegal
and remain illegal. No inference can be drawn from the words of the
Constitution that "legal standing" or the lack of it is a determinant of the
nullity or validity of a search warrant or of the lawfulness or illegality of
a search or seizure.
On the question of legal standing, I am of the conviction that, upon the
pleadings submitted to this Court the petitioners have the requisite
legal standing to move for the suppression and return of the
documents, papers and effects that were seized from places other than
their family residences.
Our constitutional provision on searches and seizures was derived
almost verbatim from the Fourth Amendment to the United States
Constitution. In the many years of judicial construction and
interpretation of the said constitutional provision, our courts have
invariably regarded as doctrinal the pronouncement made on the
Fourth Amendment by federal courts, especially the Federal Supreme
Court and the Federal Circuit Courts of Appeals.
The U.S. doctrines and pertinent cases on standing to move for the
suppression or return of documents, papers and effects which are the
fruits of an unlawful search and seizure, may be summarized as
follows; (a) ownership of documents, papers and effects gives
"standing;" (b) ownership and/or control or possession — actual or
constructive — of premises searched gives "standing"; and (c) the
"aggrieved person" doctrine where the search warrant and the sworn
application for search warrant are "primarily" directed solely and
exclusively against the "aggrieved person," gives "standing."
An examination of the search warrants in this case will readily show
that, excepting three, all were directed against the petitioners
personally. In some of them, the petitioners were named personally,
followed by the designation, "the President and/or General Manager"
of the particular corporation. The three warrants excepted named three
corporate defendants. But the "office/house/warehouse/premises"
mentioned in the said three warrants were also the same
"office/house/warehouse/premises" declared to be owned by or under
the control of the petitioners in all the other search warrants directed
against the petitioners and/or "the President and/or General Manager"
of the particular corporation. (see pages 5-24 of Petitioners' Reply of
April 2, 1962). The searches and seizures were to be made, and were
actually made, in the "office/house/warehouse/premises" owned by or
under the control of the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the petitioners to
bring a motion to return and suppress, and gives them standing as
persons aggrieved by an unlawful search and seizure regardless of
their location at the time of seizure. Jones vs. United States, 362 U.S.
257, 261 (1960) (narcotics stored in the apartment of a friend of the
defendant); Henzel vs. United States, 296 F. 2d. 650, 652-53 (5th Cir.
1961), (personal and corporate papers of corporation of which the
defendant was president), United States vs. Jeffers, 342 U.S. 48
(1951) (narcotics seized in an apartment not belonging to the
defendant); Pielow vs. United States, 8 F. 2d 492, 493 (9th Cir. 1925)
(books seized from the defendant's sister but belonging to the
defendant); Cf. Villano vs. United States, 310 F. 2d 680, 683 (10th Cir.
1962) (papers seized in desk neither owned by nor in exclusive
possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on
December 12, 1966), it was held that under the constitutional provision
against unlawful searches and seizures, a person places himself or his
property within a constitutionally protected area, be it his home or his
office, his hotel room or his automobile:
Where the argument falls is in its misapprehension of the
fundamental nature and scope of Fourth Amendment
protection. What the Fourth Amendment protects is the
security a man relies upon when heplaces himself or his
property within a constitutionally protected area, be it his
home or his office, his hotel room or his automobile. There
he is protected from unwarranted governmental intrusion.
And when he puts some thing in his filing cabinet, in his desk
drawer, or in his pocket, he has the right to know it will be
secure from an unreasonable search or an unreasonable
seizure. So it was that the Fourth Amendment could not
tolerate the warrantless search of the hotel room in Jeffers,
 the purloining of the petitioner's private papers in Gouled, or
the surreptitious electronic surveilance in Silverman.
Countless other cases which have come to this Court over
the years have involved a myriad of differing factual contexts
in which the protections of the Fourth Amendment have
been appropriately invoked. No doubt, the future will bring
countless others. By nothing we say here do we either
foresee or foreclose factual situations to which the Fourth
Amendment may be applicable. (Hoffa vs. U.S., 87 S. Ct.
408 (December 12, 1966). See also U.S. vs. Jeffers, 342
U.S. 48, 72 S. Ct. 93 (November 13, 1951). (Emphasis
supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest in the records and
documents seized, the petitioners have standing to move for return
and suppression by virtue of their proprietary or leasehold interest in
many of the premises searched. These proprietary and leasehold
interests have been sufficiently set forth in their motion for
reconsideration and need not be recounted here, except to emphasize
that the petitioners paid rent, directly or indirectly, for practically all the
premises searched (Room 91, 84 Carmen Apts; Room 304, Army &
Navy Club; Premises 2008, Dewey Boulevard; 1436 Colorado Street);
maintained personal offices within the corporate offices (IBMC, USTC);
had made improvements or furnished such offices; or had paid for the
filing cabinets in which the papers were stored (Room 204, Army &
Navy Club); and individually, or through their respective spouses,
owned the controlling stock of the corporations involved. The
petitioners' proprietary interest in most, if not all, of the premises
searched therefore independently gives them standing to move for the
return and suppression of the books, papers and affects seized
therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated
the nature and extent of the interest in the searched premises
necessary to maintain a motion to suppress. After reviewing what it
considered to be the unduly technical standard of the then prevailing
circuit court decisions, the Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the
lower courts. We are persuaded, however, that it is
unnecessarily and ill-advised to import into the law
surrounding the constitutional right to be free from
unreasonable searches and seizures subtle distinctions,
developed and refined by the common law in evolving the
body of private property law which, more than almost any
other branch of law, has been shaped by distinctions whose
validity is largely historical. Even in the area from which they
derive, due consideration has led to the discarding of those
distinctions in the homeland of the common law. See
Occupiers' Liability Act, 1957, 5 and 6 Eliz. 2, c. 31, carrying
out Law Reform Committee, Third Report, Cmd. 9305.
Distinctions such as those between "lessee", "licensee,"
"invitee," "guest," often only of gossamer strength, ought not
be determinative in fashioning procedures ultimately
referable to constitutional safeguards. See also Chapman
vs. United States, 354 U.S. 610, 616-17 (1961).
