A.

NATURE OF CORPORATIONS
a. Theories in the Formation of Corporation

Doctrine: A corporation as known to Philippine jurisprudence is a creature without any existence

until it has received the imprimatur of the state according to law. It is logically inconceivable
therefore that it will have rights and privileges of a higher priority than that of its creator. More
than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so.

Tayag vs. Benguet Consolidated (considered lost and cancelled stock certificates)

Facts:

Given the adamant refusal of the County Trust Company of New York, United States of
America, domiciliary administrator of the estate of the deceased Idonah Slade Perkins,
who died in New York City in 1960, to surrender to the ancillary administrator in the
Philippines the stock certificates owned by her in Benguet Consolidated, Inc., to satisfy
the legitimate claims of local creditors, the lower court, then presided by the Honorable
Arsenio Santos.
 In view thereof, the Court issued an order stating that:
(1) considers the stock certificates as lost and cancelled for all purposes in connection
with the administration and liquidation of the Philippine estate of Idonah Slade Perkins
(the stock certificates covering the 33,002 shares of stock standing in her name in the
books of the Benguet Consolidated, Inc.,); and
(2) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the
Probate Division of this Court."

 From the said order, an appeal was taken by the Benguet Consolidated, Inc. 

 The appellant asserts that the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-
laws before new stock certificates could be issued. 

(Back story!)
 Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was
substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary
administrator in New York and the ancillary administrator in the Philippines as to which of them
was entitled to the possession of the stock certificates in question.
 On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator,
County Trust Company, to "produce and deposit" them with the ancillary administrator or with
the Clerk of Court. The domiciliary administrator did not comply with the order, and on February
11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the
certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade
Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost.

Issue: whether or not the argument of Benguet Consolidated, Inc is in accordance with
the corporate theory
 Ruling: We start with the undeniable premise that, "a corporation is an artificial being
created by operation of law...."16 It owes its life to the state, its birth being purely
dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived
as an artificial person, owing its existence through creation by a sovereign power." 17 As a
matter of fact, the statutory language employed owes much to Chief Justice Marshall,
who in the Dartmouth College decision defined a corporation precisely as "an artificial
being, invisible, intangible, and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact
and in reality a person, but the law treats it as though it were a person by process of fiction, or
by regarding it as an artificial person distinct and separate from its individual stockholders.... It
owes its existence to law. It is an artificial person created by law for certain specific purposes,
the extent of whose existence, powers and liberties is fixed by its charter." 19 Dean Pound's terse
summary, a juristic person, resulting from an association of human beings granted legal
personality by the state, puts the matter neatly.20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote

from Friedmann, "is the reality of the group as a social and legal entity, independent of state
recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature
without any existence until it has received the imprimatur of the state according to law. It is
logically inconceivable therefore that it will have rights and privileges of a higher priority than
that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its
state organs, certainly not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of
persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the
other two coordinate branches. It institutes the appropriate court action to enforce its right.
Correlatively, it is not immune from judicial control in those instances, where a duty under the
law as ascertained in an appropriate legal proceeding is cast upon it.

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

Ang Pue Company vs. Secretary

Doctrine: To organize a corporation or a partnership that could claim a juridical

personality of its own and transact business as such, is not a matter of absolute right
but a privilege which may be enjoyed only under such terms as the State may deem
necessary to impose. 

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

Thereafter, RA No. 1180 was enacted to regulate the retail business. It provided, among
others, that, after its enactment, a partnership not wholly formed by Filipinos could
continue to engage in the retail business until the expiration of its term.

Prior to the expiration of the five-year term of the partnership Ang Pue & Company, but
after the enactment of the Republic Act 1180, the partners already mentioned amended
the original articles of part ownership so as to extend the term of life of the partnership
to another five years. 

However,  the amended articles were presented for registration in the Office of the SEC
on April 16, 1958, registration was refused upon the ground that the extension was in
violation of the said Act.

Consequently,  a declaratory relief filed in the CFI of Iloilo by Ang Pue & Company, et al
against the Secretary of Commerce and Industry to secure judgment "declaring that
plaintiffs could extend for five years the term of the partnership pursuant to the
provisions of plaintiffs' Amendment to the Article of Co-partnership."

The CFI dismissed the petition. Hence, the appeal.

Issue: WON the term of partnership can be extended notwithstanding the enactment of
RA No. 1180

Ruling:  To organize a corporation or a partnership that could claim a juridical

personality of its own and transact business as such, is not a matter of absolute right
but a privilege which may be enjoyed only under such terms as the State may deem
necessary to impose. 