It has never been held that a person with requisite interest in the
premises searched must own the property seized in order to have
standing in a motion to return and suppress. In Alioto vs. United
States, 216 F. Supp. 48 (1963), a Bookkeeper for several corporations
from whose apartment the corporate records were seized successfully
moved for their return. In United States vs. Antonelli, Fireworks Co., 53
F. Supp. 870, 873 (W D. N. Y. 1943), the corporation's president
successfully moved for the return and suppression is to him of both
personal and corporate documents seized from his home during the
course of an illegal search:
The lawful possession by Antonelli of documents and
property, "either his own or the corporation's was entitled to
protection against unreasonable search and seizure. Under
the circumstances in the case at bar, the search and seizure
were unreasonable and unlawful. The motion for the return
of seized article and the suppression of the evidence so
obtained should be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the
place searched or the articles seize had the necessary standing to
invoke the protection of the exclusionary rule. But in MacDonald vs.
Unite States, 335 U.S. 461 (1948), Justice Robert Jackson joined by
Justice Felix Frankfurter, advanced the view that "even a guest may
expect the shelter of the rooftree he is under against criminal
intrusion." This view finally became the official view of the U.S.
Supreme Court and was articulated in United States vs. Jeffers, 432
U.S 48 (1951). Nine years later, in 1960, in Jones vs. Unite States, 362
U.S. 257, 267, the U.S. Supreme Court went a step further. Jones was
a mere guest in the apartment unlawfully searched but the Court
nonetheless declared that the exclusionary rule protected him as well.
The concept of "person aggrieved by an unlawful search and seizure"
was enlarged to include "anyone legitimately on premise where the
search occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court
of Appeals for the Fifth Circuit held that the defendant organizer, sole
stockholder and president of a corporation had standing in a mail fraud
prosecution against him to demand the return and suppression of
corporate property. Henzel vs. United States, 296 F 2d 650, 652 (5th
Cir. 1961), supra. The court conclude that the defendant had standing
on two independent grounds:First — he had a sufficient interest in the
property seized, and second — he had an adequate interest in the
premises searched (just like in the case at bar). A postal inspector had
unlawfully searched the corporation' premises and had seized most of
the corporation's book and records. Looking to Jones, the court
observed:
Jones clearly tells us, therefore, what is not required qualify
one as a "person aggrieved by an unlawful search and
seizure." It tells us that appellant should not have been
precluded from objecting to the Postal Inspector's search
and seizure of the corporation's books and records merely
because the appellant did not show ownership or possession
of the books and records or a substantial possessory interest
in the invade premises . . . (Henzel vs. United States, 296 F.
2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680,
683, (10th Cir. 1962). In Villano, police officers seized two notebooks
from a desk in the defendant's place of employment; the defendant did
not claim ownership of either; he asserted that several employees
(including himself) used the notebooks. The Court held that the
employee had a protected interest and that there also was an invasion
of privacy. Both Henzel andVillano considered also the fact that the
search and seizure were "directed at" the moving defendant. Henzel
vs. United States, 296 F. 2d at 682; Villano vs. United States, 310 F.
2d at 683.
In a case in which an attorney closed his law office, placed his files in
storage and went to Puerto Rico, the Court of Appeals for the Eighth
Circuit recognized his standing to move to quash as unreasonable
search and seizure under the Fourth Amendment of the U.S.
Constitution a grand jury subpoena duces tecum directed to the
custodian of his files. The Government contended that the petitioner
had no standing because the books and papers were physically in the
possession of the custodian, and because the subpoena was directed
against the custodian. The court rejected the contention, holding that
Schwimmer legally had such possession, control and
unrelinquished personal rights in the books and papers as
not to enable the question of unreasonable search and
seizure to be escaped through the mere procedural device of
compelling a third-party naked possessor to produce and
deliver them. Schwimmer vs. United States, 232 F. 2d 855,
861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant s primarily
directed against said person gives "standing."
The latest United States decision squarely in point is United States vs. warrants and (b) purely corporate papers belonging to corporations.
Birrell, 242 F. Supp. 191 (1965, U.S.D.C. S.D.N.Y.). The defendant Under such categorization or grouping, the determination of which
had stored with an attorney certain files and papers, which attorney, by unlawfully seized papers, documents and things arepersonal/private of
the name of Dunn, was not, at the time of the seizing of the records, the petitioners or purely corporate papers will have to be left to the
Birrell's attorney. * Dunn, in turn, had stored most of the records at his lower courts which issued the void search warrants in ultimately
home in the country and on a farm which, according to Dunn's affidavit, effecting the suppression and/or return of the said documents.
was under his (Dunn's) "control and management." The papers turned
out to be private, personal and business papers together with
And as unequivocally indicated by the authorities above cited, the
corporate books and records of certain unnamed corporations in which
petitioners likewise have clear legal standing to move for the
Birrell did not even claim ownership. (All of these type records were
suppression of purely corporate papers as "President and/or General
seized in the case at bar). Nevertheless, the search in Birrell was held
Manager" of the corporations involved as specifically mentioned in the
invalid by the court which held that even though Birrell did not own the
void search warrants.
premises where the records were stored, he had "standing" to move
for the return of all the papers and properties seized. The court, relying
on Jones vs. U.S.,supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. Finally, I must articulate my persuasion that although the cases cited in
870, Aff'd 155 F. 2d 631: Henzel vs. U.S., supra; andSchwimmer vs. my disquisition were criminal prosecutions, the great clauses of the
U.S., supra, pointed out that constitutional proscription on illegal searches and seizures do not
withhold the mantle of their protection from cases not criminal in origin
or nature.
It is overwhelmingly established that the searches here in
question were directed solely and exclusively against Birrell.
The only person suggested in the papers as having violated
the law was Birrell. The first search warrant described the
records as having been used "in committing a violation of
Title 18, United States Code, Section 1341, by the use of the
mails by one Lowell M. Birrell, . . ." The second search
warrant was captioned: "United States of America vs. Lowell
M. Birrell. (p. 198)