The State through Congress had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos may engage
in the retail business can not be seriously disputed. That this provision was clearly
intended to apply to partnership already existing at the time of the enactment of the law
is clearly showing by its provision giving them the right to continue engaging in their
retail business until the expiration of their term or life.

When the partners amended the articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the slightest doubt that the right
claimed by appellants to extend the original term of their partnership to another five
years would be in violation of the clear intent and purpose of the law aforesaid.
Theory of concession

 although fiction of law cannot be created unless there is an enterprise or group of

individuals upon whom it may be conferred, and in spite of the underlying
contract among the persons wanting to form the corporation, the grant is only by
virtue of a primary franchise given by the State; and it is within the power of the
State whether to deny or grant such franchise.

 Said theory looks at corpo simply as a creature of the State and of limited powers
and capabilities, completely within the control of the State.

 The theory applies within the juridical entity level, and issues to be resolved
between the States and instrumentalities, and the corporation.

Theory of Enterprise Entity

Taking its significance primarily from the reality of the underlying enterprise, formed
or in formation

The State’s approval of the corporate form sets up a prima facie case that the
assets, liabilities and operations of the corporation are those of the enterprise.

Where the corpo entity is defective or challenged, its existence, extent and
consequences may be determined by the actual existence and operations of the
underlying enterprise, which by these very qualities and operations acquires a
“being” of its own recognized by law.

Not legal fiction alone creates corpo entity. Any State must require and assume the
presence of consent or common venture among those who will form the corporation.
 b. Creature of the Law

1. Constitution – Section 16, Article XII of the Constitution

Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. ... The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed.

NDC vs. Phil. Veterans Bank

Facts: The Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent
Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3)
parcels of land situated in Los Baños, Laguna. During the existence of the
mortgage, AGRIX went bankrupt. 

For this reason, Pres. Decree No. 1717 was enacted, which ordered the rehabilitation of
the Agrix Group of Companies to be administered mainly by the National Development
Company. The subject decree also states that "all mortgages and other liens presently
attaching to any of the assets of the dissolved corporations are hereby extinguished."

Accordingly, the private respondent filed a claim with the AGRIX Claims Committee for
the payment of its loan credit.

However, the New Agrix, Inc. and the NDC, invoking Sec. 4 (1) of the decree, filed a
petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the
mortgage lien in favor of the private respondent.

On the other hand, respondent took steps to extrajudicially foreclose the mortgage,
prompting the petitioners to file a second case with the same court to stop the
foreclosure. The cases were consolidated.

The RTC annulled the entirety of PD 1717 on the grounds that   that: (1) the
presidential exercise of legislative power was a violation of the principle of separation of
powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the
equal protection clause.

The petitioners contend that the private respondent is now estopped from contesting the
validity of the decree when the respondents filed their claims.
Issue: WON PD 1717 violates Section 16, Article XII of the 1987 Constitution
New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV,
Section 4 of the 1973 Constitution, then in force, that:
SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the
formation, organization, or regulation of private corporations, unless such corporations
 are owned or controlled by the Government or any subdivision or instrumentality
thereof.
The corporation is neither owned nor controlled by the government. The National Development
Corporation was merely required to extend a loan of not more than P10,000,000.00 to New
Agrix, Inc. Pending payment thereof, NDC would undertake the management of the
corporation, but with the obligation of making periodic reports to the Agrix board of
directors. After payment of the loan, the said board can then appoint its own management. The
stocks of the new corporation are to be issued to the old investors and stockholders of AGRIX
upon proof of their claims against the abolished corporation. They shall then be the owners of
the new corporation. New Agrix, Inc. is entirely private and so should have been organized
under the Corporation Law in accordance with the above-cited constitutional provision.
In sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in
conformity with the traditional requirements of a lawful subject and a lawful method. The
extinction of the mortgage and other liens and of the interest and other charges pertaining to
the legitimate creditors of AGRIX constitutes taking without due process of law, and this is
compounded by the reduction of the secured creditors to the category of unsecured creditors in
violation of the equal protection clause. Moreover, the new corporation, being neither owned
nor controlled by the Government, should have been created only by general and not special
law. And insofar as the decree also interferes with purely private agreements without any
demonstrated connection with the public interest, there is likewise an impairment of the
obligation of the contract.

Juridical Capacity- fitness to be the subject of legal relations; it is inherent in every natural
person and lost only through death.