Possession (actual or constructive), no less than ownership,

gives standing to move to suppress. Such was the rule even
before Jones. (p. 199)

If, as thus indicated Birrell had at least constructive

possession of the records stored with Dunn, it matters not
whether he had any interest in the premises searched. See
also Jeffers v. United States, 88 U.S. Appl. D.C. 58, 187 F.
2d 498 (1950), affirmed 432 U.S. 48, 72 S. Ct. 93, 96 L. Ed.
459 (1951). G.R. No. 75885 May 27, 1987

The ruling in the Birrell case was reaffirmed on motion for reargument; BATAAN SHIPYARD & ENGINEERING CO., INC.
the United States did not appeal from this decision. The factual (BASECO), petitioner, 
situation in Birrell is strikingly similar to the case of the present vs.
petitioners; as in Birrell, many personal and corporate papers were PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
seized from premises not petitioners' family residences; as CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
in Birrell, the searches were "PRIMARILY DIRECTED SOLETY AND CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
EXCLUSIVELY" against the petitioners. Still both types of documents COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
were suppressed in Birrell because of the illegal search. In the case at DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
bar, the petitioners connection with the premises raided is much closer
than in Birrell. Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Thus, the petitioners have full standing to move for the quashing of all Vicente G. Sison for intervenor A.T. Abesamis.
the warrants regardless whether these were directed against
residences in the narrow sense of the word, as long as the documents
were personal papers of the petitioners or (to the extent that they were  
corporate papers) were held by them in a personal capacity or under
their personal control. NARVASA, J.:

Prescinding a from the foregoing, this Court, at all events, should order
the return to the petitioners all personaland private papers and effects
seized, no matter where these were seized, whether from their
residences or corporate offices or any other place or places.
The uncontradicted sworn statements of the petitioners in their,
various pleadings submitted to this Court indisputably show that
amongst the things seized from the corporate offices and other places
were personal and private papers and effects belonging to the
petitioners.
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

If there should be any categorization of the documents, papers and
things which where the objects of the unlawful searches and seizures, I
submit that the grouping should be: (a) personal or private papers of a. The Basic Sequestration Order
the petitioners were they were unlawfully seized, be it their family
residences offices, warehouses and/or premises owned and/or The sequestration order which, in the view of the petitioner corporation,
possessed (actually or constructively) by them as shown in all the initiated all its misery was issued on April 14, 1986 by Commissioner
search and in the sworn applications filed in securing the void search 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
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. 1
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.
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. 2
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, 3 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." 4
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." 5 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." 6
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. 7
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. 8
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." 9 Diaz
invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission —
* * 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
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. 10
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. 11
a. Re Executive Orders No. 1 and 2, and the
Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to
judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 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)." 12
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." 13
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. 14
c. Re PCGG's Exercise of Right of Ownership and
Management
BASECO further contends that the PCGG had unduly interfered with
its right of dominion and management of its business affairs by —
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; 15
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; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage
and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18
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; 19
7) planning to elect its own Board of Directors; 20
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; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold
bars supposed to have been buried therein. 22
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, 23 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" — "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 the interest of the
people through orders of sequestration or freezing of assets or
accounts."  24
b. Executive Order No. 1
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." 25 Upon these premises, the Presidential Commission on
Good Government was created, 26 "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. 27
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. 28
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. 29 It was given power also to promulgate
such rules and regulations as may be necessary to carry out the
purposes of * * (its creation). 30
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:
1) * * the Government of the Philippines is in
possession of evidence showing 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
prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed
"with the Sandiganbayanwhich shall have exclusive and original
jurisdiction thereof." 35 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." 36
5. Contemplated Situations

2) * * said assets and properties are in the form of

The situations envisaged and sought to be governed are self-evident,
bank accounts, deposits, trust accounts, shares of
these being:
stocks, buildings, shopping centers,
condominiums, mansions, residences, estates,
and other kinds of real and personal properties in 1) that "(i)ll-gotten properties (were) amassed by
the Philippines and in various countries of the the leaders and supporters of the previous
world." 31 regime";37

Upon these premises, the President- a) more particularly, that ill-gotten wealth (was)
accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives,
1) froze "all assets and properties in the
subordinates and close associates, * * located in
Philippines in which former President Marcos
the Philippines or abroad, * * (and) business
and/or his wife, Mrs. Imelda Romualdez Marcos,
enterprises and entities (came to be) owned or
their close relatives, subordinates, business
controlled by them, during * * (the Marcos)
associates, dummies, agents, or nominees have
administration, directly or through nominees, by
any interest or participation;
taking undue advantage of their public office
and/or using their powers, authority, influence,
2) prohibited former President Ferdinand Marcos Connections or relationship; 38
and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents,
b) otherwise stated, that "there are assets and
or nominees from transferring, conveying,
properties purportedly pertaining to former
encumbering, concealing or dissipating said
President Ferdinand E. Marcos, and/or his wife
assets or properties in the Philippines and abroad,
Mrs. Imelda Romualdez Marcos, their close
pending the outcome of appropriate proceedings
relatives, subordinates, business associates,
in the Philippines to determine whether any such
dummies, agents or nominees which had been or
assets or properties were acquired by them
were acquired by them directly or indirectly,
through or as a result of improper or illegal use of
through or as a result of the improper or illegal use
or the conversion of funds belonging to the
of funds or properties owned by the Government
Government of the Philippines or any of its
of the Philippines or any of its branches,
branches, instrumentalities, enterprises, banks or
instrumentalities, enterprises, banks or financial
financial institutions, or by taking undue advantage
institutions, or by taking undue advantage of their
of their official position, authority, relationship,
office, authority, influence, connections or
connection or influence to unjustly enrich
relationship, resulting in their unjust enrichment
themselves at the expense and to the grave
and causing grave damage and prejudice to the
damage and prejudice of the Filipino people and
Filipino people and the Republic of the
the Republic of the Philippines;
Philippines"; 39

3) prohibited "any person from transferring,

c) that "said assets and properties are in the form
conveying, encumbering or otherwise depleting or
of bank accounts. deposits, trust. accounts, shares
concealing such assets and properties or from
of stocks, buildings, shopping centers,
assisting or taking part in their transfer,
condominiums, mansions, residences, estates,
encumbrance, concealment or dissipation under
and other kinds of real and personal properties in
pain of such penalties as are prescribed by law;"
the Philippines and in various countries of the
and
world;" 40 and

4) required "all persons in the Philippines holding

2) that certain "business enterprises and
such assets or properties, whether located in the
properties (were) taken over by the government of
Philippines or abroad, in their names as nominees,
the Marcos Administration or by entities or
agents or trustees, to make full disclosure of the
persons close to former President Marcos. 41
same to the Commission on Good Government
within thirty (30) days from publication of * (the)
Executive Order, * *. 32 6. Government's Right and Duty to Recover All Ill-gotten Wealth

d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which
the PCGG is empowered, "with the assistance of the Office of the
Solicitor General and other government agencies, * * to file and
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 with 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 with 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. 42
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
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."43
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. 44 And this, too, is the sense in which the term is
commonly understood in other jurisdictions. 45
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." 46 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. 47
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." 48 Such a "provisional
takeover" imports something more than sequestration or freezing,
more than the 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."  49 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
whether any such assets or properties were 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 50 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, 51 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-
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. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are
akin to the provisional remedy of preliminary attachment, or
receivership. 53 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. 54 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. 55 All these remedies — sequestration, freezing,
provisional, takeover, attachment and receivership — 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. 56 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." 57 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 replevinsuits, sequestration and
provisional takeover writs may issue ex parte. 58 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;" 59 as well as the obvious
need to avoid alerting suspected possessors of "ill-gotten 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.60
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. 61
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." 62Executive 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." 63 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. 64 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."65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the accorded to the accusation, leveled by BASECO, 72 that the PCGG
procedure by which a party may seek to set aside a writ of plays the perfidious role of prosecutor and judge at the same time.
sequestration or freeze order, viz:
11. Facts Preclude Grant of Relief to Petitioner
SECTION 5. Who may contend.-The person
against whom a writ of sequestration or freeze or
Upon these premises and reasoned conclusions, and upon the facts
hold order is directed may request the lifting
disclosed by the record, hereafter to be discussed, the petition cannot
thereof in writing, either personally or through
succeed. The writs of certiorari and prohibition prayed for will not be
counsel within five (5) days from receipt of the writ
issued.
or order, or in the case of a hold order, from date
of knowledge thereof.
The facts show that the corporation known as BASECO was owned or
controlled by President Marcos "during his administration, through
SECTION 6. Procedure for review of writ or order.-
nominees, by taking undue advantage of his public office and/or using
After due hearing or motu proprio for good cause
his powers, authority, or influence, " and that it was by and through the
shown, the Commission may lift the writ or order
same means, that BASECO had taken over the business and/or assets
unconditionally or subject to such conditions as it
of the National Shipyard and Engineering Co., Inc., and other
may deem necessary, taking into consideration
government-owned or controlled entities.
the evidence and the circumstance of the case.
The resolution of the commission may be
appealed by the party concerned to the Office of 12. Organization and Stock Distribution of BASECO
the President of the Philippines within fifteen (15)
days from receipt thereof.
BASECO describes itself in its petition as "a shiprepair and
shipbuilding company * * incorporated as a domestic private
Parenthetically, even if the requirement for a prima facie showing of "ill- corporation * * (on Aug. 30, 1972) by a consortium of Filipino
gotten wealth" were not expressly imposed by some rule or regulation shipowners and shipping executives. Its main office is at Engineer
as a condition to warrant the sequestration or freezing of property Island, Port Area, Manila, where its Engineer Island Shipyard is
contemplated in the executive orders in question, it would nevertheless housed, and its main shipyard is located at Mariveles Bataan." 73 Its
be exigible in this jurisdiction in which the Rule of Law prevails and Articles of Incorporation disclose that its authorized capital stock is
official acts which are devoid of rational basis in fact or law, or are P60,000,000.00 divided into 60,000 shares, of which 12,000 shares
whimsical and capricious, are condemned and struck down. 66 with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by
the incorporators. 74 The same articles Identify the incorporators,
9. Constitutional Sanction of Remedies
numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P.
Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso
If any doubt should still persist in the face of the foregoing Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias
considerations as to the validity and propriety of sequestration, freeze Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro
and takeover orders, it should be dispelled by the fact that these Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw
particular remedies and the authority of the PCGG to issue them have Torres, and (15) Rodolfo Torres.
received constitutional approbation and sanction. As already
mentioned, the Provisional or "Freedom" Constitution recognizes the
By 1986, however, of these fifteen (15) incorporators, six (6) had
power and duty of the President to enact "measures to achieve the
ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio
mandate of the people to * * * (recover ill- gotten properties amassed
Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw
by the leaders and supporters of the previous regime and protect the
Torres, and (6) Rodolfo Torres. As of this year, 1986, there were
interest of the people through orders of sequestration or freezing of
twenty (20) stockholders listed in BASECO's Stock and Transfer
assets or accounts." And as also already adverted to, Section 26,
Book. 75 Their names and the number of shares respectively held by
Article XVIII of the 1987 Constitution 67 treats of, and ratifies the
them are as follows:
"authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986."
1. Jose A. Rojas 1,248 shares
The institution of these provisional remedies is also premised upon the
State's inherent police power, regarded, as t lie power of promoting the 2. Severino G. de la 1,248 shares
public welfare by restraining and regulating the use of liberty and Cruz
property," 68 and as "the most essential, insistent and illimitable of
powers * * in the promotion of general welfare and the public 3. Emilio T. Yap 2,508 shares
interest," 69and said to be co-extensive with self-protection and * * not
inaptly termed (also) the'law of overruling necessity." " 70
4. Jose Fernandez 1,248 shares