A corporation is an artificial being invested by law with a personality separate and distinct from
its officers and stockholders and from other corporations to which it may be connected.

Such corporation may not be held liable for the obligations of the persons composing it or that
of its officers;

Neither can its stockholders be held liable for the obligations of such corporations- page 91

Franchise

JRS vs. Imperial Insurance

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

duly franchised by the Congress of the Philippines, to conduct a messenger and delivery express
service.

respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint  for sum of
money against the petitioner corporation.  Subsequently, the parties entered into a C ompromise
Agreement, wherein it was agreed upon that JRS pay the amount of (P61,172.32 on or before May
14, 1961.

However, on the day fixed in the compromise agreement within which the judgment debt would
be paid, the JRS failed to pay the same.

Consequently, Imperial Insurance filed a Motion for the Insurance of a Writ of Execution.

A W of E was issued by the Sheriff of Manila and Notices of Sale were sent out for the auction
of the personal properties of the JRS. Another Notice of Sale of the "whole capital stocks of the
defendants JRS Business Corporation, the business name, right of operation, the whole assets,
furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of
the petitioner corporation was, handed down.

In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez
St., Paco, Manila, all the properties of said corporation contained in the Notices of Sale w ere
bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid
offered. Immediately after the sale, respondent Insurance Company took possession of the
proper ties and started running the affairs and operating the business of the JRS Business
Corporation. Hence, the present appeal.

Issue: Whether the business name or trade name, franchise (right to operate) and capital
stocks of the petitioner are properties or property rights which could be the subject levy,
executive and sale

Ruling:

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

For practical purposes, franchises, so far as relating to corporations, are divisible into
(1) corporate or general franchises; and (2) special or secondary franchises. The former is
the franchise to exist as a corporation, while the latter are certain rights and privileges
conferred upon existing corporations, such as the right to use the streets of a municipality to
lay pipes or tracks, erect poles or string wires." 

The primary franchise of a corporation that is, the right to exist as such, is vested "in the
individuals who compose the corporation and not in the corporation itself" but the specify or
secondary franchises of a corporation are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of its
property except such special or secondary franchises as are charged with a public use.

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

enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the
JRS Business Corporation a franchise to conduct a messenger and express service)" and, as
such, under our corporation law, is subject to levy and sale on execution together and including
all the property necessary for the enjoyment thereof. The law, however, indicates
the procedure under which the same (secondary franchise and the properties necessary for its
enjoyment) may be sold under execution. Said franchise can be sold under execution, when
such sale is especially decreed and ordered in the judgment and it becomes effective only when
the sale is confirmed by the Court after due notice.

The compromise agreement and the judgment based thereon, do not contain any special
decree or order making the franchise answerable for the judgment debt. The same thing may
be stated with respect to petitioner's trade name or business name and its capital stock.
Incidentally, the trade name or business name corresponds to the initials of the President of the
petitioner corporation and there can be no serious dispute regarding the fact that a trade name
or business name and capital stock are necessarily included in the enjoyment of the franchise.
Like that of a franchise, the law mandates, that property necessary for the enjoyment of said
franchise, can only be sold to satisfy a judgment debt if the decision especially so provides. As
We have stated heretofore, no such directive appears in the decision. Moreover, a tr ade name
or business name cannot be sold separately from the franchise, and the capital stock of the
petitioner corporation or any other corporation, for the matter, represents the interest and is
the property of stockholders in the corporation, who can only be deprived thereof in the
manner provided by law.

Attributes of the Corporation

1. Artificial Being

Fiction of law which creates the “person” of the corporation, with the same attributes of
an individual with full capacity to enter into contractual relations.

Upon coming into existence, is invested by law with personality separate and distinct
from those persons comprising it as well as from any other legal entity to which it may
be related.

2. Creature of the Law

Existence of the corporation is dependent on the consent or grant of the State.

A corporation cannot come into being by mere consent of the parties

There must be a law granting it, and once granted, forms the primary franchise of the
corporation.

3. Right to Succession

a corporation has the capacity for continuous existence despite the death or
replacement of its shareholders or members, for it has a personality separate and
distinct from those who compose it.
 4. Creature of Enumerated Powers, Attributes, and Properties

Creature of unlimited powers, ie. Corpo is organized with full powers and undertake any
venture and engage in any transaction, provided that its not contrary to laws, morals or
public policy.

d. Advantages and Disadvantages of the Corporate Form

e. The Corporate entity compared with other business endeavors
1. Sole Proprietorship
2. Partnership (Article 1768, 1772 and 1775 of the Civil Code)

J. M. Tuazon vs. Bolaños, 95 PHIL 106 [28 May 1954] (corporation representing another
corporation in a suit is authorized)

Facts:  Plaintiff Tuazon as represented by Gregoria Araneta Inc filed an to recover possesion of
registered land situated in barrio Tatalon, Quezon City before CFI of Rizal.