10. PCGG not a "Judge"; General Functions 5. Jose Francisco 128 shares

It should also by now be reasonably evident from what has thus far 6. Manuel S. Mendoza 96 shares
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 7. Anthony P. Lee 1,248 shares
to collect evidenceestablishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence 8. Hilario M. Ruiz 32 shares
thus collected and as may be necessary to preserve and conserve the
assets of which it takes custody and control and prevent their 9. Constante L. Fariñas 8 shares
disappearance, loss or dissipation; and eventually file and prosecute in
the proper court of competent jurisdiction all cases investigated by it as 10. Fidelity 65,882 shares
may be warranted by its findings. It does not try and decide, or hear Management, Inc.
and determine, or adjudicate with any character of finality or
compulsion, cases involving the essential issue of whether or not
11. Trident 7,412 shares
property should be forfeited and transferred to the State because "ill-
Management
gotten" within the meaning of the Constitution and the executive
orders. This function is reserved to the designated court, in this case,
the Sandiganbayan. 71 There can therefore be no serious regard

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
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 — except
for NASSCO's Engineer Island Shops and certain equipment of the
BNS, consigned for future negotiation — 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. 76
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. 77 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. 78
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 was
accomplished by a deed entitled "Contract of Purchase and
Sale," 79which, 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)." 80On 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. 81 The claim has been made that not a single centavo
has been paid on these loans. 82
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. 83 The
second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose
the fine hand of Marcos in the affairs of 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. 85 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 —
* * 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 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. 86
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 "waived 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 will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following
documents: 88
1. Stock certificates indorsed and assigned in
blank with assignments and waivers;  89
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;
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. 90
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
—
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
tomake it justifiable for you, Sir. 91
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 which 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.
For immediate compliance. 92
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. 93 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)." 94
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 was made to pay BASECO
instead the amount of P18.285M); 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. 95
20. Evidence of Marcos'
Ownership 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 owns 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. 96 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 thanninety-five percent (95%) 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 95.82% of all
BASECO stock), signed by the owners thereof although not
notarized. 97
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. — which
supposedly owns as aforesaid 65,882 shares of
BASECO stock;
2) the deeds of assignment of 2,499,995 of the
2,500,000 outstanding shares of Metro Bay
Drydock Corporation — which allegedly owns
136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding
shares of Trident Management Co., Inc. — which
allegedly owns 7,412 shares of BASECO stock,
assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out
of the 218,819 outstanding shares of BASECO
stock; that is, all but 5 % — all endorsed in
blank. 99
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," 100 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.' 101 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." 102 On 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." 103
In a Manifestation dated October 10, 1986,, 104 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 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. 105
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." 106 In a
motion filed on December 5, 1986, 107 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." 108 He has
conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not
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 109 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.
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. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial trial." 111 "Its essence is
the substitution of a legislative for a judicial determination of guilt." 112
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 * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the
constitutional protections which private individuals
have. * * They are not at all within the privilege
against self-incrimination, although this court more
than once has said that the 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
will 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 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 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 —
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 Powers 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 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 Ownership
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 owner. 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 Powers 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, 115 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. 116 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. Powers 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," 117 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 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; 118 this Court declared that —
Petitioner has failed to make out a case of grave
abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting 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 Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the
cancellation or revision, and the execution of certain contracts,
inclusive of the termination of the employment of some of its
executives, 119 this Court cannot, in the present state of the evidence
on record, pass upon them. It is not necessary to do so. The issues
arising therefrom may and will be left for initial determination in the
appropriate action. But the Court will state that absent any showing of
any important cause therefor, it will not normally substitute its judgment
for that of the PCGG in these individual transactions. It is clear
however, that as things now stand, the petitioner cannot be said to
have established the correctness of its submission that the acts of the
PCGG in question were done without or in excess of its powers, or with
grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining
order issued on October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.
G.R. No. 144214             July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners, 
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ
JR. and CARMELITA C. RAMIREZ,respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of
the latter's dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March
23, 2000 Decision1 and the July 26, 2000 Resolution 2 of the Court of
Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:
"WHEREFORE, foregoing premises considered, the
Decision dated July 21, 1992 rendered by the Regional Trial