Defedant Bolanos,  in his answer sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessor in interest" from "time
in-memorial". The answer further alleges that registration of the land in dispute was obtained
by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant and/or predecessors in interest.

The lower court rendered judgment for plaintiff, declaring defendant to be without any right to
the land in question and ordering him to restore possession thereof to plaintiff.

Appealing directly to SC because of the value of the property involved, defendant raised that
the trial court erred in not dismissing the case on the ground that the case was not brought by
the real property in interest.

Ruling: There is nothing to the contention that the present action is not brought by the real
party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that
an action be brought in the name of, but not necessarily by, the real party in interest. (Section
2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to have been followed in this case,
since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and
commences with the statement "comes now plaintiff, through its undersigned counsel." It is
true that the complaint also states that the plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against
one corporation being represented by another person, natural or juridical, in a suit
in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter into a partnership, it
may nevertheless enter into a joint venture with another where the nature of that venture is in
line with the business authorized by its charter." T here is nothing in the record to indicate that the
venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in
line with the corporate business of either of them.

Joint Venture- is defined as an association of persons or companies jointly undertaking some

commercial enterprise; generall all contribute assets and share risk.

It requires a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and duty, which may be altered by agreement to share
both in profit and losses.

The acts of working together in joint project.

Aurbach vs. Sanitary Wares, 180 SCRA 130 (1989)

Facts:
ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. 
The parties agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares
Manufacturing Corporation."
The management of the Corporation shall be vested in a Board of Directors, which shall consist
of nine individuals.  As long as American-Standard shall own at least 30% of the outstanding
stock of the Corporation, three of the nine directors shall be designated by American-Standard,
and the other six shall be designated by the other stockholders of the Corporation.
Thereafter, the 30% capital stock of ASI was increased to 40%.  The corporation was also
registered with the Board of Investments for availment of incentives with the condition that at
least 60% of the capital stock of the corporation shall be owned by Philippine nationals.
Unfortunately, with the business successes, there came a deterioration of the initially
harmonious relations between the two groups. 
According to the Filipino group, a basic disagreement was due to their desire to expand the
export operations of the company to which ASI objected as it apparently had other subsidiaries
or joint venture groups in the countries where Philippine exports were contemplated.
On March 8, 1983, the annual stockholders' meeting was held.
The ASI stock holders and the Filipino stockholders could not agree on the manner of voting in
the BOD elections. Each group declared its own set of directors.
Therefore, protests against the action of the Chairman and heated arguments ensued.
 ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham
and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors.
These incidents triggered off the filing of separate petitions by the parties with the Securities
and Exchange Commission (SEC).  The first petition filed was for preliminary injunction by
Saniwares, ErnestoV. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay.
The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay... against
the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo warranto
petition of Salazar and Chamsay.  The ASI Group and Salazar appealed the decision to the SEC
en banc which affirmed the hearing officer's decision.
Issues:
Whether the business established by parties is a joint venture or corporation
Ruling:
The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which is
determined in accordance with the rules governing the interpretation and... construction of
contracts
In the instant cases, our examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties
agreed to establish a joint venture and not a... corporation.
The history of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary corporation.
Moreover, ASI in its communications referred to the enterprise as joint venture.  Baldwin Young
also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be
construed to constitute any of the parties hereto partners or... joint venturers in respect of any
transaction hereunder" was merely to obviate the possibility of the enterprise being treated as
partnership for tax purposes and liabilities to third parties.
The legal concept of a joint venture is of common law origin.  It has no precise legal definition,
but it has been generally understood to mean an organization formed for some temporary
purpose.
The main distinction cited by most opinions in common law... jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature.
A corporation cannot enter into a partnership contract it may however engage in a joint venture with
others.

Minority group is given a specified number of seats in the board of directors

Minority group is entitled to designate a member of the executive committee and his vote required
under certain transactions.

Business Trusts- created under the terms of a deed of trust.

Does not have a separate juridical personality and is mainly governed by contractual doctrines
and the common law principles on trust.
Trust is created when ownership over the property subject thereof is split between the trustee
who assumes legal or naked title, and the beneficiary who has beneficial title.

The Corporation and the Bill of Rights

1. Equal Protection- no person or class of persons shall be denied the same protection of the
law which is enjoyed by the other classes of persons under like circumstances, in their
lives, in their liberty, and in their pursuit of happiness.

It requires that all persons shall be treated alike, under like circumstances and conditions
both in the privileges conferred and in the liabilities imposed.

Smith Bell vs. Natividad, 40 PHIL 136 (1919)

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. The Bato was brought to Cebu 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. 

Hence, a writ of mandamus was prayed for by Smith, Bell & Co. (Ltd.), against Natividad,
Collector of Customs of the port of Cebu, to compel him to issue a certificate of Philippine
registry to the petitioner for its motor vessel Bato.
The Philippine Legislature was enacted which amended Section 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.

Issue: 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 .

Ruling: The Court is 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.

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. 

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 .
 2. Unreasonable search and seizure- if made without a warrant, or the warrant was invalidly
issued.

Stonehill vs. Diokno, 20 SCRA 283 (1967)

Facts: Stonehill et al, herein petitioners, and the corporations they form were alleged to have
committed acts in “violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
(Code) and Revised Penal Code.”

Respondents issued, on different dates, 42 search warrants against petitioners personally, and/or
corporations for which they are officers directing peace officers to search the persons of
petitioners and premises of their offices, warehouses and/or residences to search for personal
properties “books of accounts, financial records, vouchers, correspondence, receipts,
ledgers, journals, portfolios, credit journals, typewriters, and other documents
showing all business transactions including disbursement receipts, balance sheets
and profit and loss statements and Bobbins(cigarette wrappers)” as the subject of
the offense for violations of Central Bank Act, Tariff and Customs Laws, Internal
Revenue Code, and Revised Penal Code.

The documents, papers, and things seized under the alleged authority of the warrants in question
may be split into (2) major groups, namely:

(a) those found and seized in the offices of the aforementioned corporations and
(b) those found seized in the residences of petitioners herein.

The petitioner contended that the search warrants are null and void as their issuance violated
the Constitution and the Rules of Court for being general warrants.  Thus, he filed a petition
with the Supreme Court for  certiorari, prohibition, mandamus and injunction to prevent the
seized effects from being introduced as evidence in the deportation cases against the petitioner.
The court issued the writ only for those effects found in the petitioner's residence.

Issue: Whether or not the petitioner can validly assail the legality of the search and seizure in
both premises

Ruling: 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.
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. 
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.

With respect to the 2nd group, 1) that no warrant shall issue but upon probable cause, to be
determined by the judge in the manner set forth in said provision; and (2) that the warrant
shall particularly describe the things to be seized.

None of these requirements has been complied with in the contested warrants.  Indeed, the same
were issued upon applications stating that the natural and juridical person therein named had
committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code." In other words, no specific offense had been alleged in said applications. The
averments thereof with respect to the offense committed were abstract. As a consequence, it
was impossible for the judges who issued the warrants to have found the existence of probable
cause, for the same presupposes the introduction of competent proof that the party against whom it
is sought has performed particular acts, or committed specific omissions, violating a given provision
of our criminal laws.

Bache & Co. vs. Ruiz, 37 SCRA 823 (1971)

Respondent 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, 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.
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.

3. Self-incrimination
Bataan Shipyard vs. PCGG, 150 SCRA 181 (1987)

Monday, November 30, 2015

G.R. No. 75885 Case Digest

G.R. No. 75885, May 27, 1987
Bataan Shipyard & Engineering Co
vs. PCGG
Ponente: Narvasa

Facts:
Bataan Shipyard and Engineering Co., Inc (BASECO) – private corporation

Presidential Commission on Good Government (PCGG) – issued the sequestration

order

The corporation known as BASECO was owned or controlled by President Marcos

during his administration, through nominees, by taking undue advantage of his
public office and/or using his powers, authority, or influence, and that it
was by and through the same means, that BASECO had taken over the business
and/or assets of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.

As evidence found in Malacanang shortly after the sudden flight of President

Marcos were certificates corresponding to more than ninety-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. While the
petitioner's counsel was quick to dispute this asserted fact, assuring the
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, that denial is exposed by his own prior and subsequent recorded
statements as a mere gesture of defiance rather than a verifiable factual
declaration.

In accordance with Executive Orders Numbered 1 and 2 promulgated by President

Corazon Aquino, PCGG through its commissioners and agent ordered
sequestration, takeover and other provisional orders affecting BASECO.

Commissioner 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.
(As to item 23 on the issue above)