Court, Branch 148, Makati City is hereby SET ASIDE and
NULLIFIED and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No
pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus
Jose formed a partnership with a capital of P750,000 for the operation
of a restaurant and catering business under the name "Aquarius Food
House and Catering Services." 5 Villareal was appointed general
manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000
was paid by his parents, Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by
agreement of the partners.7
In the same month, without prior knowledge of respondents, petitioners
closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents'
house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latter's offer
to return their capital contribution. 9
On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and
equipment stored in their house. She also reiterated the request for the
return of their one-third share in the equity of the partnership. The
repeated oral and written requests were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint 11 dated November 10,
1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed
a desire to withdraw from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and
equipment worth over P400,000; and that the latter had no right to
demand a return of their equity because their share, together with the
rest of the capital of the partnership, had been spent as a result of
irreversible business losses.12
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The
former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business.
Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as
the latter found a better location for the restaurant. 13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment 14 on July 8, 1988. The
furniture and the equipment stored in their house were inventoried and
appraised at P29,000. 15 The display freezer was sold for P5,000 and
the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into
a partnership, which could be dissolved at any time. Petitioners clearly
intended to dissolve it when they stopped operating the restaurant.
Hence, the trial court, in its July 21, 1992 Decision, held there liable as
follows:18
"WHEREFORE, judgment is hereby rendered in favor of
[respondents] and against the [petitioners] ordering the
[petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the
return of their capital contribution, the partnership was nonetheless
dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and
because no sufficient evidence was presented to show financial
losses, the CA. computed their liability as follows:
"Consequently, since what has been proven is only the
outstanding obligation of the partnership in the amount of
P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in accordance
with Article 1826 of the New Civil Code, they are liable which
must have to be deducted from the remaining capitalization
of the said partnership which is in the amount of
P1,000,000.00 resulting in the amount of P759,342.00, and
in order to get the share of [respondents], this amount of
P759,342.00 must be divided into three (3) shares or in the
amount of P253,114.00 for each share and which is the only
amount which [petitioner] will return to [respondents']
representing the contribution to the partnership minus the
outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our
consideration:
"9.1. Whether the Honorable Court of Appeals' decision
ordering the distribution of the capital contribution, instead of
the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a
loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision
ordering the petitioners to jointly and severally pay and
reimburse the amount of [P]253,114.00 is supported by the
evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in
making [n]o pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners
are liable to respondents for the latter's share in the partnership; (2)
whether the CA's computation of P253,114 as respondents' share is
correct; and (3) whether the CA was likewise correct in not assessing
costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had
indeed existed, and that it was dissolved on March 1, 1987. They
found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's
dissatisfaction with, and loss of trust in, the latter's management of the
partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the
return of their equity share. Except as managers of the partnership,
petitioners did not personally hold its equity or assets. "The partnership
has a juridical personality separate and distinct from that of each of the
partners."23 Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the
retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources. In other words, it can only pay
out what it has in its coffers, which consists of all its assets. However,
before the partners can be paid their shares, the creditors of the
partnership must first be compensated. 25 After all the creditors have
been paid, whatever is left of the partnership assets becomes available
for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents' one-third share in the partnership cannot be determined
until all the partnership assets will have been liquidated — in other
words, sold and converted to cash — and all partnership creditors, if
any, paid. The CA's computation of the amount to be refunded to
respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to
be distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the capital
contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners. Such
idea is speculative, conjectural and totally without factual or legal
support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does
not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented
before the trial court showed that the business had made meager
profits.26 However, notable therefrom is the omission of any provision
for the depreciation27 of the furniture and the equipment. The
amortization of the goodwill 28 (initially valued at P500,000) is not
reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses,
which consequently decreased the capital of the partnership. Both the
trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence.
We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership for the
following reason:
"x x x [E]vidence on record failed to show the exact loan
owed by the partnership to its creditors. The balance sheet
(Exh. '4') does not reveal the total loan. The Agreement
(Exh. 'A') par. 6 shows an outstanding obligation of
P240,055.00 which the partnership owes to different
creditors, while the Certification issued by Mercator Finance
(Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party
defendant in the instant case, who obtained a loan of
P355,000.00 on Oct. 1983, when the original partnership
was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which
was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital
was actually reduced. When petitioners and respondents ventured into
business together, they should have prepared for the fact that their
investment would either grow or shrink. In the present case, the
investment of respondents substantially dwindled. The original amount
of P250,000 which they had invested could no longer be returned to
them, because one third of the partnership properties at the time of
dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties
from the effects of unwise, foolish or disastrous contracts they have
entered into with all the required formalities and with full awareness of
what they were doing. Courts have no power to relieve them from
obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments.29
Petitioners further argue that respondents acted negligently by
permitting the partnership assets in their custody to deteriorate to the
point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered
the proceeds as payment of their net capital. Hence, petitioners argue
that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully
settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to
private respondents was for the purpose of storage. They were
unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of
the stored items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. — Unless
otherwise provided in these rules, costs shall be allowed to
the prevailing party as a matter of course, but the court shall
have power, for special reasons, to adjudge that either party
shall pay the costs of an action, or that the same be divided,
as may be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided by
law."
Although, as a rule, costs are adjudged against the losing party, courts
have discretion, "for special reasons," to decree otherwise. When a
lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower court's judgment
which is presumed to have been issued in good faith, even if found
later on to be erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision
and Resolution SET ASIDE. This disposition is without prejudice to
proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 172690               March 3, 2010
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, 
vs.
JULIET VILLA LIM, Respondent.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari 1 under Rule 45
of the Rules of Civil Procedure, assailing the Court of Appeals (CA)
Decision2 dated June 29, 2005, which reversed and set aside the
decision3 of the Regional Trial Court (RTC) of Lucena City, dated April
12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
widow Cresencia Palad (Cresencia); and their children Elenito, Evelia,
Imelda, Edelyna and Edison, all surnamed Lim (petitioners),
represented by Elenito Lim (Elenito). They filed a Complaint 4 for
Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was the
eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood
Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose,
together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each, they purchased a truck
to be used in the hauling and transport of lumber of the sawmill. Jose
managed the operations of this trucking business until his death on
August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and
partners agreed to continue the business under the management of
Elfledo. The shares in the partnership profits and income that formed
part of the estate of Jose were held in trust by Elfledo, with petitioners'
authority for Elfledo to use, purchase or acquire properties using said
funds.
Petitioners also alleged that, at that time, Elfledo was a fresh
commerce graduate serving as his father’s driver in the trucking
business. He was never a partner or an investor in the business and
merely supervised the purchase of additional trucks using the income
from the trucking business of the partners. By the time the partnership
ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledo’s management
of the partnership that he was able to purchase numerous real
properties by using the profits derived therefrom, all of which were
registered in his name and that of respondent. In addition to the nine
trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole
surviving heir. Petitioners claimed that respondent took over the
administration of the aforementioned properties, which belonged to the
estate of Jose, without their consent and approval. Claiming that they
are co-owners of the properties, petitioners required respondent to
submit an accounting of all income, profits and rentals received from
the estate of Elfledo, and to surrender the administration thereof.
Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo
was himself a partner of Norberto and Jimmy. Respondent also
claimed that per testimony of Cresencia, sometime in 1980, Jose gave
ElfledoP50,000.00 as the latter's capital in an informal partnership with
Jimmy and Norberto. When Elfledo and respondent got married in
1981, the partnership only had one truck; but through the efforts of
Elfledo, the business flourished. Other than this trucking business,
Elfledo, together with respondent, engaged in other business ventures.
Thus, they were able to buy real properties and to put up their own car
assembly and repair business. When Norberto was ambushed and
killed on July 16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack, respondent talked
to Jimmy and to the heirs of Norberto, as she could no longer run the
business. Jimmy suggested that three out of the nine trucks be given
to him as his share, while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was not interested in
the vehicles. Thus, she sold the same to respondent, who paid for
them in installments.
Respondent also alleged that when Jose died in 1981, he left no
known assets, and the partnership with Jimmy and Norberto ceased
upon his demise. Respondent also stressed that Jose left no properties
that Elfledo could have held in trust. Respondent maintained that all
the properties involved in this case were purchased and acquired
through her and her husband’s joint efforts and hard work, and without
any participation or contribution from petitioners or from Jose.
Respondent submitted that these are conjugal partnership properties;
and thus, she had the right to refuse to render an accounting for the
income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all
incomes, profits and rentals received by her from said
properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted,
petitioners filed their Motion for Reconsideration, 5 which the CA,
however, denied in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF
THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY
A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE
OTHER PARTNERS IN THE PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy,
the sole surviving partner, Elfledo was not a partner; and that he and
Norberto entered into a partnership with Jose. Thus, the CA erred in
not giving that testimony greater weight than that of Cresencia, who
was merely the spouse of Jose and not a party to the partnership.8
Respondent counters that the issue raised by petitioners is not proper
in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation, calibration, and re-
weighing of the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of the admissions
of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's
reversal of the RTC's findings was fully justified. 9
We resolve first the procedural matter regarding the propriety of the
instant Petition.
Verily, the evaluation and calibration of the evidence necessarily
involves consideration of factual issues — an exercise that is not
appropriate for a petition for review on certiorari under Rule 45. This
rule provides that the parties may raise only questions of law, because
the Supreme Court is not a trier of facts. Generally, we are not duty-
bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.10When supported by substantial
evidence, the findings of fact of the CA are conclusive and binding on
the parties and are not reviewable by this Court, unless the case falls
under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd
or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of
facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation
of specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record. 11
We note, however, that the findings of fact of the RTC are contrary to
those of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of
merit.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with
the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined by
the Civil Code as one where two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.12
Undoubtedly, the best evidence would have been the contract of (c) As an annuity to a widow or representative of a
partnership or the articles of partnership. Unfortunately, there is none deceased partner;
in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose
(d) As interest on a loan, though the amount of
and Elfledo was the "partner" in the trucking business.
payment vary with the profits of the business;

A careful review of the records persuades us to affirm the CA decision.

(e) As the consideration for the sale of a goodwill
The evidence presented by petitioners falls short of the quantum of
of a business or other property by installments or
proof required to establish that: (1) Jose was the partner and not
otherwise.
Elfledo; and (2) all the properties acquired by Elfledo and respondent
form part of the estate of Jose, having been derived from the alleged
partnership. Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of
Jimmy and Norberto: 1) Cresencia testified that Jose gave
Petitioners heavily rely on Jimmy's testimony. But that testimony is just
Elfledo P50,000.00, as share in the partnership, on a date that
one piece of evidence against respondent. It must be considered and
coincided with the payment of the initial capital in the partnership; 15 (2)
weighed along with petitioners' other evidence vis-à-vis respondent's
Elfledo ran the affairs of the partnership, wielding absolute control,
contrary evidence. In civil cases, the party having the burden of proof
power and authority, without any intervention or opposition whatsoever
must establish his case by a preponderance of evidence.
from any of petitioners herein; 16 (3) all of the properties, particularly the
"Preponderance of evidence" is the weight, credit, and value of the
nine trucks of the partnership, were registered in the name of Elfledo;
aggregate evidence on either side and is usually considered
(4) Jimmy testified that Elfledo did not receive wages or salaries from
synonymous with the term "greater weight of the evidence" or "greater
the partnership, indicating that what he actually received were shares
weight of the credible evidence." "Preponderance of evidence" is a
of the profits of the business; 17 and (5) none of the petitioners, as heirs
phrase that, in the last analysis, means probability of the truth. It is
of Jose, the alleged partner, demanded periodic accounting from
evidence that is more convincing to the court as worthy of belief than
Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng
that which is offered in opposition thereto. 13 Rule 133, Section 1 of the
Kee,18 a demand for periodic accounting is evidence of a partnership.
Rules of Court provides the guidelines in determining preponderance
of evidence, thus:
Furthermore, petitioners failed to adduce any evidence to show that
the real and personal properties acquired and registered in the names
SECTION I. Preponderance of evidence, how determined. In civil
of Elfledo and respondent formed part of the estate of Jose, having
cases, the party having burden of proof must establish his case by a
been derived from Jose's alleged partnership with Jimmy and
preponderance of evidence. In determining where the preponderance
Norberto. They failed to refute respondent's claim that Elfledo and
or superior weight of evidence on the issues involved lies, the court
respondent engaged in other businesses. Edison even admitted that
may consider all the facts and circumstances of the case, the
Elfledo also sold Interwood lumber as a sideline. 19 Petitioners could not
witnesses' manner of testifying, their intelligence, their means and
offer any credible evidence other than their bare assertions. Thus, we
opportunity of knowing the facts to which they are testifying, the nature
apply the basic rule of evidence that between documentary and oral
of the facts to which they testify, the probability or improbability of their
evidence, the former carries more weight.20
testimony, their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the trial.
The court may also consider the number of witnesses, though the Finally, we agree with the judicious findings of the CA, to wit:
preponderance is not necessarily with the greater number.
The above testimonies prove that Elfledo was not just a hired help but
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of one of the partners in the trucking business, active and visible in the
Appeals14 is enlightening. Therein, we cited Article 1769 of the Civil running of its affairs from day one until this ceased operations upon his
Code, which provides: demise. The extent of his control, administration and management of
the partnership and its business, the fact that its properties were
placed in his name, and that he was not paid salary or other
Art. 1769. In determining whether a partnership exists, these rules
compensation by the partners, are indicative of the fact that Elfledo
shall apply:
was a partner and a controlling one at that. It is apparent that the other
partners only contributed in the initial capital but had no say thereafter
(1) Except as provided by Article 1825, persons who are not on how the business was ran. Evidently it was through Elfredo’s efforts
partners as to each other are not partners as to third and hard work that the partnership was able to acquire more trucks
persons; and otherwise prosper. Even the appellant participated in the affairs of
the partnership by acting as the bookkeeper sans salary.1avvphi1
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or co- It is notable too that Jose Lim died when the partnership was barely a
possessors do or do not share any profits made by the use year old, and the partnership and its business not only continued but
of the property; also flourished. If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership should have
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a been dissolved and its assets liquidated. On the contrary, these were
joint or common right or interest in any property from which not done but instead its operation continued under the helm of Elfledo
the returns are derived; and without any participation from the heirs of Jose Lim. Whatever
properties appellant and her husband had acquired, this was through
their own concerted efforts and hard work. Elfledo did not limit himself
(4) The receipt by a person of a share of the profits of a
to the business of their partnership but engaged in other lines of
business is a prima facie evidence that he is a partner in the
businesses as well.
business, but no such inference shall be drawn if such profits
were received in payment:
In sum, we find no cogent reason to disturb the findings and the ruling
of the CA as they are amply supported by the law and by the evidence
(a) As a debt by installments or otherwise;
on record.

(b) As wages of an employee or rent to a landlord;

WHEREFORE, the instant Petition is DENIED. The assailed Court of
Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
petitioners.
SO ORDERED.